Red Team

Nine stress scenarios run against every deal, with single-factor losses treated more seriously than compound ones.

The scenarios move one thing at a time — the end value, the works cost, the interest rate, the time to sell — and then move several together. A deal that loses money when one variable moves is fragile; a deal that only loses money when four move together is not, and treating those two identically is how a scoring system becomes useless.

Only single-factor losses cap the score. A compound scenario in which the market falls, the works overrun and the rate rises simultaneously is a real risk and a bad reason to reject an otherwise sound purchase.

Where this comes up

Related definitions