Filing Information: December 2012, IDC #238627, Volume: 1, Tab: Users

Business Analytics Solutions: Buyer Case Study

BUYER CASE STUDY
The Sci ence and Ar t of Deci si on Management
at a Lar ge Bank
Dan Vesset Brian McDonough
I DC OPI NI ON
The convergence of intelligent devices, social networking, pervasive broadband
networking, and analytics has ushered in a new economic system that is redefining
relationships among producers, distributors, and consumers. The flood of new data,
faster cycle times, and the adoption of analytics prevalent in the intelligent economy
makes it clear that there is both a need and an opportunity to change how decisions
are made to harness these new circumstances to achieve advantage in the market.
Enterprises succeed or fail based on the decisions made by executives. They
compete effectively or lose market share based on the operational decisions made by
their managers. And they are more or less profitable based on the day-to-day
decisions of various workers who make up most of the workforce. In the intelligent
economy, new solutions managing the process of decision making are being created,
whether the decision is being made by an executive, a team, a worker, or an
automated system. Despite the importance of decisions to performance at all levels of
an organization, systematizing the process of making decisions only exists in small
pockets of a business with a small number of people. Some of the leading
organizations have realized that there is a need to shift from the art of decision
making to the science of decision making. In detail:
One of the organizations leveraging the power of a decision management
solution is a large bank. (At the request of the company, we will refer to the
company as the bank throughout this Buyer Case Study.
The bank has been using Blaze Advisor business rules management software
from FICO as the basis of its decision management solution. FICO Blaze Advisor
is being used by the bank in eight different decision management areas.
The benefits of a decision management solution can range from the optimization
of credit and marketing processes to compliance and product or service
innovation.
A key lesson learned from the bank's ongoing decision management program is
to use technology as an enabler, not as a replacement of decision makers, and
to consider the wide range of organizational and external market forces that
affect the decision-making process.
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2 #238627 2012 IDC
I N THI S BUYER CASE STUDY
This IDC Buyer Case Study highlights the use of decision management techniques
and technology at a large bank.
SI TUATI ON OVERVI EW
O r g a n i z a t i o n O v e r v i e w
The bank, which was interviewed by IDC analysts, has about $100 billion in assets. It
offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its specialized
subsidiaries in the areas of investment banking, life and nonlife insurance, venture
capital, and asset management. The bank has a wide network of thousands of
branches and ATMs and a presence in about 20 countries.
C h a l l e n g e s a n d S o l u t i o n
Business Requirements and Needs
From 2004 to 2006, the bank experienced a rapid geographic expansion paralleled with
an expansion in the number of products. Subsequently, the number of loan applications,
including those for relatively small personal loans and credit cards, rose significantly.
This growing, low-margin business necessitated the deployment of new technology to
ensure operational efficiency of the lending process was maximized. For example,
historically, it took the bank two days and significant manual effort to process a loan
application. Error rates varied based on loan documents and lending staff.
At the time in 2006 the bank had lending scorecards. However, the expanding
volume of business made a larger part of the lending decision-making process
amendable to automation. The bank began reviewing options for implementing its
lending scorecards within the lending process. This review led the bank's business
intelligence (BI) group to the conclusion that there was a need for a rules engine to
support the lending decision-making process. The goal was to ensure low loan
processing costs and lending decision-making consistency.
Part of the motivation to introduce a rules engine was to enable a champion-
challenger evaluation between the existing and the new scorecards and to create a
management facility to enable this process.
Technology Acquisition Considerations
At the bank, the rules management team is part of the broader BI group that is
responsible, among other things, for decision management technology. After an
extensive, eight-round evaluation and procurement process that started with a
request for proposal (RFP) and included a proof of concept (POC), the bank's team
represented by heads of BI, one of the retail, risk management, and technology
groups, decided to move the project forward with technology from FICO, a leading
decision management solutions vendor. The bank purchased FICO's Blaze Advisor
rules management technology as a basis for its decision management efforts in 2006.
