Risk Model Lifecycle
From Open Risk Manual
Definition
The Risk Model Lifecycle is a conceptual framework describing the various stages of Risk Model usage within organizations
Stages
- Preparation and Preliminary Considerations: This stage defines the scope and objectives of the risk model. The outcome of this stage may include a formal Model Origination or Requirements Document, a Project Plan, and/or other detailed documentation depending on the organizational governance of the entity introducing the risk model
- Model Development Activities: This stage captures the main technical activities (Data Collection, Data Review, Data Cleansing, Model Development, Expert Analysis, Model Documentation etc.) that produce a complete Model Specification
- Model Validation: This stage (sometimes bundled with development) provides a more or less formal review of the Stage 2 developed model. When risk models are used in regulated / audited context this stage may reject the model specification produced in Stage 2, offering concrete reasons
- Model Deployment: This stage includes production implementation, acceptance testing, user training etc. The outcome is an operating model that is processing actual data, is fully embedded in the organization's systems and any related risk / management processes
- Model Monitoring: Model Performance is monitored throughout its active life to identify pathologies such as Model Decay. Typically there is a Model Monitoring Report that captures the essential performance indicators (including also historical development)
- Model Adjustment: If the monitoring report or other current information suggests so, the model might need to be re-estimated / recalibrated using additional (e.g more recent) data. In case of re-estimation / redevelopment the six stages are repeated but now on the basis of the pre-existing implementation
- Decommissioning.: If monitoring or other circumstances indicate that the model is no longer fit-for-purpose, the model may have to be decommissioned. Information / data about the model may still have to be retained for internal and regulatory reasons
