Decision Management with Blaze Advisor - fico.com · Confidential. The material in this...

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.

© 2011 Fair Isaac Corporation. 1

Decision Management with Blaze AdvisorBest Practices in Design & Implementation

Erwan LaymanPrincipal ConsultantPre-Sales, Systems EngineeringFICO (Asia Pacific)

March 3, 2011

© 2011 Fair Isaac Corporation. Confidential.2 © 2011 Fair Isaac Corporation. Confidential.2

Agenda

» Challenges in the Consumer/SME Credit Lifecycle

» Introduction to Decision Management

» Introduction to Business Rules

» Blaze Advisor Product Overview

» Blaze Advisor Use Cases in Agile Banking

» Conclusion


Challenges in the Consumer/SMECredit Lifecycle

© 2011 Fair Isaac Corporation. Confidential.4

Challenges in the Consumer/SME Credit LifecycleThe realities of the new “reset” economy

» CUSTOMERS...

» are more cautious, discerning & lacking trust;

» are making buying decisions more carefully.

» THE MARKET...

» has smaller population of eligible prospects;

» has dynamic, more stringent regulatory environment.

» THE COMPETITION...

» is retooling to compete on price without sacrificing margin;

» is focused on customer needs;

» is leveraging data to target & win customers:

» to make better product, price & service decisions;

» to enable a superior customer experience across the demographic & psychographic spectrum.


Challenges in the Consumer/SME Credit LifecycleThe challenges for business

» Bring new products to market quickly.

» Improve turnaround time of applications to enhance customer service and increase sales, while managing cost.

» Leverage opportunities to cross-sell.

» Manage and monitor process & policies.

» Expand sales force and customer touch points while maintaining control.

$

Sales/Channels Customer Service

Product Development

Head of Retail/SME


Challenges in the Consumer/SME Credit LifecycleThe challenges for credit risk

» Pick the “right” customer with acceptable risk, while growing portfolio.

» Ensure credit policies are applied consistently.

» Maintain credit policies and models with minimal software changes.

» Integrate different data sources to improve decision precision with policies and models at different touchpoints.

» Measure performance of strategies.Credit Admin Credit Approval

Monitoring/Recovery

Head of Credit Risk

Σ


Challenges in the Consumer/SME Credit LifecycleThe challenges for IT

» Facilitate new product launch in a timely manner to maximize time-to-market advantage.

» Integrate different data sources easily to improve decision precision according to business requirement.

» Enable business/risk users to maintain credit policies and models independently.

» Adopt a flexible platform to fully support evolving business needs.

Credit Decision Support Processing Systems

Head of IT

IT


Challenges in the Consumer/SME Credit LifecycleThe challenges are addressed with…

» AUTOMATION

» SPEED

» PRECISION

» AGILITY

» CONNECTIVITY

» TRACKING & MONITORING

» CONTINUOUS IMPROVEMENT

$

Head of Retail/SME

Head of Credit Risk

Σ

Head of IT

IT


Introduction to Decision Management


Introduction to Decision ManagementThe Decision Management adoption continuum

DECISION MANAGEMENTis an approach that automates, improves, and connects decisions

to enhance business performance

BU

SIN

ES

S IM

PA

CT

DEGREE OF DM ADOPTION

automate

> rules management

improve

> predictive analytics

> decision models

> adaptive control

connect

> reusable open components

> shared decision capabilities

poin

t/fu

nctional l

ift

continual lif

t

consistency/speed/agility precision/adaptation enterprise coordination


Introduction to Decision ManagementThe measure of decision-making effectiveness – decision yield


Introduction to Decision ManagementThe value of credit scores with rule-based decisions

Corporate

High-end exposures.

Expert systems and guidelines.

Quant models are used.

Qualitative information also

important.

Highly manual underwriting.

Retail Consumers

High volume of accounts with low exposure values.

Automated decision process.

Automated scoring for all, or almost all products.

Automated customer management – limit management, pricing,

collection.

Minimal overrides.

Turnaround of initial decision extremely quick.

Retail Consumers CorporateSME

80-90% of

population

10-15% of

population

0.5-2% of

population

SME

Has 2 groups – high-end & low-end

exposures.

Statistical model for both.

Automated for low-end exposures.

May use rule-based decision process

but score is closely followed; minimal

overrides.

Combo of prescriptive & objective for

high-end exposures; some manual

intervention.


Introduction to Business Rules


» Scattered business rules are

» hard to administer centrally

» hard to audit

» hard to analyse & change

Introduction to Business RulesApplication development as we know it today

Application

Component

application server /

web server

customers,

partners, suppliers,

employeesEnterprise

Data

rules in

codes / param

tables

rules in

stored

procedures

rules in

client

application


» Centralised business rules are

» easy to manage as asset

» easy to audit

» easy to reuse & maintain

Introduction to Business RulesApplication development with business rules management

Application

Component

application server /

web server

customers,

partners, suppliers,

employeesEnterprise

Data

Rule

Repository

Rule

Authoring

business policy owners, IT staff,

managers

rules

externalised

in repository


Introduction to Business RulesThe IQ metrics of a spectrum of potential rule-based applications

» How many business rules are present in the application/service?

