The BIRR model has five primary risk factors. These factors are based on economy-wide surprises in various long-term and short-term interest rates, inflation, real economic growth, and market sentiment.

The simplest way to start using BIRR’s Risks and Returns Analyzer® is to determine how exposed your existing investments are to the five BIRR risk factors and how those exposures have influenced returns in the past. This will automatically help to answer a number of important questions. For example, to what extent are a given manager's superior (or disappointing) returns the result of stock selection and to what extent due to the effects of economic surprises? Do the seemingly independent strategies of several managers "add up" to an unintended tilt toward a particular kind of risk (e.g., inflation risk), creating more exposure than is prudent or necessary?

One of the most useful ways to safeguard your portfolio against economy-wide surprises is to add risk control to your own methods of ranking and selecting stocks. Many managers create portfolios based on their own stock selection methods and use BIRR to control risk exposures to be similar to some benchmark (such as the S&P 500 or the Russell 3000). Their motive is two sided. On the one hand, if an economy-wide surprise is "bad," their consequent losses will be no greater than that of their benchmark. On the other hand, if an economy-wide surprise is "good," their consequent gains will keep up with their benchmark. With BIRR, you simply import a list of stocks with your rankings (or estimates of return potential) and then simultaneously tune all five risk exposures to those of your benchmark. This prevents factor surprises from resulting in excessive losses from overexposure, while avoiding missed opportunities due to underexposure.

Another simple way of using BIRR's software is to employ one of the integrated optimizers to create an index portfolio. By matching the risk exposures and other characteristics of a benchmark, you can create a portfolio that tracks your benchmark with fewer stocks.

BIRR can help you make bets both on individual stocks and on economic surprises. For example, if you think the investment community underestimates both the likelihood of an economic boom and the danger of inflation, you can increase your portfolio's exposure to the business cycle while simultaneously reducing exposure to inflation. You can also control risks by placing constraints on how much of your portfolio is invested in stocks of certain sectors or certain market size ranges and even put minimum and investment limits on individual stocks.

Using BIRR's advanced optimization techniques, it's even possible to perform traditional mean-variance optimization while controlling economy-wide risk exposures.

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