Corporate Risk Assessment: Why you need to assess Algorithmic Bias

By Anthony Rhem, CEO, A J Rhem & Associates

Assessing algorithmic bias in contributing to your company’s overall risk assessment is critical to understanding a company’s overall risk profile when using artificial intelligence (AI) in particular machine learning algorithms (MLA).  This is essential due to legal, reputational, financial, customer experience, ethical, and competitive implications. Compliance with regulations helps avoid fines and penalties, while maintaining public trust and reputation and prevents negative media scrutiny. This also includes financial impacts that have potential to cause market share loss and operational costs for mitigation. Ensuring fairness in algorithms enhances customer satisfaction and serves diverse market needs. Addressing bias also fosters innovation and provides competitive differentiation.

Assessing and Mitigating Algorithmic Bias
There are several factors and criteria for assessing and mitigating algorithmic bias. These factors include organizational governance, capability, and maturity, which ensure that the organization has the political will and governance processes to address ethical algorithmic bias (Adriano, et al. 2024; Hasan, et al. 2022). In addition, clarity of MLAs operations ensures clear definition and communication of MLAs operations to stakeholders. Having context alignment ensures MLAs are aligned with the context of all affected stakeholders. If the use of protected characteristics of data is needed, establishing justification of the use of protected characteristics is required. Also, continuous AI solution behavior monitoring is needed to continuously monitor MLAs behavior to identify and correct bias early based on previously established bias profiles entails the capability to address and correct bias during.

Algorithm Transparency
The lack of algorithm transparency is identified as an inhibitor of ethical algorithm development. This includes the lack of transparency in decision-making processes, data set selection, and sources, which hinders the ability to assess bias (Adriano, et al. 2024; Hasan, et al. 2022; IEEE, 2022). The primary inhibitor of ethical algorithmic bias is the lack of process transparency. This includes a lack of transparency in decision-making processes, data set selection, and the sources of data, which hinders the ability to assess and address bias effectively. Without transparency, it becomes challenging for stakeholders to understand how decisions are made and to identify potential biases. Therefore, ensuring transparency is critical for the ethical operation of machine learning algorithms.

Evaluation Criteria
The process for evaluating ethical algorithmic bias involves evaluating evidence of compliance with bias ethical foundational requirements (EFRs) (IEEE, 2022). Organizations must provide comprehensive documentation, including test results, audit reports, and evidence of stakeholder engagement, to demonstrate their efforts in addressing algorithmic bias. This evidence is critical for verifying that the organization is adhering to ethical practices and for identifying areas that may need improvement.

Levels of Evaluation
According to the IEEE, 2022, there are three levels of evaluation based on the impact and risk posed by the machine learning algorithms. The Baseline, Low Impact (LI) level includes the minimum criteria for low-risk machine learning algorithms, ensuring that even the least critical systems adhere to basic ethical standards. The Compliant, Medium Impact (MI) level involves more extensive criteria for medium-risk machine learning algorithms, reflecting a greater need for thorough assessment and mitigation of biases. The final level of evaluation is the Critical, High Impact (HI) level, which includes comprehensive criteria for high-risk machine learning algorithms, which have the potential for significant impact on health, safety, and ethical values. This level requires the most stringent adherence to ethical practices to ensure that the systems operate safely and fairly.

Data and Algorithmic Audits
AI solutions using algorithms rely on data to learn and make decisions. The way data is collected, stored, used, and shared can have significant impacts on individuals, organizations, and society. Data audits involve systematically reviewing and assessing data to ensure its accuracy, completeness, reliability, and relevance. The primary objectives are to identify data quality issues, ensure compliance with regulations, and improve data management practices. Algorithmic audits focus on examining the algorithms and models used in data-driven decision-making processes to ensure their fairness, transparency, accountability, and effectiveness (Adriano, et al. 2024; Hasan, et al. 2022; Rhem, 2023). Together data and algorithm audits ensure that the data used in training algorithms and the data being processed by algorithms has passed the level of scrutiny needed to effectively render correct and unbiased decisions.

