What is sensitivity analysis in risk management?

Sensitivity analysis in risk management is a technique used to determine which risks have the most influence on project outcomes. It involves varying the values of key input variables and assessing the resulting effects on the project or financial model. By systematically changing inputs, project managers can identify which variables have the greatest impact on results, allowing for a focused approach to risk management.

This technique is particularly valuable because it highlights the most significant risks, enabling project teams to allocate resources more effectively and prioritize actions to mitigate those risks. By understanding how sensitive a project is to changes in specific areas, teams can make more informed decisions and develop robust risk management strategies.

The other options do not accurately capture the essence of sensitivity analysis. For instance, while financial impacts may be a part of the analysis, the method is not limited to financial aspects alone. It also does not aim to eliminate all project risks, as that is often impractical; instead, it focuses on understanding and managing them. Similarly, it is not designed as a process for rating stakeholder interests, which is a different aspect of project management entirely.