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Q: I have a enquiry regarding the sensitivity values. I have entered 10% for both Optimistic and Pessimistic values. I also have sales declining in year 1 and then increasing to year 3. However, the year 1 & 2 pessimistic sales and business returns are greater than the expected return values and the expected values are greater than the optimistic values respectively. The year 3 sales are also in reverse order but the expected returns are correct. If I enter negative sensitivity values, the sales appear to be correct but the business returns are in reverse order. Why?

A: The forecast (expected, optimistic, pessimistic) is derived from the Relative Indicators. The sensitivity analysis adjusts the variance of the Relative indicator from the base value of 100. The Optimistic Sensitivity increases this variance the Pessimistic Sensitivity reduces this variance. When a relative indicator is less than 100 this can have the effect of appearing to reverse the values calculated optimistic / pessimistic. For Market Strength of 150% with all other indicators at 100% (no change year on year) Expected revenue of 500000 becomes 750 000 (Previous Year Revenue * Market Strength % * Business Market Position % / Level of Competition % which is 500 000 * 1.5 * 1 / 1 = 750 000). The Pessimistic Sensitivity analysis reduces the effect of variance of the indicator from 100 (the base value). For a pessimistic sensitivity of 20% a Market Strength of 150% becomes 140% (150 - 100 * (1 - 20%) + 100). If all other indicators are 100% (no change year on year) revenue of 500 000 becomes 700 000. If the relative indicator is less than 100 say 50% the Pessimistic Sensitivity analysis still reduces the effect of the indicator i.e. for a pessimistic sensitivity of 20% a Market Strength of 50% becomes 60% (50 - 100 * (1 - 20%) + 100). If all other indicators are 100% (no change year on year) revenue of 500 000 becomes 300 000. I hope this aids understanding of the sensitivity function a little. Regardless of sensitivity settings the Expected Values are applied directly from your relative indicators. If relative indicators of less than 100 are providing inconsistent optimistic/pessimistic values you can run various scenarios applying different Relative indicators to test a range of possibilities and forecast combinations.

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