Importance of Diverse AI Solution Teams
A diverse AI solution team is crucial for the success of AI solutions because it fosters collaboration, knowledge exchange, and innovation. When team members come from various backgrounds, they bring different perspectives, experiences, and cultural insights, which enrich the problem-solving process (Rhem, 2023). This diversity of thought leads to a broader range of ideas and approaches, enabling the team to tackle complex issues creatively and effectively. By integrating diverse viewpoints, organizations can develop unique or enhanced AI products that stand out in the market, driving growth and technological advancement. Additionally, during the crucial stages of data selection and cleansing for machine learning applications, a diverse team can identify and mitigate potential biases, ensuring that the AI models are fair, accurate, and representative of different populations (Rhem, 2023).

Corporate Board and Senior Management Engagement
The corporate board plays a crucial role in overseeing the strategic direction and governance of AI solutions within an organization. Their responsibilities encompass strategic oversight, risk governance, and ensuring ethical and legal compliance. The board must ensure that AI initiatives align with the company’s long-term goals and ethical standards, reviewing and on occasion along with Senior Management approving AI projects to ensure they contribute to growth and competitiveness. At the corporate board level, the board must establish a comprehensive framework for identifying, assessing, and managing risks associated with AI, setting risk appetite and tolerance levels to ensure AI activities remain within acceptable thresholds. The board also ensures transparency in AI operations and decision-making processes by implementing reporting and auditing mechanisms. Senior management, on the other hand, is responsible for the day-to-day execution and operationalization of AI risk management strategies. Senior Management must implement detailed risk management frameworks specific to AI solutions, which align to the AI framework established by the board. This will ensure robust data governance practices to maintain data integrity, quality, and security.

Senior Management will provide operational oversight and continuously monitor and evaluate AI solutions to ensure they function as intended and deliver expected outcomes. Also promoting ethical AI practices within the organization incorporating incident response and recovery plans for AI-related issues, are driven by Senior Management. This ensures effective communication with stakeholders and implements measures to prevent future incidents. Regular performance reporting to the board keeps them informed about the status and risks of AI initiatives, enabling strategic decision-making and ensuring responsible AI development and deployment.

Assessing algorithmic bias is a comprehensive and ongoing effort that requires collaboration across various levels of an organization. Assessing algorithmic bias is also crucial for understanding a company’s overall risk profile when using AI, particularly machine learning algorithms. Compliance with regulations helps avoid fines and maintain public trust, while ensuring algorithmic fairness enhances customer satisfaction and serves diverse market needs.   By conducting thorough audits, promoting transparency, fostering diverse teams, engaging stakeholders, and ensuring strong leadership and risk management, organizations can work towards more equitable and reliable AI solutions.

Hasan, A., Brown, S., Davidovic, J., Lang, B., & Regan, M. (2022). Algorithmic Bias and Risk Assessments: Lessons from Practice. DISO 1, 14 (2022). https://doi.org/10.1007/s44206-022-00017-z

IEEE. (2022). CertifAIEd Ontological Specification and Standard for Algorithmic Bias. Retrieved from https://engagestandards.ieee.org/rs/211-FYL-955/images/IEEE%20CertifAIEd%20Ontological%20Spec-Algorithmic%20Bias-2022%20%5BI1.3%5D.pdf

Adriano, K., Emre, K., Philip, T., Pete, R., Lukasz, S., Giles, P., … Siddhant, C. (2024). Towards algorithm auditing: managing legal, ethical and technological risks of AI, ML and associated algorithmsR. Soc. Open Sci.11230859 http://doi.org/10.1098/rsos.230859

Rhem, A.J. (2023). Ethical use of data in AI Applications. IntechOpen. doi: 10.5772/intechopen.1001597

Hot Topics

Related Articles