The Model Risk Management “Health Check:” 3 Steps to Building Confidence

As we approach 2025, are you confident that your models will remain fit for use? DCG's Mark Haberland weighs in on how to perform a model risk management "health check."

Every turn of the calendar it seems that another "challenging environment" or "unprecedented event" is facing risk managers. The best tools to help mitigate these conditions are the models you use to identify and manage your institution's risk sensitivities and exposures, but how confident are you that these models perform as intended and remain "fit for use?"

Underperforming models can result in opportunity costs as well as detrimental longer-term impacts from making the wrong decisions, which may significantly influence the ongoing success of your institution. For better, more confident decision-making, consider the three key steps of a model risk management "health check."

1. Confirm the reliability of model inputs (i.e., data and assumptions) to ensure accurate model results
2. Ensure models remain "fit for use" under a variety of stress scenarios and a rigorous ongoing performance monitoring process
3. Focus on Model Risk Management (MRM) and validation to help ensure high-risk models work as intended

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In Depth

• Risk Management