Model Inventory
Executive Summary
Key Takeaways
- ✓ A model inventory is the centralised register of all models in use within an organisation.
- ✓ It is the foundational document of any model governance framework; without it, governance cannot be applied consistently.
- ✓ The inventory should record each model's purpose, owner, tier, validation status, known limitations, and review schedule.
- ✓ Completeness, currency, and integration with tiering and validation processes determine whether the inventory functions as a genuine governance tool or merely as a list.
- ✓ Auditors should test inventory completeness, currency, tiering appropriateness, validation gaps, and orphaned models.
Definition¶
A model inventory (also referred to as a model register or model catalogue) is a centralised, maintained register of all financial models in active use within an organisation. It records, for each model, the information required to govern it effectively: its purpose, owner, developer, validation status, approved use cases, material limitations, and review schedule.
The model inventory is the foundational document of a model governance framework. Without a complete inventory, an organisation cannot systematically apply governance controls, cannot assess its aggregate model risk exposure, and cannot demonstrate oversight to investors, lenders, or regulators.
Why It Matters¶
Financial models accumulate in organisations faster than governance frameworks develop. A team that builds one model for a transaction builds another for a refinancing, another for a sensitivity analysis, and another for reporting. Without a formal inventory process, models proliferate across shared drives and email threads, with no single authoritative record of what exists, who owns it, and whether it has been validated.
The consequences of operating without a model inventory include:
- Unknown model exposure: The organisation does not know how many models it has, what decisions they inform, or what their validation status is
- Version uncertainty: Multiple versions of the same model may be in use simultaneously across different teams
- Orphaned models: Models whose original owner has left continue to be used without anyone understanding how they work
- Audit failure: When an external auditor or regulator asks to see the model inventory, the organisation cannot produce one
- Governance gaps: Governance controls cannot be applied consistently to models that are not registered
Technical Background¶
What a Model Inventory Records¶
A model inventory typically contains, for each model, the following fields:
| Field | Description |
|---|---|
| Model ID | A unique identifier for the model within the inventory |
| Model name | The name by which the model is known within the organisation |
| Purpose | A brief description of what the model does and what decisions it supports |
| Model type | The category of model (DCF, project finance, real estate, operational, etc.) |
| Owner | The individual currently responsible for the model's accuracy and maintenance |
| Developer | The individual or team who built the model |
| Location | The file path, repository, or system where the current approved version is stored |
| File format | The software and version in which the model is built (e.g. Excel 365, Python) |
| Date created | When the model was first built |
| Last reviewed | The date of the most recent validation or material review |
| Validation status | Whether the model has been validated, by whom, and the outcome |
| Tier | The model's risk tier classification under the organisation's tiering framework |
| Approved use cases | The specific purposes for which the model is approved for use |
| Known limitations | Conditions or inputs outside the model's tested range |
| Review due | The date by which the model is next due for review |
| Retired | Whether the model has been retired and the date of retirement |
Inventory Scope: What Counts as a Model¶
One of the most common governance questions is where to draw the boundary of the model inventory. Best practice treats as a model any quantitative tool used to inform a material decision, regardless of its complexity. This includes:
- Complex multi-sheet financial models used for investment decisions
- Simpler Excel tools used for operational or reporting calculations
- Dashboards that aggregate and present data from underlying models
- Automated scripts or macros that perform financial calculations
The boundary should err on the side of inclusion. A simple operational tool that turns out to contain an error has the same financial impact as an error in a complex investment model.
Static vs Dynamic Inventory¶
A static inventory is a document (spreadsheet or database table) that is updated manually when models are added, changed, or retired. It is the most common form in practice but requires disciplined update procedures to remain accurate.
A dynamic inventory integrates with the file systems or model management platforms used by the organisation and is updated automatically when model files are created, modified, or archived. Dynamic inventories are more accurate but require more infrastructure investment.
Integration with Tiering and Validation¶
The model inventory is most effective when integrated with the organisation's model tiering and model validation processes:
- Tiering: Each model in the inventory carries a tier classification that determines the governance standards applied to it. Higher-tier models require more rigorous validation, more frequent review, and more detailed documentation.
- Validation: The inventory records the validation status of every model. A model that is due for re-validation, or that has not been validated since a material change, is flagged in the inventory.
This integration means the inventory is not just a list — it is an active governance tool that tracks the status of every model against its applicable obligations.
The Inventory as a Risk Assessment Tool¶
In aggregate, the model inventory allows the organisation's risk function to assess its total model risk exposure. By reviewing the inventory, a CRO or Head of Model Risk can identify:
- Models that have not been validated or reviewed within their scheduled cycle
- Models with material known limitations that are being used without disclosure
- Models in high-risk tiers that do not have adequate documentation
- Orphaned models whose owners have left the organisation
- Models that are duplicates or near-duplicates of each other, indicating version control issues
This aggregate view is not possible without a complete and current inventory.
Audit Considerations¶
1. Completeness Testing¶
An inventory is only useful if it is complete. When auditing a model governance framework, test inventory completeness by:
- Asking individual team members to list the models they use that are not in the inventory
- Searching the organisation's file systems for model files not referenced in the inventory
- Reviewing recent decisions to identify models used that are not registered
2. Currency Testing¶
Verify that the inventory reflects the current state of each model. Fields most prone to becoming stale include: owner (staff turnover), validation status (reviews completed but not recorded), and location (files moved without updating the registry).
3. Tiering Appropriateness¶
Review a sample of models in the inventory and assess whether their tier classification is appropriate given their purpose and the materiality of the decisions they inform. Systematic underclassification of tier level is a common governance finding.
