The cycle is as follows (Goford 1985):
- Initial Assumption. Here the initial assumptions for the product to be modelled are made.
- Profit Test. The result from the profit test will determine whether the product is "profitable", i.e. , it provides a positive contribution to the company's fixed costs.
- Model Office. Here a full asset-liability model is run over the entire company to see whether the product is profitable to the company as a whole. A result of this model is the product's and the company's appraisal values (how much they are worth).
- Analysis of Surplus. After a certain time period, the actual experience is compared to the expected experience from the models.
- Monitoring. Decide whether assumptions need to be updated, or whether other actions need to be taken (such as scrapping the product, adjusting reserves).
- Updating of Assumptions that feeds back into 2 (Profit Test).