Final answer:
Sensitivity analysis is a key tool in helping managers evaluate risks by allowing them to predict how different variables affect business outcomes, which is instrumental in making informed decisions and preparing for potential scenarios.
Step-by-step explanation:
Sensitivity analysis is indeed a useful tool that helps managers evaluate risks. The statement is true. This type of analysis allows managers to examine the impact of various variables on the outcome of a project or decision. By adjusting these variables within certain ranges, managers can determine how sensitive their outcomes are to changes, aiding in the identification of potential risks and the making of more informed decisions.
For example, a manager might use sensitivity analysis to predict how changes in cost inputs will affect a project's profitability. By preparing for different scenarios, the organization is better poised to respond to unexpected changes in the market or environment. This preparation is akin to purchasing insurance, as it mitigates the adverse effects of rare but potentially severe incidents. In marginal analysis, the comparison of marginal costs against marginal benefits further assists in decision-making, allowing for resource allocation that maximizes economic efficiency.