Risk Model denotes any quantitative (mathematical), qualitative or hybrid approach that aims to produce systematic risk assessments / estimates for the purpose of Risk Management.
Types of Risk Models
- Quantitative risk models, namely models relying in some part on quantitative inputs (Risk Data). Expert input is still essential in quantitative risk models, at all stages of the Risk Model Lifecycle
- Qualitative or Expert Risk Models that do not use quantitative input directly but only by informing subject matter experts
- Hybrid Models that encompass significant direct qualitative inputs
Risk Models are used in a very large variety of applications, spanning different sectors, diverse uses within each sector etc.
Risk Model Components
A risk model is fully defined through a number of components, in order of increasing definiteness:
- The Abstract Risk Model, provides the conceptual definition of the risk model
- The Model Specification, a concrete specification of a model that populates any information placeholders defined in the Abstract Risk Model description
- The Model Implementation, the computer programs and any other resources required to operate the model
- The live Model Instance that can be deployed in operation
Of those components, only the Abstract Model is absolutely required for discussing a Risk Model. Model Specification, Implementation and Instances are prerequisites for a Risk Model being used.
Issues and Challenges
- Over-reliance on quantitative approaches for decision making
- Model Risk is a significant risk factor, in particular with more complex quantitative risk models
- Expert Biases are a significant risk factor of expert based models
- Consistency between quantitative and expert estimates is a significant risk factor for hybrid models, e.g the degree to which the expert opinion and quantitative estimate can be integrated into a meaningful and reproducible risk measurement
Risk Model Ontology
In the context of the DOAM Risk Model Ontology this entry constitutes an annotation of the Risk Model Class