Risk modeling is about identifying and quantifying risk in light of changing variables. Within an enterprise risk management (ERM) program, models may help companies evaluate potential future losses. But to get the most out of risk models, companies need to understand them at their most basic level and prepare for the potential risks that can lie within them.
So what is a model?
A model is a theoretical construct to help people better understand and analyze real world facts, events or future scenarios. Generally, all models have an information input, an information processor, and an output of expected results. Within a business context, models transform external and internal data from one or more human or technology sources into a new picture or view of information. This output can be then used by managers to assess possible future performance, and help them make more meaningful decisions.
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