Financial Data Science & Analytics

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Integrated Stress-Test Framework (for non-financial companies)

9th of March 2023

Allthough stress-testing among financial institutions became regulatory after the global financial crisis of 2008, for most non-financial companies this is still not a common and standardized activity. Stress test performance metrics are often not aligned with corporate strategies in these areas, analytics and reporting frameworks where the integration with stress testing is not fully developed.
PPBF has developed an 6-step standardized and normative framework which companies can implement, by doing so securing the company’s pitfalls and generating a higher corporate intelligence.

Figure 1: Integrated Stress-Test framework.

Stress Test Framework

The 6-phase process contains the following steps:

Phase 1 - Data collection & preparation

The process will start with a thorough collection of internal data. Through standardized inquiry and interviews we are able to quickly collect and prepare the dat into our standardized data-structures.

Phase 2 - Business Modelling

We will put your current business model into a conceptual model. This conceptual model is driver based, so it is able to differentiate between the company's specific drivers.

Phase 3 - Scenario Modelling

Modelling the specific (risk) scenarios and integrate them into the conceptual business model combined with statistical and mathemaitcal analysis (long tails, distribution, etc.)

Phase 4 - Integrated business/ scenario Analysis

Here the combination of all parts comes together and will result in a robust P&L, balance, Cash-flow and ratio-analysis outlook (12 quarters)

Phase 5 - Stress Test Model

The effects of (extreme) scenarios analyzed by outcome, as well as reverse testing analysis will be be reported together with counter-measures.

Phase 6 - Implementation

The final phase will be the implementation plan. This can be done within the current reporting structure and/or a specialized Risk/Control Platform can be implemented which will the dashboard for stress testings and scenario analysis.

Stress Test process