Stress Testing is a general Risk Management term denoting any activity subjecting a system (whether be it physical, digital, financial etc.) to a set of actual or hypothetical tests to probe system behaviour and response under extreme, unusual conditions
Type of Stress Testing
- Real Stress Testing: For systems where representatives copies are readily available and/or dispensable (equipment, automobiles, etc.) stress testing subjects a copy to the desired stress conditions (e.g. temperature, pressure, crash testing etc.) and monitors / measures the outcomes of the test.
- Hypothetical (Scenario based) Stress Testing: For systems where copies are not readily available or are not dispensable (e.g. concerning the soundness of financial institutions) stress testing is performed via analyses that construct an estimated response of the system to hypothetical scenarios.
A stress testing always involves the following elements
- The defined system under study (the scope of the stress testing exercise)
- The risk factors being targeted (it may or may not be possible to study factors in isolation)
- The Stress Scenario (which explicitly or implicitly prescribes a range for the underlying factors
- The monitored outcomes (which can be directly or indirectly translated into subsequent actions and recommendations, e.g. product approval, remedial actions etc.)
By Business Sector
- Bank Stress Testing has grown significantly as a practice after the Great Financial Crisis
Issues and Challenges
- Stress Testing is a narrower version of Testing but a testing framework may not always include considerations of performance significatly away from normal operating conditions
- The credibility of hypothetical stress testing is linked to the quality of the representation of the system and its modelled response. This can be difficult to establish, for the same reasons that force a hypothetical approach in the first place.