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The Key Principles of AI Risk Management

Published: July 27, 2023
Editor at Plat.AI
Editor: Ani Mosinyan
Reviewer at Plat.AI
Reviewer: Alek Kotolyan

We are all fascinated by AI and its capabilities, but it’s time to address the elephant in the room. While AI technology continues to revolutionize industries worldwide, it also poses inherent risks that must be managed effectively. As a result, AI risk management has become a hot topic of discussion, and for good reason.

From privacy breaches and cyber attacks to biased algorithms and potentially existential threats posed by advanced AI, the risks of AI are numerous. But here’s the thing: proper AI risk management can help mitigate these risks. So without further ado, let’s explore the various types of risks associated with AI and the importance of an AI governance framework.

What Is AI Risk Management?

AI risk management involves identifying, assessing, and mitigating potential risks associated with AI systems. The potential dangers of AI are diverse and can cause financial, legal, and reputational damage if not managed appropriately.

For example, one of the significant risks of AI is the potential for biased algorithms. The consequences of biases in data can lead to erroneous or unfair decision-making. This was the case when a software program used to predict which offenders would commit crimes again was found to be biased against African-American defendants.

To mitigate these risks, organizations must adopt effective AI risk management strategies that involve a comprehensive approach that considers both AI’s short-term and long-term impacts on society. These strategies include using diverse and unbiased data sets and implementing transparency and explainability. In the next section, we will look at the different categories of AI risks in more detail to better understand how they can be managed.

AI Risk Categories

Effective AI risk management requires identifying and mitigating potential risks across various categories. Here are some of the most common varieties of AI risks, along with subcategories and examples:

Data is the lifeblood of AI systems. It enables model training, generalization to new situations, adaptation, and continuous improvement. But most problems in AI-generated content stem from poorly collected and polished data. The subcategories of data-related risks include the following:

  • Data Bias: Biases in data can lead to unfair AI systems that perpetuate existing stereotypes in society. Unlike humans, AI algorithms cannot provide judgment and context for different environments. Human involvement ensures comprehensive assessments, considers ethical and social implications, and makes informed decisions that align with societal norms and values. AI algorithms may not consider all these factors. For instance, a recruitment AI trained on biased data may discriminate against candidates based on age, gender, or race.
  • Data Privacy and Security: AI systems often collect vast amounts of personal data. If this data is not adequately protected by encryption or access controls, it can be used maliciously. In 2022, nearly 500 people’s cryptocurrency wallets were targeted on Crypto.com. The attackers circumvented the site’s two-factor authentication and stole $18 million of Bitcoin and $15 million of Ethereum.
  • Data Quality and Integrity: Poor data could include incomplete, erroneous, and unsuitable data or data used in the wrong context. Poor data quality could not only hinder the learning capabilities of the AI system but can also lead to incorrect predictions and decisions. For instance, consider an AI system used for medical diagnosis that is trained on inaccurate or incomplete patient data. Poor data quality could result in misdiagnoses and inappropriate treatment recommendations, potentially compromising patient safety and care.

AI/ML Attacks

As AI systems become more prevalent, they can become a target for malicious attacks. Most of the known potential attacks against AI and machine learning (ML) systems can be grouped into one of the following categories:

  • Adversarial Attacks: These are techniques used to manipulate or trick AI systems into making incorrect predictions or decisions. One example is the “adversarial stop sign,” where an image of a stop sign is altered in an imperceptible way to humans but causes an AI-powered vehicle to misclassify it as a speed limit sign. As a result, this causes the car to drive through the intersection at an unsafe speed.
  • Data Poisoning: Data poisoning involves introducing malicious data into the database that the AI system trains on. This could increase the error rate of the AI/ML model and result in biased predictions. For instance, if an AI model used in credit scoring is trained on historical loan data that exhibits racial or gender bias, the biased data may result in the AI model making discriminatory lending decisions.
  • Model Stealing: In this attack, an individual steals the AI model itself from the organization. These attacks are potentially the most malicious types of AI/ML attacks, as the stolen model can be used as a tool to create additional risks. In 2021, the Chinese technology company Huawei was accused of stealing source codes, schematics, and user manuals from a Silicon Valley-based startup, CNEX Labs. Huawei allegedly used the stolen technology to develop its own autonomous driving system. This case highlights the significance of protecting AI-related trade secrets and the potential consequences of not doing so.