» How many business rules are executed per transaction on average?

» How often are business rules updated?

» How complex are the business rules interactions and dependencies?

» How costly are the business rules to maintain?

» Increased IQ Higher return from rules management software investment

data services

(low IQ)

information services

(moderate IQ)

knowledge services

(high IQ)



data services

(low IQ)


(moderate IQ)

knowledge services

(high IQ)

data services

(low IQ)

stock information

news feeds

search engine interface

weather feeds

procedural program execution



data services

(low IQ)


(moderate IQ)

knowledge services

(high IQ)


(moderate IQ)

address validation

authentication/authorisation

product/service selection

select product source from

multiple suppliers

select shipper from multiple

alternatives

sequential rules execution



data services

(low IQ)


(moderate IQ)

knowledge services

(high IQ)

knowledge services

(high IQ)

forms processing

loan application

insurance underwriting

claims application

tax assessment

billing/discounting

risk/credit rating

inferential (rete) rules execution



data services

(low IQ)


(moderate IQ)

knowledge services

(high IQ)

sequential / inferential (rete) rules execution

higher return

from

rules management

software

investment



Select the Right Application

» Consider rules management for high-volume, automated transactions.

» Consider rules management for complex decision applications.

» Consider rules management for volatile business policies.

#1


Introduction to Business RulesThe way you would conduct business – for business policies

» Business rules are the logical statements of what to do (actions to take) when different situations (conditions) occur.

» if applicant’s age is less than 18 or

applicant’s score is unknown or

applicant’s delinquency_level is “high” and

applicant’s segment is “subprime”

then set the approval_status of applicant to declined.

» if applicant’s occupation is (“construction“ or “self_employed”)

then decrement the credit_limit of applicant's card by $2000.

» if at least 5 payment satisfy

(payment_received date is later than payment_due_date)

then set applicant’s delinquency_level to “high”.


Introduction to Business RulesThe way you would conduct business – for business policies

Manage the Rule Quality

» Ensure rules are concise and simple (avoid spurious conditions).

» Ensure rules are atomic (avoid nested conditions with confusing and/or joins).

#2


Blaze Advisor Product Overview


Blaze Advisor Product OverviewThe FICO Decision Management applications & technologies

ACQUIRE MANAGE PROTECT

Marketing OriginationCustomer

Management

Collections &

RecoveryFraud

DECISION MANAGEMENT

APPLICATIONS

Retail

Action

Manager

Originations

ManagerTRIAD

Debt

Manager

Falcon

Fraud

Manager

CUSTOMER LIFECYCLE SOLUTIONS

Precision

Marketing

Manager

TECHNOLOGIES EMBEDDED IN SOLUTIONS

DECISION MANAGEMENT

TECHNOLOGIES

Scores &

Analytics

Tools

Services

Scores: FICO® Score / FICO® Expansion® Score / FICO® Insurance Score

Analytics: Predictive Analytics / Optimization & Strategy Design

Business Rules Management: FICO Blaze Advisor®

Model Development: Model Builder

Optimization: Decision Optimizer / Xpress-MP Suite

Analytic Services

Business & Solution Consulting


Blaze Advisor Product OverviewThe product components

Java/J2EE .NET COBOL

Deployment Manager

Rule

Repository

AU

TH

OR

ING

ST

RU

CT

UR

ING

DE

PL

OY

ING

Technologists

create

rule service

architecture,

integration, and

deployment.

Business users

own business

rules content.

hierarchical organization

inheritance/reuse

versioning/audit trail

authorization/authentication

Rule repository enables rules to

be managed as corporate assets.

fastest execution

reuse

auto-update

24x7 decisions

centralized control

platform &

architecture agnostic

Builder (IDE) Rule Maintenance Application

Rule Services


Blaze Advisor Product OverviewTotal rules management – the big picture

Rule Architect Developer Business ExpertBlaze Advisor

Builder

DEVELOPMENT

MAINTENANCE / QA

Rule Maintenance Application

Application Server

Blaze Advisor

Rule Server

running in

an application server

PRODUCTION

Rule Repository

Rule Repository

Rule

Repositorynetwork

Client PC

Client PC

Client PC


Blaze Advisor Product OverviewThe organisation of the rule repository for reusability

» Rule/Model Reusability

» A rule project may reference any folder to inherit folder content; any other rule project to inherit project content.

