financing capacity. The risk plan should explore how key dependencies behave in good and bad environments.7 Frequently, very good and or very bad events don't occur in a vacuum; they occur simultaneously with other material events. For example, consider a possible challenge faced by a pension plan. It is conceivable that periods of economic downturn could coincide with lower investment performance, acceleration of liabilities, and a decreased capacity of the contributing organization to fund the plan. For this reason, scenario planning for the pension plan should explore what other factors affect the pension plan's business model in both good and bad environments and develop appropriate steps to help the plan succeed. An effective risk plan requires the active involvement of the organization's most senior leadership. This involvement creates a mechanism by which risk and return issues are addressed, understood, and articulated to suppliers of capital (owners or beneficiaries), management, and oversight boards. It helps describe the philosophical context for allocations of risk and financial capital and helps organizations ensure that such allocations reflect organizational strengths and underpinnings. It helps organizations discuss and understand the shadow price that must be accepted in order to generate returns. The existence of a risk plan makes an important statement about how business activities are to be managed. It indicates that owners and managers understand that risk is the fuel that drives returns. It suggests that a higher standard of business maturity is present. Indeed, its very existence demonstrates an understanding that the downside consequences of risk-loss and disappointment-are not unusual. These consequences are directly related to the chance that management and owners accept in seeking profit. This indicates that management aspires to understand the source of profit. The risk plan also promotes an organizational risk awareness and the development of a common language of risk. It demonstrates an intolerance for mistakes/losses that are material, predictable, and avoidable. The Risk Budget The risk budget-often called asset allocation-should quantify the vision of the plan. Once a plan is put into place, a formal budgeting process should exist to express exactly how risk capital will be allocated such that the organization's strategic vision is likely to be realized. The budget helps the organization stay on course with respect to its risk plan. For each allocation of risk budget, there should be a corresponding (and acceptable) return expectation. For each return expectation, some sense of expected variability around that expectation should be explored. When all of the expected returns, risks, and covariations among risk budgets are considered, the expected return streams, and the variability of such, should be consistent with the organization's strategic objectives and risk tolerances. 7Once again, examining correlations among critical business dependencies in periods of stress may be done in a qualitative or quantitative manner.