The testing phase is one of the key steps in how AI is built. It allows for the identification of model evolution, assessment of varying complexities, and the detection of potential issues and shortcomings, ensuring the reliability and effectiveness of the AI model. Potential testing-related risks are as follows:

  • Lack of Testing: Insufficient testing can lead to unanticipated errors and bugs in AI systems, resulting in incorrect predictions and decisions. For example, if a healthcare AI model is not thoroughly tested on a diverse range of data, including a sufficiently large and varied sample of ailments, it may result in incorrect diagnoses or suboptimal treatment recommendations, compromising patient safety and care.
  • Data Drift: Data drift occurs when the distribution of the input data used to train an AI model changes over time, leading to inaccurate predictions. A model that is trained on historical data may make incorrect predictions as new data becomes available. For instance, if an AI model is trained on historical customer preferences and purchase patterns, but customer behaviors and preferences shift over time, the model may fail to capture these changes.
  • Test Set Bias: Test set bias occurs when the data used to test an AI model is biased, leading to overestimating system accuracy and reliability. This is the case when an AI algorithm used in facial recognition is tested on a dataset with predominantly Caucasian faces. The algorithm may be less accurate when applied to diverse populations.


Compliance is another key category of AI risk management, as regulations and standards for AI are rapidly evolving and can vary widely depending on the industry or location. Compliance risks can include issues related to data privacy, transparency, fairness, and accountability. Companies and even government authorities must ensure that their AI systems comply with all applicable laws and regulations, as well as any internal policies or ethical guidelines.

For example, a few years ago, San Francisco passed the “Stop Secret Surveillance Ordinance,” which prohibited using facial recognition technology by city agencies before approval from the city’s Board of Supervisors. This ordinance was passed in response to concerns about facial recognition technology’s potential privacy and civil liberties violations.

AI Governance and Risk Management Framework

Since there is still some gray area regarding AI regulations nationally, companies must establish a clear AI governance and risk management framework. Such a framework should outline policies, procedures, and controls necessary to manage the risks associated with AI systems, including data processing, security, privacy, and compliance. However, according to the Wharton University of Pennsylvania, only 50% of enterprises in the financial sector have updated existing policies and standards for AI/ML.

The first key component of an AI governance framework is the establishment of clear roles and responsibilities for managing AI risks. This includes designating individuals or teams responsible for overseeing the development, deployment, and operation of AI systems, as well as for monitoring and mitigating associated risks.

Additionally, organizations need to create a comprehensive risk management plan or guidelines that provide a step-by-step guide on mitigating risks, responding to breaches, or handling adverse events. These measures ensure proactive monitoring, timely mitigation, and effective risk management throughout the AI system’s lifecycle.

Another key aspect of AI risk management is ensuring that AI systems are transparent, explainable, and auditable. This means that organizations must be able to define what an AI model is and explain how AI models make decisions, as well as the data inputs and processing steps involved. This transparency enables organizations to identify and address potential biases, errors, or other risks associated with AI.

Additionally, organizations must prioritize the security and privacy of the data processed by AI systems. This includes implementing appropriate security controls, such as access controls, encryption, and monitoring, to protect against unauthorized access, disclosure, and data loss.

Finally, an effective AI risk management framework should incorporate ongoing monitoring and evaluation of AI systems to identify and address potential risks as they arise. This includes conducting regular risk assessments and testing, as well as establishing mechanisms for reporting and resolving issues related to AI systems, such as dedicated reporting channels, incident response protocols, and collaborative efforts with stakeholders. Resolving issues can involve corrective measures like bug fixes, process improvements, and continuous learning and improvement.

Key Takeaways

Below is a list of the main points discussed in the article:

  • AI risk management involves identifying, assessing, and mitigating potential risks associated with AI systems. The potential risks of AI are diverse and can cause financial, legal, and reputational damage if not appropriately managed.
  • Common categories of AI risks include data-related risks, AI/ML attacks, testing-related risks, and compliance.
  • Data-related risks include data bias, data privacy and security, and data quality and integrity.
  • AI/ML attacks include adversarial attacks, data poisoning, and model stealing.
  • Testing-related risks include lack of testing, data drift, and test set bias.
  • Compliance is also a key category of AI risk management, as regulations and standards are rapidly evolving.
  • Effective AI risk management strategies involve a comprehensive approach that considers both AI’s short-term and long-term impacts on society.
  • Strategies can include collecting diverse and unbiased data sets, implementing transparency and explainability, and renewing the input data.

Sum Up

AI is revolutionizing many industries, but it also poses a significant risk if it is not managed correctly. As a result, companies must take proactive steps to address these risks, including identifying potential threats, assessing the potential impact of those threats, and developing strategies to mitigate those risks. 

The future of AI risk management will likely involve more sophisticated and specialized tools for identifying and eradicating risks, as well as greater collaboration between businesses, governments, regulators, and other stakeholders to ensure that AI is used safely and responsibly.

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Tigran Hovsepyan

Tigran Hovsepyan

Staff WriterTigran Hovsepyan is an experienced content writer with a background in Business and Economics. He focuses on IT management, finance, and e-commerce. He also enjoys writing about current trends in music and pop culture.

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