Stress-Testing Feasibility Studies for Macroeconomic Shocks

The global economy is volatile. Unpredictable. Dangerous.

Inflation surges. Currency collapses. Geopolitical tensions erupt. Even the best projects can fail when assumptions crumble.

This is why stress-testing feasibility studies is essential. Not optional. Essential.

Let me walk you through how to stress-test your feasibility studies and build resilient investment decisions.

 Stonehill Research provides Feasibility Studies with Integrated Stress Testing to help organisations build resilient investment decisions.

What is stress-testing in feasibility studies?

According to the Corporate Finance Institute, stress testing is “a computer-simulated technique to analyze how banks and investment portfolios fare in drastic economic scenarios” and is used to “gauge investment risk and the adequacy of assets.“

In feasibility studies, stress-testing means subjecting project assumptions and financial models to various macroeconomic shock scenarios. You assess resilience. You identify vulnerabilities.

You determine whether the project remains viable under adverse conditions.

Why stress-testing matters more than ever

The COVID-19 pandemic showed how quickly economic assumptions can change. Projects that looked viable in 2019 faced dramatically different realities by 2020.

The inflation surge of 2022 to 2023, rapid interest rate increases, and ongoing geopolitical tensions have made traditional feasibility studies based on stable assumptions insufficient.

In 2025 and 2026, central banks continue navigating the delicate balance between controlling inflation and supporting growth. Currency volatility remains elevated in emerging markets. Climate related events are increasing in frequency and severity.

Organisations that incorporate comprehensive stress testing into their feasibility studies are better positioned to anticipate challenges, build contingency plans, and make investment decisions with eyes wide open.

Read our Macroeconomic Risk Outlook for Nigeria 2026 for current risk assessments.

Key macroeconomic shocks to test

Interest rate shocks

Interest rate movements affect project financing costs, discount rates for net present value calculations, and overall investment attractiveness. Test scenarios involving further rate increases of 200 to 300 basis points, as well as scenarios of rapid rate cuts.

Projects with high leverage or long payback periods are particularly vulnerable. Real estate developments, infrastructure projects, and capital intensive manufacturing facilities should undergo rigorous stress testing.

Inflation and deflation scenarios

Inflation affects input costs, labour expenses, and revenue projections. Deflation can be equally damaging by reducing revenues while fixed costs remain stable.

Stress tests should examine inflation rates ranging from 1% to 2% annually up to 10% to 15% for high inflation scenarios. Pay particular attention to sector specific price movements that may diverge from general inflation.

Currency fluctuation risks

For projects involving international trade, cross border investments, or foreign currency debt, exchange rate movements can dramatically alter feasibility. Stress tests should examine currency depreciation scenarios of 20% to 40% for emerging market currencies and 10% to 20% for developed market currencies.

The strengthening of the US dollar in 2025 has created challenges for dollar denominated debt holders in emerging markets.

Commodity price volatility

Projects should stress test key commodity inputs with price swings of 30% to 50% in either direction. Pay particular attention to correlation effects when multiple commodities move together.

Oil prices have stabilised around $75to$85 per barrel in early 2026, but ongoing Middle East tensions and OPEC+ production decisions create upside and downside risks.

Demand shocks and recession scenarios

Stress tests should examine revenue reductions of 15% to 30% sustained over 12 to 24 months, with recovery trajectories varying by sector. The possibility of recession in major economies remains elevated in 2026.

Our Macroeconomic Risk Assessment service helps identify the most relevant shocks for your project.

Stress-testing methodologies and best practices

Scenario analysis

Scenario analysis involves creating detailed narratives of how macroeconomic shocks might unfold and their cascading effects on project variables. Rather than changing one variable in isolation, scenarios capture correlations and feedback effects.

Develop three to five distinct scenarios. A severe downside case. A moderate stress case. A base case. A moderate upside case. Possibly an extreme tail risk scenario.

Each scenario should be internally consistent and grounded in historical precedents.

Sensitivity analysis

Sensitivity analysis examines how project outcomes change when individual variables are adjusted while holding others constant. This helps identify which assumptions matter most for project viability.

Key outputs include break even analysis showing threshold values at which projects become unviable, and tornado diagrams visualising which variables have the largest impact on net present value or internal rate of return.

Monte Carlo simulation

Monte Carlo simulation uses probability distributions for key variables and runs thousands of iterations to generate a probability distribution of project outcomes. This captures uncertainty more comprehensively than deterministic scenario analysis.

Define probability distributions for each uncertain variable. Specify correlations between variables. Interpret output distributions showing the probability of achieving target returns.

Recent advances in computational power have made Monte Carlo simulation increasingly practical for feasibility studies of all sizes.

Reverse stress testing

Reverse stress testing starts with an outcome, typically project failure, and works backward to identify what combination of circumstances would produce that result. This helps uncover hidden vulnerabilities and tail risks.

Ask what combinations of macroeconomic shocks would render the project unprofitable, what events would prevent debt service, and what scenarios would force project abandonment.

Check out Quantitative Methods for Project Risk Assessment for deeper methodology guidance.

Implementing findings: from analysis to action

Risk mitigation strategies

Once vulnerabilities are identified, implement specific mitigation measures.