RULE REPOSITORY

Minimum Eligibility Ruleset for CC Standard

Rate Table for CC Standard

Credit Card Standard

Unsecured

Application Risk Model

Common

Object Model for Unsecured

Customer Segmentation Tree

Rate Table for CC Gold

Credit Card Gold

Minimum Eligibility Ruleset for CC Gold


Common

Secured

SME

Common

Customer Segmentation Tree

Rate Table for CC Gold

Credit Card Gold

Minimum Eligibility Ruleset for CC Gold












Singapore

Malaysia

Common - Unsecured

Unsecured

Common - Secured

Secured

Common - Singapore

Education Loan

Credit Card

Renovation Loan

Personal Loan

Line of Credit (Easy Credit)

Mortgage

Auto Loan

Common - SME

SME

SME Product 2

SME Product 1

RULE REPOSITORY» Rule/Model Reusability

» Group rule repository items into folders by:

» location

» department

» product category

» product sub-type/brand

» product item.

» Re-factor common policies/models in each group into a “Common” items folder.



Organise the Rule Repository for Reuse

» Re-arrange the rule items into a logical hierarchy.

» Re-factor repeating rule items.

#3


Blaze Advisor Product OverviewRules management for business users

» The Rule Maintenance Application (RMA) gives business users:

» Rule Editorto create, delete, edit, view a rule in a ruleset, decision table, decision tree, scorecard, function, and any other templated project item;

» BRunitto create, delete, edit, view, execute a unit test case;

» Verificationto verify all or a specific set of rulesets and project items for anomalies such as redundancy, dependency, gap, overlap, contradiction, infinite firing loops, and other checks;

» Blaze Versioning System (BVS)to check-in, check-out, cancel check-out a rule; view history, view archived version, compare two archived versions, promote archived version;

» Searchto search a project item based on structural information (name, type), version information (author, modified date/time), management properties (status); save query definition for re-run

» Comparisonto run comparison of differences between any two projects, folders, or entities.


Blaze Advisor Product OverviewRules management for business users – rule editor for graphical metaphors

IF-THEN RULESET DECISION TABLE

DECISION TREE SCORE MODEL


Blaze Advisor Product OverviewRules management for business users – rule editor for graphical metaphors

Select the Right Rule Metaphor

» Consider nature of rule conditions and actions (distinct/repeating, multi-valued, tabular).

» Consider most intuitive rule presentation according to usage.

#4


Blaze Advisor Product OverviewRules management for business users – rule editor for „if-then‟ statements

» Rule Editor

» to create, delete, edit, view a rule in a ruleset, decision table, decision tree, scorecard, function, and any other templated project item


Blaze Advisor Product OverviewRules management for business users – rule editor for „if-then‟ statements

Apply the Right Degree of Flexibility to Rules

» Consider the extent of rule editing required.

» Consider the context when presenting editing options (restrict drop-down list values to the appropriate set).

» Consider the possibility of user error during rule editing (check entries in free-form input boxes).

#5


Blaze Advisor Product OverviewRules management for business users – rule validation with BRUnit

» BRUnit

» to create, delete, edit, view, execute a unit test case


Blaze Advisor Product OverviewRules management for business users – rule validation with BRUnit

Perform Rule Validation (Unit-Testing)

» Encourage the business user to create test cases when rules are added or changed.

» Encourage the business user to validate rules before system testing.

#6


Blaze Advisor Product OverviewRules management for business users – rule verification

» Verification

» to verify all or a specific set of rulesets for anomalies such as,

» unused data

» uninitialised data

» dependency

» rule firing cycle

» redundant/infinite loop

» condition always false/true

» condition equivalence

» condition gap/missing

» condition subsumption

» condition self-contradiction

» condition unreachable

» others


Blaze Advisor Product OverviewRules management for business users – rule verification

Perform Rule Verification

» Encourage the business user to verify rules before system testing.

#7


Blaze Advisor Product OverviewRules management for business users – rule comparison

» Comparison

» to run comparison of differences between any two projects, folders, or entities


Blaze Advisor Product OverviewRules management for business users – rule comparison

Perform Rule Comparison

» Encourage the business user to compare rules (or tables, trees, scorecards) to view differences between versions or instances.

#8


Blaze Advisor Product OverviewImprove decisions using champion/challenger strategies

» Champion/Challenger Strategies

» Rules are test-driven in production.

» Rules for champion and challenger strategies are executed based on a random selection of the input population.


Blaze Advisor Product OverviewImprove decisions using champion/challenger strategies

Improve Decisions with Champion/Challenger Strategies

» Run champion/challenger strategies to iteratively improve decisions in production (such as for accept/reject outcome, credit limit setting, product cross-sell).

#9


Blaze Advisor Product OverviewImprove decisions using simulation

» Decision Simulator

» Select rule projects.

» Select data sample that reflects target population.

» Define business metrics – not just raw results.

