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stress testing

I am at the SAS Inside Intelligence event in Steamboat getting the annual update on all things SAS. First session of the day is the Executive Viewpoint. Jim Goodnight and Randy Guard kicked things off. Creating a single global organization was a big part of last year with legal, finance, sales, marketing and more becoming global [...]

Decision optimizer is one of FICO’s Decision Management Tools and is designed to address some specific challenges in customer decisioning, particularly that there are often competing objectives and very large numbers of customers (and thus customer decisions) involved. Combine this with the many possible action combinations, uncertainty about what customers might do, as well as [...]

I got a second look at VNI’s product this week – I took a first look last year. VNI has been continuing to OEM its products to folks from around the world. Their customers are in many different areas like Investor Analytics (SaaS for financial risk management optimization), Moore Nanotechnology Systems machinery and RiskMetrics Group [...]

With the business world in a state of flux and everyone worried about what might happen next, and how they might respond to it, scenario testing (and its compatriot, stress testing) should be top of mind for executives. They should be thinking about different scenarios, testing out how those scenarios would effect their business and trying out various alternatives. On the risk side they should be using this kind of scenario planning to stress their assumptions – stress testing – to see how their financial reserves would cope with the various alternatives.

For too many executives, however, this kind of testing is done only at the aggregate level and done largely (if not completely) in Excel. I have nothing against Excel but this is clearly not really acceptable. Good scenario or stress testing should consider how customers, products, suppliers, locations will be impacted by the scenario at a granular level and then present rolled-up results, not simply attempt to model some averages or totals. Similarly, if executives want to develop alternative scenarios that would be effective in certain possible futures then they need to test those scenarios against actual transactions, actual customers, to see if they work.

Companies that have adopted decision management have the infrastructure to manage this. Decision management brings the crucial decisions – choices of actions – into the open and makes them explicit. Scenarios can be developed for these decisions and tested against real data. The results can be compared against what happened, or against alternative scenarios to see what would work best. Different assumptions can easily be fed into the decisions to see what impact those assumptions have and stress testing or scenario development conducted based on the results. Decision management makes all this possible. It’s still work, but it is much less work and the results can be much more precise and grounded in real decisions.

A growth in scenario management was one of my predictions for 2009 and Jim Sinur wrote a nice piece on this too – Scenario Planning is No Longer Optional.