The use of models

2.1 Firms' use of models [Model use is defined here as using a model's output as a basis for informing business decisions.] covers a wide range of areas relevant to its business decision making, risk management, and reporting. Business decisions should be understood here as all decisions made in relation to the general business and operational banking activities, strategic decisions, financial, risk, capital, and liquidity measurement and reporting, and any other decisions relevant to the safety and soundness of firms. Firms' increasing reliance on models and scenario analysis to assess future risks and the evolution of sophisticated modelling techniques highlights the need for sound model governance and effective MRM practices. Inadequate or flawed design and implementation, and inappropriate use of models could lead to adverse consequences.

Quantitative methods and models

2.2 A wide variety of quantitative calculation methods, systems, approaches, end-user computing (EUCs) applications and calculators (hereinafter collectively 'quantitative methods') are often used in firms' daily operations, ie output supports decisions made in relation to the general business activities, strategic decisions, pricing, financial, risk, capital and liquidity management or reports, and other operational banking activities. Good risk management practices involve quantitative methods that support business decisions being tested for correct implementation and use.