Back Testing Timeframes and Options

Back Testing Timeframes

Back Testing can be performed on various selected timeframes, depending on the purpose of the bank test.

Typically, long term (or 6-12 month) analysis looks at the variances between the projections and the actual results and determines the impact of unanticipated events on the institution.

Short term analysis is less influenced by outside circumstances and is more reflective of the assumptions you placed in the model.  Projections for the upcoming month are less likely to have unanticipated events.

Timeframe Options

Long term evaluation will help you focus on, and determine the effects of events that affected your bank.  This will help you better plan your future projections.

Short term evaluation, especially a one month timeframe, will give you a better indication of the accuracy of your assumptions in the model.  You can revise assumptions to be more realistic and accurate knowing the variances.