From the course: Problem-Solving Techniques

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Make decisions using sensitivity

Make decisions using sensitivity

From the course: Problem-Solving Techniques

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Make decisions using sensitivity

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Next, I want to say something about sensitivity, which is a bit like risk, only subtly different. Sensitivity is the risk that your estimates are wrong, and to what degree that matters. For example, you might have estimated the profit to be $1,000, but maybe it could be anywhere between 990 and 1010. Or between 500 and 1500. And these are both averaging a thousand, but one is much more spread than the other. Or you might have estimated the risk of failure being 10%, but is that figure pretty accurate, or is it really somewhere between 0 and 25%? And really you just don't know which. So you've got a range with every number that we ever use, and sensitivity is partly how big that range is, and partly the important question of whether that range matters. If we might sell between 900 and 1,010 it probably doesn't matter which and our plan is pretty safe but if it's between 500 and 1,500 then we could be anywhere from bankrupt to brilliant. This is obvious but some examples of sensitivity…

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