October 2009 Issue
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- E.ON - Identifying optimal contact strategies
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- HSBC - Enhancing customer service with consistent decision making capabilities
- Isbank - Identifying optimal customers with accurate risk profiles
- Shinsei Financial - Optimising credit lending strategies
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- Using data to enhance SME credit decisioning
- Signs of recovery? Risk and collections managers' work is yet to come!
- How to motivate your collections team with incentives that work
- How optimisation can improve collections performance
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- SimRisk - The international credit risk management competition
- Events & collaboration - Credit Risk Management Master, Università La Cattolica in Milan
- Experian and I-SEC partner to offer advanced document checking service
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Developing business cases for Business Rules Engines
Financial Service businesses run on rules. These rules are where the strategic and tactical objectives of a business meet, and potentially conflict with, the day to day need to make decisions on individual customers:
“What customers do I take on?” “How should I manage the relationship with my customers going forward?” “How do I ensure that business rules optimise customer satisfaction and financial return as well as achieving the objectives set by the business?”
Business rules can be coded into core IT systems. However, these rules and codes can quickly become complex and may not be capable of being easily understood or changed. The reality is that business rules can change more often than the applications which carry them and the business user can quickly become frustrated. The core systems are unable to be changed quickly enough to meet the speed-to-market required to keep ahead of the competition.
The last 25 years have seen the gradual introduction of sophisticated Business Rules Engine (BRE) technologies into global Financial Services organisations. BREs have a long record of giving business value by delivering the capability to deploy complex business strategies, which leverage sophisticated decision analytics, into the business user’s hands (typically via a Windows-based Graphical User Interface).
The case for adoption of a Business Rules Engine
Organisations in aggressive growth phases or emerging markets will obtain significant competitive advantage from advances in BRE technology, as they can move straight into more sophisticated capabilities, capitalising on the development of more established markets and organisations.
The business benefits achievable by the introduction of Business Rules Engines cover a wide range of business performance measures for both established lenders and start-up businesses:
- Business Rules Engines can be used across the enterprise as a single solution for executing complex decision management across a variety of decision points.
- BREs can deliver significant bottom-line benefits by influencing the key drivers of profit.
- BREs offer flexible decision management capabilities even when legacy host systems are inflexible.
- For businesses operating in multiple international markets, a BRE can provide a single consistent solution even when host account management platforms differ from market to market.
Fig 1 Typical decision points (for a consumer credit portfolio) which can be controlled by a full feature Business Rules Engine
Developing the Business case for a BRE
In finance, Return on Investment (ROI) is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. A properly constructed ROI case is a key component in achieving business approval for the BRE investment.
When developing a case which assesses benefits achievable, it is important that all of the key areas of decision control, with the consequent anticipated KPI improvement, are included in the benefits assessment, as well as including a properly researched and agreed set of development costs.
Most business cases would incorporate an evaluation of business benefits achievable from one or more of the following aspects of decision making control and customer value management:
- Savings in operational costs resulting from increased automation introduced via the BRE.
- Increases in revenue and savings from bad debt resulting from enhanced Behavioural Scoring capabilities delivered by the BRE.
- Improved customer value management in the areas of account acquisition, customer management and debt management afforded by the BRE’’s enhanced segmentation capabilities.
The more sophisticated advances in strategic risk management afforded by development of decision analytic functions and Strategy Optimisation developments can also form part of a BRE business case evaluation. As such, advances in decision making capabilities typically require sophisticated solutions such as BREs to deploy them in the lender’s operational systems.
Estimating the costs of investment in a BRE needs to include software license purchase and maintenance, as well as estimates of internal costs for initial design, and set-up and ongoing maintenance of software and systems.
The estimates of cost savings and revenue increases from a BRE deployment will vary according to the size of portfolio and risk profile. The likely uplift gained compared to Business as Usual (BAU) strategies will therefore also vary. For this reason, it is recommended that any estimate of gains is subjected to modelling using a variety of scenarios – 'modest uplift on BAU', 'moderate uplift', and 'best case uplift' – for the key profit components assessed (such as collections costs, bad debt savings and revenue increases).
A deeper understanding of business benefits achievable may need to make reference to more detailed portfolio analytics and the evaluation of specific decision initiatives, and this in itself may also require greater sensitivity analysis of the business case analytics, flexing one or more of the assumptions used in each component of the business case.
The business case would typically then be submitted to a variety of internal business stakeholders for initial examination and feedback, before final submission to the organisation’s internal investment sign-off process. Following business case approval, the organisation can commence the vendor selection process via Requests for Information (RFIs) or Requests for Proposals (RFPs).
Experian Decision Analytics is fully committed to working in partnership with its clients to assist them in developing business cases for approval of investment in the types of BREs, which have been successfully installed with hundreds of organisations across the world. The Global Consulting Team at DA has developed a comprehensive set of methodologies and templates for the construction of ROI cases across a variety of market verticals and stages of the credit lifecycle, and has worked with many clients in developing specific ROI cases, which support investments required to meet each client’s own strategic objectives.
In conclusion, the flexibility offered by a Business Rules Engine, which allows policy and strategy changes to be deployed quickly and accurately without the need for extensive IT resource, can be a powerful tool in managing lending strategies effectively in a rapidly changing environment. A properly constructed business case is a key component in achieving business approval for the investment.
John Worthington
Global Consultant
Decision Analytics
Experian
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