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A new approach to the SME credit lifecycle
Lenders need to consider whether they can automate many processes related to SME customers to reduce the high costs of servicing a small business portfolio.
Strategy Tree Optimization offers a simple solution to ensure your strategies across the customer lifecycle maximise business goals whilst simultaneously considering policies, operational constraints and regulatory requirements.
Strategy Tree Optimization is a software tool that uses a unique patented mathematical process to help business users design trees that make value-maximising decisions.
How can we help you?
Designed for the business professional, Strategy Tree Optimization enables trees to be optimised for important business, risk and operational objectives such as increased profit, bad debt and write-off.
Strategy Tree Optimization is a highly configurable optimisation tool with an intuitive graphical user interface that allows business managers and analysts to rapidly analyse, simulate and produce optimised trees in a graphical environment. New optimised trees are easily created allowing users to adjust to changes in resources or modified plans.
A few key facts
- Maximise the impact of current resource capability by optimising decision trees
- Optimise the right strategy for customer contact
- Remove implementation obstacles of optimisation by using tree-based optimised strategies
- Tailor the system to meet your business requirements
Optimisation enables organisations to:
- Maximise the impact of decision strategies – align decisions with business goals and practices, enabling decision strategies to be set that achieve business targets
- Rapid time to value – ROI quickly following deployment
- Get more from existing resources with seamless integration with the existing systems
Decision Strategy Optimization comprises four key stages in the tree optimisation process:
- Define: The key elements of the optimisation problem are defined and assessed
- Optimise: Optimised decision strategy trees are developed through “what-if?” scenario simulation within the Strategy Tree Optimization software
- Deploy: The best tree is chosen for deployment in the existing strategy tree based decisioning software, with no infrastructural impact
- Maintain: Monitoring and performance maintenance through regular reviews, and expanding the system to other decision points
Optimisation from Experian can be delivered in the way that achieves the best return for every organisation.
- Experian can assist in building the initial optimised strategy tree ready for deployment. Bringing a fresh approach and independent viewpoint to every business, it delivers practical solutions that deliver measurable results.
- Strategy Tree Optimization is a highly configurable optimisation tool with an intuitive graphical user interface that allows business managers and analysts to rapidly analyse, simulate and produce optimised trees in a graphical environment.
- New optimised trees are easily created allowing users to adjust to changes in resources or modified plans.
- When tree deployment is not a pre-requisite, Experian can also provide technology to optimise at the individual level, which can be used to determine the best action at each and every decision point, for each and every customer or account.
- Analytical Support - Experian uses world-class analytical capabilities to support client analysis and model development processes. This enables the analytical data to be augmented for the optimisation process and assists in developing better data and models to improve the optimisation solutions.
- Decisioning technology - The speed of deployment of Strategy Tree Optimization can be increased by the connectivity of the advanced decisioning technology of Strategy Management.
Optimising authorisations performance for a European multichannel retailer
This leading online and catalogue retailer markets several brands in the UK. In a world where understanding the customer’s ability to repay credit is vital, retailers must also carefully consider the implications of referring and declining transactions.
- Reduced the value of declined transactions by 22%
- Reduced the number of referrals by 14%
- Maintained bad debt losses
- Efficient relationship plotted between transaction value, bad debt and refer rate, giving a clear understanding of the potential to improve on any of the client’s key performance indicators
- Transparent simulation of a strategy at the click of a button, providing an immediate impact assessment of manual changes to the strategy.
- Quick and easy implementation of a tree into a third party decision engine, requiring little or no IT impact
- Reduced time and resources needed to manage tactical strategies allowing more time for strategic development
- Rapid reaction to changing conditions with the ability to simulate the impact of changes
The client was able to propose adjustments to the optimised strategy and investigate the impact on measures such as accept rate and refer rate. Some trees were developed specifically for analysis purposes, to analyse the customers and transactions in branches or at nodes of the tree. In this way, a clear understanding of the risk profile of the customers was generated and used in the approval of the new strategy The analytical development process is now more efficient and effective which means that strategies can be regularly reviewed and optimised to ensure consistency of performance, as well as rapid reaction to market changes. By optimising strategies across all decision points, the business can ensure that each and every decision point is optimised to ensure maximum business value.
Optimisation is the mathematical decisioning technique which delivers objective, tree-based strategies based on the business goals and constraints of the organisation. It simplifies the complexity of identifying the best authorisations limit to apply to each transaction and describes these decisions in a tree format, enabling simple and rapid deployment with minimal IT impact. Optimisation simultaneously considers the organisation’s overall goal of maximising the value of accepted transactions, while constraining other business measures, including bad debt and referral rate, to ensure a satisfactory outcome for the business. The software enables the risk team to create and evaluate different optimised line assignment scenarios, and develop strategy trees that can be implemented in their existing decisioning software. The users can also trade-off the number of decision tree nodes to simplify the structure and refine the limit assignment strategy. The ‘whatif?’ analysis capability means that the business can explore different optimised strategy tree configurations for different economic conditions and business requirements.
Strategy optimisation: The next step in credit customer decisioning
Within leading organisations credit strategy is now acknowledged as a key differentiator in today’s competitive landscape and the credit risk function is changing from one of ‘gatekeeper’ to one of ‘strategic advocate’.
Businesses demand a far more dynamic approach to the management of customer decisions: the days of developing risk scorecards, blending with policy rules, implementing a cut off and leaving for 3 years are over! As the speed of change increases, organisations require tools, techniques and new approaches to help them to manage customer decisions. Organisations need to be able to rapidly adapt credit strategy to changes in economic, competitive and operational environments. Existing decisioning and reporting systems don’t always facilitate this. Over the past 25 years we have moved from credit scoring, to strategy management and now we approach a new third phase; strategy optimisation. In order to keep up with the leaders, many organisations will need to change. Strategy optimisation is the ‘next step’ in customer decisioning. The benefits of strategy optimisation strategy optimisation is being applied across the credit lifecycle; for new business, customer and account management decisioning through to collections and recoveries. Credit strategy optimisation from Experian is delivering 5-30% profitability improvements, offering significant return on investment for forward-thinking lenders globally. However, for many organisations the real benefits are gained through improved operational and financial management and the ability to dynamically respond to changing environments.
Strategy optimisation enables an organisation to improve its customer decisioning through:
- More granular customer segments - Looking at the characteristics of each customer and tuning the strategy to each customer’s expected behaviour
- Detailed multi-dimensional decisioning - Not only risk, but also revenues and operational costs
- Dynamic response to economic, operational or competitive environments -
- The ability of optimisation to simulate various scenarios and predict the likely outcome means that changes to decisions can be evaluated and implemented more quickly
- Managing business constraints - As the business has better management information and control, it can forecast future profit components and manage within these constraints more effectively
- Making the best possible decision for both the customer and the organisation
- Traditional rule based decision methods only consider one customer at a time. Through taking a holistic view, optimisation considers the interaction of decisions in order to work within operational and financial constraints
- Better management of key business groups - Through accurate and rapid simulation; optimisation can show the effect of the existing and new potential strategies on key customer segments, reflecting the operational and financial impact
Connecting the strategic planning process to individual customer decisions
- Many organisations undertake analysis to determine the best customer level decision without full consideration of the strategic and financial impact. By reflecting real world constraints, optimisation enables organisations to maximise portfolio level performance
- Strategy optimisation can be implemented within existing strategy management solutions with minimal change to the operational process. It can also be integrated into third generation strategy management systems using dynamic individual level optimisation solutions