Why it matters for the plan
The assumed plan has US$100m revenue, US$80m costs and US$20m earnings. The stress reduces earnings to US$16m. A feasible response would leave US$17.5m after its cost.
When supply disruption puts earnings at risk.
A sample of the brief a board could review, with the operating detail and calculation behind it.
Should we prepare an alternative supply option?
A prolonged disruption to a critical shipping route could reduce sales and earnings. Management asks the Board to approve validating an alternative supply option, and its cost, before committing funds.
- US$10m
- US$4m
- US$2.5m
Risk appetite and the choice
For this example, the review threshold is US$3m of conditional earnings exposure. US$4m exceeds it; US$2.5m after the response is below it. Management still needs to validate execution and cost.
The response to assess
Alternative supply could restore US$2.5m of earnings before a US$1m response cost: US$1.5m net improvement. Procurement and Finance must confirm availability, timing and economics.
The countercase
Inventory buffers, flexible delivery or customer price adjustments could absorb more of the disruption. Test these explanations before treating the stress as the central outlook.
What would change the decision?
Watch supplier lead times, route availability, inventory cover and the cost of alternative supply. Agree thresholds with the operating owner. Escalate a material change; record a justified no-change result when appropriate.
Inspect the financial bridge
| Measure | Plan | Stress | With response |
|---|---|---|---|
| Revenue | 100 | 90 | 92.5 |
| Associated operating costs | 80 | 74 | 74 |
| Response cost | 0 | 0 | 1 |
| Earnings | 20 | 16 | 17.5 |
| Shortfall against plan | 0 | 4 | 2.5 |
Assumptions, calculation and evidence status
Stress: revenue falls by 10 and associated costs fall by 6, so earnings fall by 4. Response: 2.5 of recovered revenue contributes 2.5 of earnings with no additional associated cost in this simplified example; the response itself costs 1. Net improvement is 1.5 and residual exposure is 2.5. Real engagement inputs must replace these simplifying assumptions.
Source: the illustrative financial example in the Corporate Risk Intelligence service offer, expanded here into an assumed plan. No external evidence, live Model run, Monte Carlo simulation or client acceptance is asserted. There is no assigned scenario probability.
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