» Define reports to support analysis.

» Compare new vshistorical results.

» Check distribution of results.

» Check statistics to assess risks & opportunities.


Blaze Advisor Product OverviewImprove decisions using simulation

Improve Decisions with Simulation

» Run simulations (after verification and validation) to understand and estimate the business impact of a rule change (such as effect on revenue with stricter acceptance criteria).

#10


Blaze Advisor Product OverviewImprove decisions using predictive analytics

» Predictive Analytics

» Combine domain expertise (rules) with empirical knowledge (data) to improve decision precision.

» Predictive models help to rank order population in a chosen dimension:

» likely to fraud;

» likely to defect;

» likely to accept an offer;

» likely to repay.

» Predictive models (scorecards or decision trees) are best operationalised on a common decision management platform with rules.


Blaze Advisor Product OverviewImprove decisions using predictive analytics – decisions & predictions

AC

QU

ISIT

ION DECISIONS

> Who to target

> What product to offer

> What channel to use

> What time to send

PREDICTIONS

> Response

> Revenue

> Risk

OR

IGIN

AT

ION DECISIONS

> Who to approve/decline

> What amount to assign

> What price to set

PREDICTIONS

> Revenue

> Risk

> Capacity

> Pre-payment

> Fraud AC

CO

UN

T M

AN

AG

EM

EN

T DECISIONS

> Line management

> Repricing/renewal

> Authorisation

> Cross-sell

> Pre-collection

> Collection

PREDICTIONS

> Revenue

> Risk

> Capacity

> Churn

> Fraud

> Amount Collectible

> Likelihood to Collect


Blaze Advisor Product OverviewImprove decisions using predictive analytics – advantages of scorecard models

» Predictive Analytics

» A scorecard model:

» distills data to simplify assessment;

» works with many data sources;

» gives precise, easy-to-use scores;

» enables fast, accurate decisions.

Application Data

Financial Statemnt

Credit Bureau

DATA SOURCES

Score WeightMarital Status

Score WeightNumber of Dependents

42> 50

3541 – 50

14No information

5Divorced

30Married

14Single

12No information

103 or more

252

121

120

2831 – 40

1021 – 30

618 – 20

Score WeightAge

Score WeightMarital Status

Score WeightNumber of Dependents

42> 50

3541 – 50

14No information

5Divorced

30Married

14Single

12No information

103 or more

252

121

120

2831 – 40

1021 – 30

618 – 20

Score WeightAge

Score WeightCredit Bureau Information

Score WeightTime At Address

20No information

22Employer provided

0No information

0No investigation

-15No

30Yes

25No information

30> 5 years

253 years – 5 years

206 months – 3 years

18< 6 months

20Live with parents

15Rent

40Own

Score WeightResidential Status

Score WeightCredit Bureau Information

Score WeightTime At Address

20No information

22Employer provided

0No information

0No investigation

-15No

30Yes

25No information

30> 5 years

253 years – 5 years

206 months – 3 years

18< 6 months

20Live with parents

15Rent

40Own

Score WeightResidential Status

IMPORT MODEL VIA JAVA

IMPORT MODEL VIA PMML


Blaze Advisor Product OverviewImprove decisions using predictive analytics – advantages of scorecard models

Improve Decisions with Predictive Analytics

» Predictive analytic models (scorecards or decision trees) combined with rules help improve decision precision.

» Predictive analytic models provide statistical rigour to decision outcome, and simplify assignment of decision treatment.

» Predictive analytic models can be quickly operationalised via PMML import.

#11


Blaze Advisor Use Cases in Agile Banking


Blaze Advisor Use CasesApplicable decision areas in financial services

» Customer Account Management

» Customer Loyalty/Reward

» Fraud Detection

» Marketing/Cross-Sell/Up-Sell

» Origination

» Product Recommendation

» Commission Calculation

» Fee Calculation

» Personalisation

» Regulatory Compliance

» Risk-Based Pricing

» Underwriting

» Others…

Payment Card

• credit card

• debit card

Lending

• auto

• home equity

• mortgage

Retail Banking

• checking

• saving

Investment

• bond

• mutual fund

• stock/share

• time deposit

Insurance

• general

• life

• property & casualty


Conclusion


ConclusionBest practices in implementing an application for decision management

#1 Select the right application.

#2 Manage the rule quality.

#3 Organise the rule repository for reuse.

#4 Select the right rule metaphor.

#5 Apply the right degree of flexibility to rules.

#6 Perform rule validation (unit-testing).

#7 Perform rule verification.

#8 Perform rule comparison.

#9 Improve decisions with champion/challenger strategies.

#10 Improve decisions with simulation.

#11 Improve decisions with predictive analytics.


ConclusionWhat‟s next…

http://decisions.fico.com

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.

© 2011 Fair Isaac Corporation. 55

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