Model Risk and the Energy CRO…
Our members have long appreciated the risk associated with reliance on complex models to perform valuations, risk assessments, monitor limits, and broadly support decision making. This initiative seeks to help participants develop an understanding of practical ways that the risks of their company’s internal models may be assessed and mitigated.
The banking industry has for many years had regulatory mandates for model risk management. Those frameworks, though designed specifically for the banking industry, may provide insights for CCRO members to discuss the intersection between an energy company’s model risks and useful components from the banking framework. Several members have past experience with banking industry model risk management processes & they shared some of that expertise at our March 2023 meeting (see video “Model Risk Management Framework”)
In addition, some of our Advocate members have developed processes for assessing the sources of model risks in an energy company. Understanding these processes can bring our members valuable insights into their own next steps towards mitigating their model risks (see video “Our Starting Point: Overview of Model Risk Concepts)
Results from a live meeting poll about model risk management
By 2023, our members have enjoyed numerous discussions exploring the concepts of model risk and the energy industry’s modeling practices. During a recent meeting, we asked members where they believed model risk management belonged in their organization.
As you can see in the live meeting poll chart, the majority of our Chief Risk Officers agree that model risk management is a risk process that their function should own. This established risk-relevance for our on-going model risk initiative, which ushered our plans for more discussions and development of a white paper to establish best practices. (see more from that poll in the video “Early Member Poll Results”)
Videos from our past discussions…
