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Business Risk Index Methodology

What is the Business Risk Index?

The Business Risk Index (BRI) is a new economic indicator which provides insights into the
health of Australian businesses by region. More specifically, The Business Risk Index is a dynamic measure of future insolvency risk for regions across Australia.

In lay person’s terms, how is the index constructed?

CreditorWatch compiles many different types of data connected with all businesses in Australia. Our data science and credit risk teams look for trends between these data elements and the probability of insolvency. All of the trends over the data elements are brought together using statistical modelling techniques combined with economic analysis, so that each business and region’s data signature quantifies its estimated probability of insolvency.

Whilst the model construction involves advanced statistical techniques, the model output is a simple rank index which orders 335 geographic regions by insolvency risk from best to worst on a 0-10 scale.

Model Calibration Population (Sample)

The Business Risk Index is calibrated on ASIC registered incorporated entities, restricted to the ‘credit active population’ which are all businesses that have had any credit checks or credit enquiries in the last 10 years. This is approximately 2 million individual businesses across Australia.

The Business Risk Index is modelled and reported more than 300 regional aggregates aligned to Australian Bureau of Statistics regional reporting standard. We will also report the index aggregated to a state level to compare the relative insolvency risk across the states.

Index Data Sources

The Business Risk Index is driven by unique data sources including business-to-business trade payments, business cashflow, geodemographic risk and other factors which are leading indicators of insolvency risk.

We have designed the model to combine both real-time “dynamic” factors unique to CreditorWatch and also traditional “structural” key economic indicators to provide a wholistic assessment of through the cycle or “long-run” insolvency risk.