What is Sensitivity Analysis (Tornado Diagram)?
Sensitivity analysis asks: which input uncertainties move the outcome most? Vary one factor at a time across its range, hold the rest, and rank the swings — usually displayed as a tornado diagram, widest bar (biggest driver) on top. It tells you where analysis and mitigation money should go.
Its limitation is the one-at-a-time assumption; when factors interact, Monte Carlo picks up where the tornado stops.
Worked example
An LNG project's tornado: gas price swings NPV by ±$800M, construction cost ±$300M, schedule ±$150M, everything else noise. The board stops debating the schedule contingency (third bar) and buys price hedging (first bar) — the diagram's entire purpose: aiming worry at the widest bar instead of the loudest voice.