Shock resistance

Gauss curve thinking puts us on the wrong track

Hind Salhane & Eric Van den Broele

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7 Mins
10/06/2025

Whether you look at it privately or professionally, you can always come across something unexpected. And even if it is unexpected, it is still smart to be prepared for it. Most good homemakers (and parents) do the same in one way or another. Keeping three to six times your monthly salary in reserve is often considered a sufficient financial cushion. For businesses, things seem to be different.

You don't expect the washing machine or car to break down tomorrow or a storm to blow the roof off (or an earthquake), but it could happen. To deal with that, most consumers among us have a piggy bank somewhere in reserve, possibly supplemented by a good insurance policy. After all, the average person knows by nature that our future is unpredictable. The piggy bank, however, allows us to survive autonomously.

Gauss curve thinking

Companies do not always follow the same mindset. You could read about that in a previous blog article. The probability of an unexpected event occurring is always latent. As a matter of fact, we face many more shocks than you would think at first glance. However, our way of thinking is somewhat misshapen in this respect.

To put it mathematically, over time we have learned to think in Gauss curves. Common cases are located around the centre of the curve. Extremes are on the outside of the clock. By now, we have deluded ourselves that these extremes are exceptional and of little consequence. However, the opposite is true.

Exceptions are less exceptional

The extremes that are on the outside of the clock are unpredictable. More punishingly, the possibility of such an event occurring is simply ignored. Yet these extremes are less exceptional than thought when we consider their numbers. Think of COVID-19, ships sinking or production lines going up in flames. About floods, about storm damage, about parts shortages due to a battered supply chain, about skyrocketing inflation, about rising commodity prices, about attacks and wars, about import tariffs, etc.

These are all shocks that some of the companies suddenly become subject to and can suffer quite badly. And this is completely unrelated to their financial health. Healthy or unhealthy does not apply in these situations. Because contrary to what the Gauss curve leads us to believe, extremes do have a huge impact on the parties affected by them. In that context, GraydonCreditsafe developed the shock resistance model and the shock resistance score or resilience indicator.

Gausscurve - La courbe de Gauss - Gauss curve

  1. Extremes or exceptions on the outside of the clock do affect parties facing them.

The shock resistance model is an important tool to:

  • in the event of a shock, immediately identify which companies can cope with the shock and which cannot and therefore need support. It allows both the government and a company, which manages a client portfolio, to react quickly to a new situation.
  • get a very clear macroeconomic understanding of the problematic situation. It gives the government objective factual material for further reflection and possible measures to issue or adjust.
  • make fact-based estimates that answer the question of what the chances of survival of companies are in the longer term. In this way, a strategy that seeks strengthening in the long term can be concretely built upon.

Task for government and businesses themselves

As the sustainable transition gains momentum, there is also an important task for the government. It should make companies aware of the danger of unexpected shocks and urge them to provide for it independently in the future.

There is only one way forward. After all, returning to the old normal is unlikely. The coronavirus pandemic has cost our society handfuls of money. Today, billions are also needed to further increase the defence budget. A new shock our government is no longer going to be able to afford and that will come upon us like a bolt from the blue.

Perhaps this is an ideal opportunity to draw out a new normal that will ensure we all get off to a better start.

Encourage or oblige?

The question arises whether companies will go along with this. Or will shareholders continue to skim off profits and reserves in the future? There are at least two caveats to that.

Consideration 1

If you look at it financially and in the short term, with that view and without intervention, we may soon end up back to the old normal. It is up to the government to think thoroughly about how to encourage companies to urgently build up larger reserves. It does not have to be an obligation. Incentives still work better than obligations. There are plenty of incentives to consider (e.g. fiscal), which may or may not have to be an obligation.

Consideration 2

Globally, different cultures have different attitudes. Europe views a lot of things fundamentally differently from, say, the United States or China. Take the example of GDPR. The way Europe has developed (and imposed) the General Data Protection Regulation has to do with ethical positions and the function of data vis-à-vis society. The position Europe has taken is fundamentally different from the United States or China. That means that when you choose a position that is 'different' - not better, but different - from other continents, you also have to shield that choice at the borders. So, anyone who wants to do business in Europe is obliged to play by the rules. That also has economic implications.