ACCT 1B Lecture Notes - Lecture 18: Scenario Analysis, Limiting Factor
29 Aug 2020
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Changes in outcomes due to changes in parameters. Find most likely or base parameter values. Estimate base profit, the same for all parameters b/c all are set at their most likely or base levels. Compare outcome effects by computing model elasticity, the ratio of percent change in profit divided by the percent change in input parameter. Me= % change profit/ % change input parameter. Me > 1, identifies the parameter with a disproportionate effect on profits. Actions to change parameters with the highest elasticity should have the greatest impact on profits. Low elasticity parameters have little effects on profits. A hedging action seeks to neutralize risks, for example, by simultaneously contracting to buy and sell a desired quantity of inputs at a fixed price; gains or losses on the two contracts may offset. Scenario analysis (best, worst and most likely cases)
