Budgeting and Forecasting

Stress Tests: Building Budgeting Resilience in an Ever-Changing World

Image from October 2021 GFR

Local government professionals have long known that they operate in an increasingly volatile, unpredictable, complex, and ambiguous world. This is not a new concept, but the health and economic crisis brought on by the COVID-19 pandemic has been an important reminder. Local governments need to respond by making sure they’re accounting for this reality in their budgeting process and long-term financial plans.

In the volatile, unpredictable, complex, and ambiguous world environment that local governments operate in, the next crisis probably won’t be predicted with any meaningful amount of advance warning. The importance of conducting a stress test is to determine whether your organization’s budget is capable of handling crises of different magnitudes. The goal is that when another crisis emerges, the magnitude of its impact will be within the parameters of your stress test, allowing decisionmakers to effectively adapt and rise to the challenge.