Model not fit for its intended purpose

What it is

Fitness for purpose is a claim about a particular use: this model, for this decision, on these people, to this standard. The risk is that the claim was never tested. A model can be excellent in general and unsuitable here, because the task differs from what it was built for, the required accuracy was never stated, or its errors fall where they do most harm. This is the root model risk; several entries in this category describe specific ways in which fitness fails.

How it happens

• A general-purpose model is adopted because it impressed in a demonstration.
• No acceptance criteria were set, so any result counts as a pass.
• Performance is measured on average and is poor for the cases that matter.
• The supplier's benchmark figures are taken as evidence for a different task.

Why it matters

Every decision the model supports inherits its inadequacy. For a regulated firm, using a model without evidence of its suitability is also a failure of model risk management in its own right.

Warning signs

• No document states what the model must achieve to be acceptable.
• Evaluation used data unlike the production population.
• Results are reported as a single headline figure.
• The business owner cannot say how often the model is wrong.

Who owns it

The business owner of the decision is accountable for using a suitable model. The model owner provides the evidence. Independent validation challenges it before approval.

In practice

A firm uses a general language model to extract figures from scanned pension transfer documents. It reads typed documents well and misreads handwritten ones, which make up a third of the volume and were absent from the trial. The same pattern generalises to any model selected on general reputation and not tested on the work it will do.