When was the last time you did a stress test on your organisation?

A stress test involves identifying certain scenarios that could occur and the extent of the impact it might have on your organisation.

For example, if a major source of income that you regularly received such as from a recurrent grant was stopped, what would be the impact?  Other examples could include a decrease in enrolments, registration fees or donations as well as a major debtor not paying on time, or maybe not at all if they have gone out of business.

In addition, if you have credit cards, loans or leases, what would be the impact on repayments if interest rates increased by, for example, 4% over the term of the contract?

If any of these scenarios were to occur, how would your board manage it?  In some cases it may be relatively minor as there may be alternative sources of income or reserves that can be accessed but in other cases it may impact on the ongoing viability of the organisation.

Stress testing can form part of your risk management process and play an important role with your strategic planning,  as it allows you to plan for the future with a greater level of confidence.

By being able to identify these potentially significant adverse events you can prepare contingency plans to manage and mitigate the impact they have on your organisation.

The next post discusses ways to help you undertake a stress test as well as some possible strategies that could be implemented.