What analysis method helps a manager assess the impact of changes in cash flows on a project's value?

Sensitivity analysis is a crucial method that allows a manager to evaluate how variations in cash flows can affect a project's overall value. This analytical technique focuses on identifying which input variables have the most significant impact on the outcome of the financial model. By adjusting these inputs one at a time and observing how they influence the results, managers can determine the robustness of a project against potential changes in key assumptions, such as sales volume or cost estimates.

For instance, if a project has estimated cash flows that are heavily reliant on a specific sales forecast, sensitivity analysis will enable the manager to assess how much variation in sales could result in increased or decreased project value, thus helping in risk assessment and strategic decision-making.

Other methods like cost-benefit analysis are more focused on evaluating the viability or justification of a project by comparing costs and benefits, but they do not specifically address the impact of changes in individual cash flow inputs. Scenario analysis examines multiple potential outcomes by considering different scenarios simultaneously but may not clearly highlight the effect of individual input changes like sensitivity analysis does. Decision tree analysis supports decision-making by visually mapping out choices and their outcomes but lacks the direct focus on cash flow variability assessment.