2012 IDC #238627 3
Referring to one of the key reasons for selecting software from FICO, the bank's
assistant general manager of the Business Intelligence (BI) Unit said, "We wanted a
gray box, not a black box that would not allow us to change rules on demand."
Another key evaluation criterion was the capability to scale from hundreds to
thousands of rules.
Although the initial impetus for purchasing the Blaze Advisor rules engine was the
need to automate existing scorecards, the bank's BI group quickly realized that it had
a broader opportunity to automate decision-making processes. For example, policy
books and go/no-go decisions (among others) could be part of the new automation
process. The assistant general manager of the BI Unit added, "By the time we began
to understand the strength of the tool, there were a lot of new possibilities."
Project Evolution: More than Technology
As of the beginning of 2012, the project was depicted as a five-year journey that
started in late 2006 with the migration of more than 5,000 rules, many of which
existed only on paper, into the FICO Blaze Advisor rules engine. Over the subsequent
years, the BI team has been able to implement various best practices and refine the
process of rules and decisions management. Today, the bank has even data quality
metrics in Blaze Advisor. This allows the BI team to quickly change relevant rules
instead of hard coding them on the underlying operational system.
While deploying the rules engine, the BI team intentionally minimized the use of
available workflow management functionality. The team did not want to make the
rules engine a dictator of decisions to field personnel. The goal was to use the
technology to enable the local credit manager to make better (faster, more insightful,
and more consistent) decisions. For example, almost every rule varies from city to city
and product to product (e.g., based on differences in regional interest rates).
However, certain workflows were implemented to allow for review of rules if managers
consistently deviated from the system's recommendations. If the business
performance based on these deviations is appropriate, then the original rules or
policies are reevaluated on a case-by-case basis and modified as needed. In addition
to these case-by-case reviews, the bank conducts a quarterly review of policies.
At the bank, decision management is viewed as an ongoing, multifaceted program.
Before the initial implementation of the Blaze Advisor rules management software,
there was a lot of skepticism and questions and concerns about turnaround times. To
alleviate some of these concerns, the solution was rolled out product by product, with
high-volume products at the top of the list.
Today, when all decision variables are known, it typically takes the bank's BI team 48
hours to deploy a new rule. In more complex cases, the typical time to deploy a new
rule can stretch to five days. Among the more complex projects was the coding of the
bank's policy book into Blaze Advisor software. This was not a trivial task as some
rules were very complicated to code.
The staff involved with rules management comprises multiple groups of the bank.
Most of the requests for new rules are initiated by the risk management group.
However, there are times when the BI group suggests new rules, which still need to
4 #238627 2012 IDC
be approved by the risk management group. There is a dedicated, in-house, Blaze
Advisor software team made up of three rules writers, one deployment expert, and
one technical expert.
R e s u l t s
The bank has experienced several benefits and has found a number of uses for its
decision management solution, including rules management software from FICO, as
well as other data warehousing and business intelligence technology.
Prior to the implementation of the decision management solution, manual loan
application scoring and approval process took two days and included a large amount
of manual effort, resulting in high error rates and processing inconsistencies. One of
the primary benefits has been the ability to change rules rapidly. The lending market
in which the bank operates experienced very high default rates in 2007 because of
economic and regulatory conditions. The new solution enabled the bank to react
faster and with greater insight to changes in lending norms.
More broadly, the solution has enabled:
Credit process automation via the deployment of automated scoring models for
risk assessment, which has in turn improved productivity
Availability of audit trails for policy changes, thus enabling internal policy review
and compliance reporting
Automated workflow and increased productivity, including ease of deployment
and maintenance and improved management reporting (For example, in the past,
it was difficult for the BI team to provide comparisons of various KPI trends to
senior management. Coding these KPIs into Blaze Advisor, which outputs
comparisons of month-to-month performance, has been a very important tool for
senior management.)
