The test

Each commitment in the model carries a counterparty, a required level of performance, a measurement window and a breach cost, taken from the contract, the regulation or the covenant that created it. For each scenario the consumer curve is read against that threshold on each day of the window. Where delivered performance falls below the level for longer than the window allows, the commitment is breached, and the breach is priced by the enterprise’s own service credits, liquidated damages, termination rights, per-record penalties or regulatory thresholds.

A worked row

An illustration from a payments processor. The commitment: 99.9 per cent monthly availability of the transaction service to each credit union, from the customer contracts, with a service credit of 10 per cent of the monthly fee for each 0.1 per cent of the month below the level. The scenario: loss of the older of two identity providers for six hours. The path: the provider hosts authentication for the customer portal and the transaction service, and both fulfil the availability commitment to nine customers. The curve: delivered performance falls to 12 per cent within twenty minutes as sessions expire, holds until the provider returns at the six-hour mark, and recovers to 99 per cent over the following ninety minutes. The breach test: the contracts count any hour below 50 per cent of normal throughput as unavailable, so the unavailable period is seven hours against a monthly allowance of 43 minutes, and the commitment breaks in the first hour for all nine. The pricing: seven hours is 0.87 per cent below the level, eight increments of 0.1 per cent rounded down, 80 per cent of one month’s fee for each customer; monthly fees of $45,000 to $95,000 give $340,000 to $610,000. The likelihood: the provider’s status archive shows three outages in eighteen months, one exceeding six hours, so about 20 per cent a year. The expected annual exposure under this commitment and scenario: about $70,000 to $120,000.

From a row to a decision

A control is priced by the rows it changes. Consolidation onto the newer provider with failover, at $180,000, changes this row and eleven others, and the sum of the reductions across those rows, $1.1 million to $1.9 million a year, is how its return is computed. The recommendation on each row is one of five: invest, transfer, retain within appetite, release, or expose where the plan requires it.

Status

The breach test is specified as a reliability test with a pricing step and has seven complete implementations in the firm’s register. The extension that counts the decisions executed while data or a model was wrong is a proposal under consideration and is not part of the present method.