Involves identifying critical assumptions upon which forecasted expected outcomes are based and then testing how much the expected outcome may alter if any of these assumptions vary. When a business predicts costs and revenues, there will be certain variables for which assumptions must be made, eg suppliers hold their prices constant, or perhaps increase them by 2% per annum. There are assumptions about consumer patterns of demand, about competition and about prices. To allow for the possibility that the prediction of cash flow may be incorrect (and this is very likely, given the nature of prediction), variables are changed to produce a range of possible outcomes. This, in effect, is showing ‘sensitivity’ to the nature of the forecasts. To fully assess the risk involved, firms will then look at the worst answer and assess the likelihood that the variable will change by such an amount.