A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is:
A) Expected value analysis.
B) Learning curve analysis.
C) Capital budgeting analysis.
D) Sensitivity analysis.
E) Exponential distribution analysis.

Question

Quizplus · Accepted Answer

Sensitivity analysis is the correct choice because it allows managers to understand how different values of an independent variable affect a particular dependent variable under a given set of assumptions. This method is particularly useful in assessing the impact of uncertainty and in estimating the potential financial consequences of various scenarios, making it a widely used approach for dealing with prediction errors and uncertainties in financial and business analysis.

A Widely Used Approach That Managers Use to Recognize Uncertainty