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The ability to accurately forecast risk can have tremendous benefits to an organization.
As new customers are booked, as accounts age and as the economic environment changes, the expected losses on a portfolio can vary greatly. Recent regulatory changes combined with increased pressure to accurately predict future earnings have pushed risk management to the forefront of business strategy. Understanding the different components with which to forecast losses, and knowing when and how to use each element of information, allows for greater control of portfolio management, and results in better and more profitable account management strategies. This paper discusses the most common approaches to loss forecasting, and highlights the benefits and drawbacks to each.