Final answer:
Sensitivity analysis is the analysis of the effect that a single variable has on the net present value of a project.
Step-by-step explanation:
Sensitivity analysis is a technique used in financial modeling and project evaluation to assess how changes in a single variable (parameter) impact the outcomes, particularly the Net Present Value (NPV) of a project.
It helps to understand the project's sensitivity to variations in key factors like interest rates, sales volumes, production costs, or other relevant variables.
By systematically adjusting one variable at a time and observing its influence on the project's financial metrics, decision-makers can better understand the risks and uncertainties associated with the project.