Modeling can often be thought of as a process in which one starts with the objective or ultimate model output (such as profit), asks what drives or determines this output (e.g. profit is equal to revenue minus cost), and builds the corresponding calculations (i.e. with revenue and cost as inputs and profit as a calculated quantity)” (Rees, 2015:146).

Consider a small plastic recycling business situation where the owner is trying to build a model to understand the drivers of their business. Below is the projected business plan and he approaches you to assist him to understand the drivers of his business model.

Using the sensitivity analysis thinking technique, identify at least five (5) drivers of this business to maximise the net profit of this plastic recycling business. 

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1 2 3 4 5 1 2 3 4 5 Base Model Sales Expenses Profit Y1 10 000.00 8 500.00 1 500.00 Y2 11 000.00 8 500.00 2 500.00 Y3 11 500.00 8 500.00 3 000.00 Y4 12 000.00 8 500.00 3 500.00 Y5 12 500.00 8 500.00 4 000.00 Total 1 2 3 4 5 1 2 3 4 5 Base Model Sales Expenses Profit Y1 10 000.00 8 500.00 1 500.00 Y2 11 000.00 8 500.00 2 500.00 Y3 11 500.00 8 500.00 3 000.00 Y4 12 000.00 8 500.00 3 500.00 Y5 12 500.00 8 500.00 4 000.00 Total

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ANSWER Sensitivity analysis is the study of how the uncertainty in the output of a mathematical model or system numerical or otherwise can be divided ... View the full answer