4. Validation Gap¶
Identify models that are either unvalidated or overdue for re-validation under their scheduled cycle. Calculate what proportion of the total model population this represents. A significant validation gap is a material model governance finding.
5. Orphaned Models¶
Identify models whose registered owner is no longer with the organisation. These models represent a governance gap: they may be in use without anyone responsible for their accuracy, and they may have been modified without documentation.
Common Errors¶
| Error | Description | Risk |
|---|---|---|
| Incomplete inventory | Significant models are absent from the register | Ungoverned models carry unmanaged risk |
| Stale records | Owner, location, or validation status not updated | Inventory provides false assurance |
| No formal process for new models | Models added without registration | Inventory falls progressively behind reality |
| Tier not assigned | Models registered without a risk tier | Governance standards cannot be applied |
| Inventory not reviewed | The inventory itself is not periodically reviewed for completeness | Gaps accumulate over time |
Best Practices¶
Assign ownership of the model inventory to a specific function — typically a model risk or governance team — with clear responsibility for its completeness and currency. An inventory that is everyone's responsibility is effectively no one's responsibility.
Establish a mandatory registration requirement: any new model built or acquired by the organisation must be registered in the inventory before it is used for decision-making. Integrate this requirement into the organisation's model development procedure.
Schedule a periodic inventory review (at minimum annually) to confirm completeness, update stale records, and identify models that should be retired or re-validated.
Use the inventory as a reporting tool. Present a summary of the inventory — including tier distribution, validation status, and review schedule — to the relevant risk committee at each periodic meeting.
Continue Reading¶
Prerequisites¶
- What Is Financial Model Governance? — the parent pillar
Related Pillars¶
Related Glossary¶
How OXXON tests thisRun a free structural check with FMAE
Frequently Asked Questions
Does every model need to be in the inventory, or only the most important ones?
Best practice is to register all models used to inform material decisions, regardless of complexity. The threshold for what constitutes a material model should be defined in the organisation's model governance policy and applied consistently.
How often should the model inventory be updated?
The inventory should be updated whenever a model is created, materially changed, or retired. Additionally, a periodic review (at minimum annually) should verify that all records are current and complete.
Can a spreadsheet serve as the model inventory itself?
Yes. Many organisations maintain their model inventory as a dedicated spreadsheet. This is practical for smaller model populations. For large or complex model portfolios, a purpose-built database or governance platform may provide better functionality.
Who should have access to the model inventory?
The inventory should be accessible to the model governance function, senior management, and the organisation's internal and external auditors. Individual model owners should be able to view and update the records for their own models. Write access to the full inventory should be controlled.
Related Articles
Model Governance
Model governance is the organisational framework through which an institution defines, implements, and enforces policies and controls for the development, approval, use, validation, change, and retirement of financial models. It establishes accountability for model quality, a structured process for model oversight, and a documented record of model use and validation history. Effective model governance ensures that decisions made using financial models are based on outputs that have been developed to an appropriate standard, validated by a party independent of the developer, and used within the bounds for which they were designed.
Model Tiering
Model tiering is the process of classifying financial models into risk-based categories — tiers — that determine the level of governance oversight, validation rigour, documentation standards, and review frequency applied to each model. Higher-tier models, which are more complex, more material to decision-making, or more difficult to verify, receive more intensive governance than lower-tier models. Model tiering allows organisations to apply governance resources proportionately. Without tiering, an organisation must either apply heavy governance to every model (impractical) or apply light governance to every model (insufficient for high-risk models). Tiering resolves this by concentrating oversight where it matters most.
Model Validation
Model validation is the structured, independent process of assessing whether a financial model is conceptually sound, mathematically correct, implemented as intended, and fit for its approved purpose. It is conducted by a reviewer who is independent of the model's developer and produces a documented assessment of the model's strengths, limitations, and any findings requiring remediation. Model validation is a component of model governance. The governance framework defines when validation is required, who conducts it, and what the validation must assess. The validation itself is the technical execution of that requirement.
Model Handover
Model handover is the structured process by which responsibility for a financial model — including operational ownership, update obligations, and decision-making authority — is formally transferred from one individual or team to another. It encompasses the transfer of the model file, all associated documentation, version history, and the knowledge required to operate the model correctly and safely. Model handover occurs in several contexts: when a staff member leaves an organisation, when a project transitions from development to operations, when an advisory firm concludes an engagement and returns a model to the client, or when model ownership is reassigned within a team.
What Is Model Risk?
Model risk is the risk that a decision is wrong not because the underlying business or investment case was flawed, but because the model used to evaluate it was. It is a distinct category of risk from market risk, credit risk, or operational risk, and it applies to any organisation that relies on a financial model, spreadsheet or otherwise, to support a material decision. Most published model risk content addresses statistical and regulatory capital models used inside banks. This page defines model risk specifically as it applies to Excel based financial models, the kind used every day for investment decisions, lending, and transaction evaluation, which is a related but distinct problem from the quantitative model risk literature most search results return.
What Is Financial Model Governance?
Financial model governance is the set of policies, roles, and controls an organisation puts in place to manage the risk that comes from relying on financial models for material decisions. It is the organisational layer that sits above any individual financial model audit: governance determines when a model gets audited, who owns that decision, how versions are tracked, and what happens to findings once they exist. Most published governance content online is written for large, tier one banks operating under formal regulatory regimes. A private equity firm, a family office, or a mid market corporate finance team rarely has that scale of infrastructure, and does not need it, but still carries real exposure if no governance exists at all. This page defines governance at the level that actually applies to most organisations relying on Excel models, not just the largest ones.