How are reserves calculated?

The calculation of reserves typically aims to maintain a sufficient safety net for various operational needs, financial stability, or compliance with regulations. The option that describes this best includes a 12-month rolling average, which effectively smooths out seasonal fluctuations and provides a more comprehensive view of the data over time. Incorporating a 1-month lag allows organizations to account for recent trends while also aligning with upcoming financial strategies or operational decisions.

Additionally, the inclusion of a 10% buffer is particularly relevant, as it offers a safeguard against unforeseen expenses or variations in revenue, ensuring that the organization remains adequately prepared for any fluctuations. This approach balances the need for precision with the need for a cushion against uncertainty, making it a robust method for calculating reserves.

In contrast, other options utilize different time frames, lag periods, and buffer percentages that may not provide the same level of reliability or insight into reserve requirements. The emphasis on a 12-month period and a modest buffer in this choice recognizes the importance of both historical performance and the necessity of conservative planning.