The Dawn of “parameters” and the Rise of the Decision Management Systems

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Executive Summary

During the last few years most organisations have realised that the “parameters” approach to model evolution of business models in various processes is not adequate to describe the logic of business decisions. Additionally, even in cases where this approach can work, the required changes in the supporting software are quite costly in terms of “time-to-market”. To address this inflexibility a new family of operational systems is emerging, called Decision Management Systems (DMS).

Decision Management Systems offer an agile approach to the implementation of any type of business decisions without imposing any practical barrier to the underlying logic.  Typically, decisions are described as graphs or decision trees, offering an intuitive environment to the business analysts (see figure 1 of a sample decision rule).

Case Study: DMS for Loan Origination and Recoveries

DMS enables a credit risk department to design, evaluate and optimise decision models for the whole customer life cycle ranging from credit origination to arrears management and recoveries. Using a DMS, the business user can model all decisions and policy rules of the credit risk department, such as application and behavioral scoring, credit approvals, customer segmentation, collection strategies, fraud detection and prevention, compliance and regulatory requirements.

Business users are empowered to design and manage credit risk strategies and comprehensive policies in an intuitive graphical environment WITHOUT WRITING A SINGLE LINE OF CODE! Decision models are translated by the system into executable code exploiting input parameters, which may be retrieved from a variety of sources. Advanced features ranging from rule versioning to simulation, provide added flexibility and integrity to the overall decision process. Since decision logical streams are built using business language instead of programming code, business departments enjoy independency from IT departments and core applications like origination, customer management and collections. As a result, the business obtains the power to organise, track, catalog, govern, simulate, test, reuse, search for, collaborate on and report on business rules and decisions.

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Figure 1. Typical decision model implementation using the graphical editor of Decision Engine.

Business Challenges

Organisations all over the globe require the tools to support them in building smarter, transparent, agile and often complex decision strategies. However, decision-making is a challenging process in today’s fast moving environment, which needs to frequently adapt to changing operational models and industry regulations within a highly competitive business landscape. Mapping decisions to business objectives is often a difficult task unless a decision logic can be defined in terms the business understands.

DMS allows organisations to exploit new market segments and business opportunities, operating in an environment which not only understands business language and correctly interprets and aggregates information from a variety of data sources, it actively contributes towards significant cost reductions and risk mitigation.

Decision Engine offers all the benefits of a CMS

Decision Engine® is a powerful DMS offered by Cententia that allows organisations and business users to respond to the rapid and frequent changes in decision criteria, of today’s competitive market.

  • Map decisions to business objectives intuitively:

Decision Engine® exploits business staff expertise as decision models are built using business vocabulary and not programming code.

  • Accelerate development and testing cycles:

With no gap between specification and implementation Decision Engine® drops the cost of testing allowing decision models to be defined at very early stages of the project.

  • Strengthen collaboration across the organisation:

Business rules become a common language facilitating cross functional communication within the organisation. Traditional barriers between the business and IT are eliminated

  • Achieve measurable levels of Compliance with Policies and Industry Regulations:

Decision Engine® transforms repeatable processes into traceable decisions with measurable and optimised output. Auditors can now review not only the outcome of sample scenarios but also the whole decision logic for gaps or weaknesses.

  • Full support of Change Management and Auditing requirements:

All rules are stored and managed in Decision Engine, offering built-in Governance and Change Management capabilities, providing user-friendly change management and version control among prior versions of rules. A search facility allows users to access existing rules using key words within seconds and edit, copy or reuse rules if needed. Finally, changes can easily be tested against different sets of data so results can be evaluated and adjusted before being applied in production, while a full history of who wrote, changed, approved or executed each rule is recorded supporting conformity for users and auditors

Decision Engine provides efficient solutions for credit decisions

Credit risk strategies exist in a fast changing and competitive environment, requiring to adapt frequently. With Decision Engine, organisations have the power to rapidly design, simulate and test strategies without programming code, delivering business rules, scorecards and credit decisions fast and safe in various business cases. Typical use cases include:

CREDIT AND LOAN APPROVALS: In today’s highly competitive market the pressure is on financial institutions, who have to meet changing customer expectations and frequent regulatory requirements updates. Utilising the Decision Engine, the credit risk department can easily map decisions to business objectives, incorporating origination scorecards, fraud scorecards, business rules, regulatory and business policies and decision rules, estimating credit risk with respect to personal, demographic and financial conditions. Thus, it makes the credit approval process swift, consistent and based on auditable decisions, leaving only exceptional cases to experienced loan officers.

UNDERWRITING: Assigning risk properly is a delicate process and involves a great deal of expert knowledge and data. Underwriting decisions need to be swift and priced at a competitive rate. Automating the underwriting decision process provides the organisation with the flexibility required to adjust premiums with consistency, leading to winning customers and staying ahead of competitors.

CLAIMS PROCESSING: Claim processing, depending on national or regional legislation, is a daunting and complex task! Coverage may differ depending on specific policy rules and calculating compensations may require processing an overwhelming amount of conditions. Automating the claims process with Decision engine ensures decision-making consistency and fairness, allowing expert claim officers to focus on those claims which require special attention.

COMPLIANCE & REPORTING: Compliance is a moving target, particularly for organisations operating in multiple regions. Adapting to changing regulations can be a costly exercise with severe financial, legal and reputational implications. Automating the compliance checks with Decision engine, allows organisations to rapidly adapt to new regulatory requirements and speed-up their reporting process. Annual scorecard review compliance according to Basel III requirements is a costly and time consuming process, by maintaining a big number of scoring models. The Decision Engine allows the business to easily design and maintain, PD, LGD & EAD behavioral scorecards and pools.

CUSTOMER LOYALTY PROGRAMS: Decision Engine allows organisations to build a genuine and personalised loyalty program, through which they can offer the right incentives to their customers, engage personally throughout the sales cycle with relevant promotions, campaigns and messages and stay close to them.

CROSS-SELL, UPSELL & RECOMMEND THE RIGHT PRODUCTS: Decision Engine helps organisations improve their capability to market and recommend the right products to their customers, quickly adjusting existing sales targets for specific market segments and product groups. Personalised campaigns increase effectiveness, and the organisation is able to maximise profit, using policy rules, dynamic calculations and behavioral models. In addition, the Decision Engine helps develop strategies in order to reduce balances for open accounts and credit cards, minimising risk and loses.

COLLECTIONS & RECEIVABLES: On Collections, organisations can maximise the collectability rate and easily adapt business requirements that change quickly. Decision Engine assists the business to develop strategies that classify delinquent customers into different groups according to their levels of insolvency, days in arrears, and delinquent amount. The Decision Engine is also able to maintain all collection rules and processes, incorporating Collection Scorecards and complex KPIs.

Conclusion

Decision Engine provides an intuitive interface that supports business users to take the full responsibility of design and maintenance of decision rules and policy implementation. Successful implementations of the DE in leading financial and banking institutions in all credit related departments, provide full support of the credit-risk business model and compliance with internal auditing and regulatory requirements.

By Alexandros Mantikas, Director of Sales, Marketing & Communication, Cententia

Alexandros joined Cententia for a second stint in February 2014. He helped position the company, a software house in the financial sector, as a leading player in its field, going from having very limited recognition to being established as an influential thought leader in the regional software market. He is responsible for driving the international growth of the company via product marketing, go-to market strategy and highly targeted lead generation activities. Before joining Cententia, he served in top management positions in various SMEs, serving clients in Europe, N. America, the Balkans and the M. East.

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