Financial hedging through derivatives or fixed price contracts to manage commodity or currency risk. Operational flexibility such as variable cost structures or scalable capacity. Diversification across markets, products, or supply sources. Contractual protections including inflation adjustments, force majeure clauses, or take or pay agreements.

Capital structure optimisation

Projects vulnerable to interest rate shocks might benefit from fixed rate debt or interest rate hedges. Projects facing demand uncertainty might require lower leverage and higher equity cushions.

Understanding cash flow sensitivity helps determine appropriate debt service coverage ratios and liquidity reserves.

Contingency planning

Develop trigger points for activating response measures. Predefined action plans for various stress scenarios. Communication protocols for stakeholders. Governance structures for crisis decision making.

Ongoing monitoring

Feasibility studies incorporating stress testing should not be one time exercises. Update them as new information emerges. Track leading indicators of stress scenarios. Regularly reassess risk exposures as projects progress from planning to execution.

Our Risk Mitigation Strategy Development service helps translate stress test findings into actionable plans.

Recent updates and emerging considerations

Climate risk integration

Climate related macroeconomic risks are increasingly material. Physical risks from extreme weather events affect operations, supply chains, and asset values. Transition risks from decarbonisation policies affect energy costs, carbon pricing, and stranded asset risks.

Stress tests should now routinely incorporate climate scenarios, particularly for long lived infrastructure and real estate projects.

Artificial intelligence and automation impacts

AI adoption is creating productivity shifts and labour market disruptions. Projects should stress test scenarios where AI drives faster than expected automation, changes competitive dynamics, or alters skill requirements and labour costs.

Geopolitical fragmentation

The trend toward economic regionalisation and supply chain reshoring affects feasibility assumptions for internationally oriented projects. Stress tests should examine scenarios involving trade restrictions, technology transfer limitations, or investment barriers between major economic blocs.

Digital currency and financial system evolution

Central bank digital currencies and evolving payment systems may affect currency markets, capital flows, and financial stability. While still emerging, these developments warrant monitoring and potential inclusion in forward looking stress scenarios.

Read Emerging Risks in Project Finance: 2026 Edition for forward-looking risk identification.

Case study: infrastructure development under stress

Consider a toll road project in an emerging market. 20 year concession period. $500 million construction cost financed 70% debt and 30% equity. Traffic projections showing 5% annual growth. Toll rates indexed to inflation.

Stress testing reveals several vulnerabilities.

Under a recession scenario with 20% traffic reduction sustained for two years, debt service coverage falls below covenant requirements, requiring additional equity or covenant waivers.

Currency depreciation of 30% increases the local currency cost of dollar denominated debt service, potentially requiring tariff increases or government support.

Construction cost inflation of 25% due to commodity price spikes would require refinancing or equity contributions.

Political risk scenarios involving toll rate freezes could eliminate equity returns entirely.

These findings inform risk mitigation strategies. Partial government revenue guarantees. Inflation indexed debt or local currency financing. Fixed price construction contracts. Lower leverage with higher equity contributions to create cushion against adverse scenarios.

Where to start tomorrow

Do not try to stress test everything at once.

Start with your key assumptions. Which variables would most dramatically affect your project outcomes?

Identify your vulnerabilities. What keeps you up at night? Test those scenarios first.

Build simple sensitivity analysis before moving to complex Monte Carlo simulations.

Involve your team. Different perspectives uncover different risks.

Update your stress tests as conditions change. The economy does not stand still. Neither should your analysis.

Final word

The global economic environment demands more sophisticated feasibility analysis than ever before. Stress testing provides the analytical framework to move beyond optimistic base cases and understand how projects perform under adverse conditions.

Organisations that embrace comprehensive stress testing benefit from more informed decision making, better risk management, stronger stakeholder confidence, and ultimately more resilient project portfolios.

The additional analytical effort required is a modest investment compared to the cost of project failures or the opportunity cost of rejecting viable projects due to inadequate risk assessment.

Stress testing feasibility studies for macroeconomic shocks has become not just best practice but essential discipline for responsible project evaluation.

Related services from Stonehill Research

• Feasibility Studies with Integrated Stress Testing – Comprehensive feasibility analysis with built-in macroeconomic shock testing.

• Macroeconomic Risk Assessment – Identification of the most relevant shocks for your specific project.

• Risk Mitigation Strategy Development – Translating stress test findings into actionable mitigation plans.

Recommended reading from the Stonehill Research blog

• Macroeconomic Risk Outlook for Nigeria 2026 – Current risk assessments for Nigerian projects.

• Quantitative Methods for Project Risk Assessment – Deeper methodology guidance for stress testing.

• Emerging Risks in Project Finance: 2026 Edition – Forward-looking risk identification.

Let’s work together

Is your next project prepared for macroeconomic uncertainty? Let Stonehill Research help you build resilience through comprehensive feasibility analysis and stress testing.

Contact us today:

📧 Email: info@stonehillresearch.com
📞 Phone: +234 802 320 0801
📍 Address: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact Stonehill Research to schedule a consultation.

Let our team of experienced analysts help you navigate uncertainty and make informed investment decisions with confidence.

Stonehill Research – Your Partner in Resilient Project Planning

References

1. Corporate Finance Institute. Stress Testing. https://corporatefinanceinstitute.com/resources/career-map/sell-side/risk-management/stress-testing/