asset class level as well as for the portfolio taken as a whole are at appropriate levels vis a vis the business and risk plan. II Ensure that the expected variability around expected RORC is at acceptable levels. If there is too much variability vis a vis a competitor's ROE and RORC, the earnings profile might be deemed to be low quality by the marketplace. Accordingly the risk budgeting process must concern itself with not only the absolute magnitude of the RORC at the strategy and overall portfolio levels, but also the variability in such magnitude. II Explore the downside scenarios associated with each allocation over various time horizons. Ensure that the plan's owners and managers identify such downside as merely disappointing and not unacceptably large (i.e., lethal) given the plan's objectives. II In each significant downside scenario, loop back to the planning process and ensure that contingency steps exist to bring about a logical and measured response. Ensure that owners, managers, and other outside constituencies (e.g., suppliers of capital) are aware and supportive of these responses. Clearly, risk budgeting incorporates elements of mathematical modeling. At this point, some readers may assert that quantitative models are prone to failure at the worst possible moments and, as such, are not sufficiently reliable to be used as a control tool. We do not agree. The reality is that budget variances are a fact of life in both financial budgeting and risk budgeting. Variances from budget can result from organization-specific factors (e.g., inefficiency) or completely unforeseen anomalies (e.g., macroeconomic events, wars, weather, etc.). Even though such unforeseen events cause ROE variances, some of which may even be large, most managers still find value in the process of financial budgeting. The existence of a variance from budget, per se, is not a reason to condemn the financial budgeting exercise. So, too, we believe that the existence of variances from risk budget by unforeseen factors does not mean that the risk budgeting process is irrelevant. To the contrary. Frequently the greatest value of the risk budget derives from the budgeting process itself-from the discussions, vetting, arguments, and harmonies that are a natural part of whatever budget is ultimately agreed to. Managers who perform risk budgeting understand that variances from budget are a fact of life and are unavoidable, but are not a reason to avoid a formal risk budgeting process. To the contrary, understanding the causes and extent of such variances and ensuring that appropriate remedial responses exist make the budgeting and planning process even more valuable. Risk Monitoring Variance monitoring is a basic financial control tool. Since revenue and expense dollars are scarce, monitoring teams are established to identify material deviations from target. Unusual deviations from target are routinely investigated and explained as part of this process. If we accept the premise that risk capital is a scarce commodity, it follows that monitoring controls should exist to ensure that risk capital is used in a manner