Multi‑scenario financial stress‑testing documented
Assesses whether the organization regularly conducts financial stress-testing to evaluate its resilience to adverse scenarios. This helps identify vulnerabilities, prepare contingency plans, and ensure sustainability. It quantifies liquidity runway under severe but plausible and reverse scenarios over a multi-year horizon and informs reserves policy, going concern assessment, and a board-approved viability view.
| Metric | Stress-testing coverage and actionability index |
|---|---|
| Target | Index Score > 80% |
| Frequency | Annual (with mid-year refresh on material change) |
| Method | Composite score: # scenarios tested (target ≥6), Horizon years (3-5), Playbooks approved (%), Independent validation (Y/N) |
| Unit | Composite Index |
Level 1: Initial/Ad-hoc
Financial planning is limited to basic budgeting. There is no formal process for stress-testing or considering adverse scenarios.
Level 2: Developing
Ad-hoc or informal financial stress-testing is conducted, often reactively in response to specific events. The scenarios are basic and analysis is limited.
Level 3: Established
A documented annual stress-testing process exists with at least 3 scenarios and a 12–24 month cashflow view; results are reviewed by SMT and summarised to the Finance/Audit & Risk Committee; key vulnerabilities are logged and assigned actions. Partial linkage to reserves/governance is evidenced.
Level 4: Advanced
Financial stress-testing is integrated into strategic planning. It includes a 3–5 year horizon with liquidity runway, reverse stress-testing at least biennially, and agreed early-warning indicators (e.g., days cash) with thresholds. Documented liquidity waterfall and tested playbooks exist. Board minutes show decisions based on stress outcomes.
Level 5: Optimizing
Dynamic, board-owned stress-testing with severe-but-plausible calibration, regular reverse stress tests, and independent validation at least every 2–3 years. Model governance is mature (version control, back-testing, peer review). Results directly drive reserves targets, risk appetite, and strategic choices; contingency playbooks are exercised via tabletop simulations.
Organisation Types
By Organisation Size
| Size | Applicability | Notes |
|---|---|---|
| Micro | exempt | Completely disproportionate for micro charities with minimal income and no complex financial liabilities. |
| Small | exempt | Disproportionate; basic cashflow forecasting and reserves management are sufficient at this scale. |
| Medium | partial | Requires basic stress testing (e.g., income drops, seasonal underperformance) but complex FX or cyber scenarios can be scaled down or omitted. |
| Large | full | |
| Major | full |
Applicable When
- Organization has financial transactions and assets
- Organization has a board or equivalent governing body
Not Applicable When
- Organization has annual income < £50k, no staff, no lease/loan commitments, no material restricted fund obligations, and holds cash in instant-access accounts (apply simplified cashflow monitoring instead).
- Organization is a fiscally sponsored project where financial risk management is fully managed by a parent entity.
- Organization's sole function is passive endowment (Waqf) management (apply 'investment/distribution sustainability stress test' variant instead).
Discussion (1)
📋 **Version updated: 1.0.0 → 2.9.7** **Changes:** Updated islamic_references from mizan-297.json
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