Real-time risk assessment of online customers using smart application forms
Mass personalization of customer interactions based on interactive application
forms and intelligent assistance for product selection (For example, the rules
engine is used extensively on the banks credit card Web site, where the
navigation is driven by the rules engine. The Web site guides users to the
appropriate product. Customers have an interface that enables input of features
such as: How much do you spend on travel, shopping, and dining to maximize
rewards for a partner, such as an airline? When an online user changes
variables, recommendation changes. In fact, the bank's credit card Web site
looks similar to a travel or retail Web site, where the user selects product
variables and thereby narrows his or her choices to most appropriate products.)
Some of the future uses being considered are collections, fraud monitoring, and
channel compensation.
2012 IDC #238627 5
ESSENTI AL GUI DANCE
The convergence of intelligent devices, social networking, pervasive broadband
networking, and analytics has ushered in a new economic system that is redefining
relationships among producers, distributors, and consumers. The flood of new data,
faster cycle times, and the adoption of analytics prevalent in the intelligent economy
makes it clear that there is both a need and an opportunity to change how decisions
are made to harness these new circumstances to achieve advantage in the market.
Enterprises succeed or fail based on the decisions made by executives. They
compete effectively or lose market share based on the operational decisions made by
their managers. And they are more or less profitable based on the day-to-day
decisions of various workers who make up most of the workforce. In the intelligent
economy, new solutions managing the process of decision making are being created,
whether the decision is being made by an executive, a team, a worker, or an
automated system.
Despite the importance of decisions to performance at all levels of an organization,
systematizing the process of making decisions only exists in small pockets of a
business with a small number of people. Some of the leading organizations have
realized that there is a need to shift from the art of decision making to the science of
decision making.
Decision management is the systematic application of enabling technology to manage
the process of making decisions. It includes:
Systems designed to identify when a decision needs to be made
Frameworks that add rigor to decision making
Required data to assist in making the decisions
Analytics for optimization across a series of choices and to automate the process
of making certain types of decisions
Collaborative applications to share knowledge, ask questions, access
information/people, and work as a team to arrive at a decision
Search and access to find related content and data needed in different phases of
a decision
Workflow required to carry the decision process forward
Archiving and measurement to maintain a history of the decision process as well
as the business performance of the decision
The bank's example provides several important lessons:
Secure top-level project sponsorship.
Create a transparent and collaborative environment to ensure project buy-in from
all affected parties.
6 #238627 2012 IDC
Use technology to support and enable individual decision makers with faster and
more insightful recommendations rather than as a replacement of people.
Deploying an initial set of rules is only a portion of any decision management
program. There is a need for ongoing review of rules and the rapid deployment of
new or modified rules.
Look for opportunities to use rules engines outside of credit decisions
optimization processes. They can also be used externally to drive personalization
of customer interactions on a company's Web site or to code selling restrictions
that support an individual credit manager's decisions.
Recognize that rules management software is only one component of a broader
decision management solution. At the bank, on the one hand, there was no
prerequisite additional technology to deploy the Blaze Advisor rules management
software. On the other hand, the bank already had a data warehouse and
business intelligence tools.
LEARN MORE
R e l a t e d R e s e a r c h
To Centralize or Decentralize, That Is the Question: Approaches for Deploying
BI, DW, and Analytics (IDC #238488, December 2012)
Market Analysis Perspective: Worldwide Business Analytics, 2012 (IDC #238539,
December 2012)
2012 State of the U.S. Business Analytics Market and End-User Perspective by
Vertical and Company Size (IDC #237948, November 2012)
IDC Predictions 2013: Competing on the 3rd Platform (IDC #WC20121129,
November 2012)
It's Much More Than Technology: Big Data and Analytics Adoption Requires
Focus on Strategy, Skills, and Process (IDC #lcUS23693312, September 2012)
Worldwide Business Analytics Software 20122016 Forecast and 2011 Vendor
Shares (IDC #235494, June 2012)
Business Analytics Survey 2012: How Satisfied Are Organizations with Their
Analytic Solutions? (IDC #235423, June 2012)
Worldwide Decision Management Software 20102014 Forecast: A Fast-
Growing Opportunity to Drive the Intelligent Economy (IDC #226244, December
2010)
2012 IDC #238627 7
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