Forecasting
credit losses is critically important to manage lender's
risk and profit effectively. Good forecasting not only
generates accurate financial expectations, but also
provides a diagnostic tool to understand reasons for
inaccuracies in these expectations, when they occur.
Depending upon the business objective and available
data, PMA will select among a variety of established
statistical forecasting methods to meet a specific forecasting
need, all of which rely on a thorough understanding
of historical trends. The key behavioral drivers of
risk are identified and projected for meaningful customer
segments such as vintage, score, and acquisition source.
These key risk drivers are then used to generate a projection
of expected loss dollars and rates.
When our forecast is completed, we deliver more than
a single number or rate, because a single number forecast
is not sufficient to manage a portfolio. We detail the
assumptions our forecast is based on, so you can compare
actual performance with the forecast and understand
the behavioral reasons why results vary from expectations.
This allows you to identify and manage specific aspects
of the portfolio quickly and to bring them in line with
business objectives.
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