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Scenario, Sensitivity, Simulation: Three Terms That Keep Getting Confused
Three terms keep getting confused in steering meetings: scenario, sensitivity, simulation.
A sensitivity varies a single assumption. What happens to EBIT if the steel price rises by 10 percent? It shows how responsive the result is to one driver, and it is well suited to finding the big levers.
A scenario is a consistent bundle of assumptions. A recession in the core market also means weaker demand, price pressure and changed payment behaviour, all at once. Scenarios answer the question of which world we might wake up in.
A simulation is the calculation between them: the model that turns assumptions into financial effect. Without simulation, scenarios stay prose.
In practice a sensitivity often gets sold as a scenario, and a scenario as a strategy.
The vocabulary has been there for decades. It is still rarely used precisely.