In this video, I discuss projection techniques such as what and scenario analysis.

https://farhatlectures.com/
CPA candidate or student? Start your free trial for more.


Projection techniques like Sensitivity ("What-If") Analysis and Scenario Analysis are methods used in finance, risk management, and decision-making to understand the effects of changing variables on a given outcome.

Sensitivity ("What-If") Analysis:

Sensitivity Analysis involves changing one key financial assumption at a time to see how it impacts a particular outcome. For example, a company might adjust the projected growth rate of sales to see how it affects future revenue. It helps in identifying which variables are most "sensitive" and have a significant impact on outcomes.
It's often used to assess risk, understand the importance of individual variables, and prepare for different outcomes. This type of analysis is particularly useful for financial modeling, budgeting, and strategic planning.
Scenario Analysis:

Scenario Analysis, on the other hand, is a more comprehensive approach. Instead of changing one variable at a time, it considers the effect of various different combinations of variables to simulate different "scenarios." For example, a "best-case" scenario might consider the effects of high sales growth, low interest rates, and stable raw material costs all at once.
It allows businesses to prepare for a range of possible futures and to plan their strategic responses accordingly. It is often used to create long-term plans that are resilient to different market conditions and external factors.
Both techniques are used to make informed decisions by predicting the potential impacts of various factors on business operations and financial performance. They are closely related but differ in scope and complexity, with scenario analysis being broader and more inclusive of multiple changing factors at once.

#cpaexaminindia #cpaexam #cpaevolution