To calculate the expected business benefits of making an improvement to your decisioning strategies, you must first identify and prioritize the key metrics you are trying to positively impact. For example, if one of your key business objectives is improved enterprise risk management, then some of the key metrics you seek to impact, in order to effectively address changes in credit score trends, could include reducing net credit losses through improved credit risk modeling and scorecard monitoring. Assessing credit risk is a key element of enterprise risk management and can addressed as part of your application risk management processes as well as other decisioning strategies that are applied at different points in the customer lifecycle.
In working with our clients, Experian has identified 15 key metrics that can be positively impacted through optimizing decisions. As you review the list of metrics below, you should identify those metrics that are most important to your organization.
• Approval rates
• Booking or activation rates
• Customer net present value
• 30/60/90-day delinquencies
• Average charge-off amount
• Average recovery amount
• Manual review rates
• Annual application volume
• Charge-offs (bad debt & fraud)
• Avg. cost per dollar collected
• Average amount collected
• Annual recoveries
• Regulatory compliance
• Churn or attrition
Based on Experian’s extensive experience working with clients around the world to achieve positive business results through optimizing decisions, you can expect between a 10 percent and 15 percent improvement in any of these metrics through the improved use of data, analytics and decision management software.
The initial high-level business benefit calculation, therefore, is quite important and straightforward. As an example, assume your current approval rate for vehicle loans is 65 percent, the average value of an approved application is $200 and your volume is 75,000 applications per year. Keeping all else equal, a 10 percent improvement in your approval rates (from 65 percent to 72 percent) would generate $10.7 million in incremental business value each year ($200 x 75,000 x .65 x 1.1). To prioritize your business improvement efforts, you’ll want to calculate expected business benefits across a number of key metrics and then focus on those that will deliver the greatest value to your organization.