Exploring Model Risk Management

  • Release version: Xanadu
  • Updated August 6, 2025
  • 3 minutes to read
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    Summary of Exploring Model Risk Management

    The Model Risk Management (MRM) application in ServiceNow provides a comprehensive framework to identify, assess, validate, and mitigate risks associated with quantitative models throughout their life cycle. This structured approach helps organizations reduce operational and compliance risks arising from inconsistent model oversight. For example, financial institutions can use MRM to regularly validate models like Value at Risk (VaR), ensuring accurate risk estimation and regulatory compliance, which supports better decision-making.

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    Key Users and Roles

    • Model Owner: Oversees the model life cycle and monitors performance.
    • Model Developer: Designs and builds models based on business needs.
    • Model Validator: Independently validates model accuracy and robustness.
    • Model Governance: Reviews models for risk and compliance, approves models and assessments.
    • Executive Management: Provides strategic oversight and decisions informed by model risk insights.

    Model Risk Management Workflow

    The MRM workflow begins with employees submitting model requests via the Employee Center, which automatically creates model records in the inventory. The Model Governance team reviews submissions, assigns stakeholders, and initiates risk assessments. The Model Owner performs risk assessments, which are then reviewed and approved by governance approvers configured in the Approver Configurator.

    After approval, models enter the Pre-deployment stage where validation tasks are assigned to validators who verify model fitness through documentation and issue reporting. Post-validation approval moves the model into the Monitor stage, involving periodic reassessments to ensure ongoing regulatory compliance and effective risk control.

    Key Benefits

    • Model Inventory: Centralized, reliable repository for all models, enabling faster oversight and informed decision-making.
    • Model Risk Life-cycle Management: Tracks models from initiation to monitoring through governance stages, ensuring consistent oversight and reducing risks.
    • Model Risk Assessment: Facilitates identification and prioritization of high-risk models to focus resources efficiently.
    • Model Validation: Builds confidence through independent validation, reducing errors and regulatory concerns.
    • Model Documentation: Maintains clear, audit-ready documentation that enhances transparency and streamlines reviews.
    • Issue & Remediation Management: Enables timely detection and resolution of model issues to minimize business disruption and maintain compliance.

    Practical Next Steps

    ServiceNow customers can enhance their use of the MRM application by exploring configuration options, such as setting scoring logic for assessments, and by following guided procedures for performing model risk assessments, validations, linking documentation, and managing issues. These resources support effective implementation and governance of model risk management processes.

    Learn how you can use the Model Risk Management application to identify, assess, and mitigate risks related to the quantitative models.

    Model Risk Management overview

    The Model Risk Management (MRM) application provides a unified solution to help organizations proactively manage the risks associated with the use of models. It offers a structured approach to identify, assess, validate, and address model risks throughout the model life cycle. This approach reduces operational and compliance risks caused by inconsistent or inadequate model oversight.

    For example, a financial institution uses a Value at Risk (VaR) model to estimate potential trading losses. Without proper validation, the model can underestimate risk, leading to poor capital allocation. By using the MRM application, the bank can validate the model regularly, document assumptions, track issues, and confirm it meets regulatory standards. This reduces risk and supports better decision-making.

    Model Risk Management users

    Table 1. Users
    User Description
    Model Owner Oversees the model life cycle and monitors its performance.
    Model Developer Designs and builds models aligned with business requirements.
    Model Validator Performs independent validation to confirm model accuracy, reliability, and robustness.
    Model Governance Reviews models for risk and compliance and approves models based on governance standards.
    Executive Management Provides strategic oversight and makes high-level decisions informed by model risk insights.

    Model Risk Management workflow

    The following section describes the steps from the submission of a model risk in the Employee Center to the assessment and monitoring of the risks associated with that model.

    Figure 1. Submitting and managing model risks with Model Risk Management
    Infographic showing how Model Owner, Model Governance, and Model Validator submit, assess, validate, and monitor a model risk. For details, refer to the following description.
    1. An employee can use the Employee Center and submit a new model request.
    2. A new model record is automatically created in the model inventory and can be assessed in the Model Risk Workspace.
    3. The Model Governance team reviews the submitted model, fills in the required details such as stakeholders, and then creates relevant assessments.
    4. The Model Owner performs the risk assessment on the model and submits it to the Model Governance team for review. The assessment task is then sent for approval to the defined approvers configured in the Approver Configurator.
    5. The Model Governance team reviews and approves the assessment. The model then moves to the Pre-deployment stage.
    6. The Model Governance team creates and assigns the validation task to the validator.
    7. The model validator validates the model, collects required documents, reports any issues, and decides if the model is fit for use.
    8. The validation task is then sent for approval to the defined approvers configured in the Approver Configurator.
    9. The model then moves to the Monitor stage.
    10. The Model is periodically assessed and validated to confirm regulatory compliance and effective risk management.

    Model Risk Management benefits

    Table 2. Model Risk Management benefits
    Feature Benefit Users
    Model Inventory Provides a single, reliable source of truth for all models, enabling faster oversight and informed decision-making.
    • Model Governance
    • Model Owner
    • Model Validator
    • Model Risk Owner
    • Model Risk Coordinator
    Model Risk Life-cycle Manages the full model life-cycle by tracking models from initiation to monitoring through defined governance stages, confirming consistent governance and lowering operational and compliance risk.
    • Model Governance
    • Model Owner
    • Model Validator
    • Model Risk Initiator
    • Model Risk Coordinator
    Model Risk Assessment Helps quickly identify and prioritize high-risk models so resources focus where they matter most.

    To perform a model risk assessment and evaluate the risks associated with a quantitative model, refer to Perform model risk assessment.
    • Model Owner
    • Model Validator
    Model Validation Builds confidence in model reliability through independent checks that reduce errors and regulatory concerns.

    To perform model validation, refer to Perform model validation.

    		 Model Validator
    Model Documentation Makes it easy to maintain clear, audit-ready documentation that streamlines reviews and improves transparency.

    To link documents from your repository to a model record, refer to Link existing documents to a model record.
    • Model Governance
    • Model Validator
    • Model Risk Coordinator
    Model Issue & Remediation Enables timely detection and resolution of model issues, minimizing business disruption and confirming continuous compliance.

    To report an issue, refer to Create an issue for model.
    • Model Governance
    • Model Validator
    • Model Risk Coordinator

    What to explore next

    To learn more about configuring and using Model Risk Management, see: