This post continues the feature from my colleague and guest blogger, Mark Sofietti, Associate Process Architect in Advisory Services at Baker Hill, a part of Experian. In today’s market, the banking industry seems to be changing at a very rapid pace.  The current crisis that we are in, as an industry and as a nation, is forcing institutions to revisit risk management policies and procedures to make the appropriate changes needed to remain healthy and profitable.  However, the current crisis is not the only reason why institutions should focus on change management.  Change management needs to be appropriately handled in bad and good times.  Understanding change management is always a necessity to a well-run organization.  Whether it is a reorganization, a new software system, a new policy or moving to a new building, change can cause a great deal of stress and uncertainty — but it can also cause benefits. So, as managers, you may be asking, “What can I do to ensure that positive changes are happening within my organization?  What are some of the items that I should consider when I am bringing about organizational change?” There are four necessary steps that need to be taken in order to improve the success of an initiative that is causing change to an institution. I covered two in my last post. Here are the additional steps. 3. Consider methods of change One method of change is the education of individuals about new ways of operating.  This method should be used when there is more resistance to change and when individuals lack a clear understanding or knowledge of the change being made.  Education may cause the implementation to take longer, but those involved will better understand the effects of the change. A second method is gathering participation from different levels and skill sets within the organizations.  Building a team should be used when there is the highest risk of failure due to change resistance and when more information needs to be gathered before an effective implementation can be completed. Negotiation is a method that is used when a group or person is going to be negatively affected by the change.  This method could alleviate the discomfort by giving the person or group some other benefit.  Negotiations could allow an organization to avoid resistance, but it may be very costly and time consuming to implement the change. The coercion change method is when a change is implemented with little room for diversion from the plan.  Employees are told what the change is going to be and they have to accept it.  This method should be used when speed is of the utmost importance, or if the change is not going to be easily accepted.  Most employees do not like this approach and it may cause resentment or it might cause staff members to leave. The final method of change uses manipulation, the conscious decision to share limited information about the change that is taking place.  This method should only be used when no other tactic will work, or if time or cost is major issues.  This approach is dangerous because it can lead to more problems in the future. 4. Create plan of action A plan should be created for the implementation of change to clearly address reservations and define the change strategy.  It should include internal and external audiences who can be affected by the change.  It is common to forget those who are indirectly impacted by the change — and these audiences (customers, for example) may be the most important.  Objectives of the change need to be clearly outlined in the plan in order to understand how the new future state of the organization will look and operate.  The plan needs to be communicated to all those involved so that the transition can be understood and everyone can be held accountable.  The plan should be periodically revisited after implementation in order to review progress.  Creating a plan of action is a very important step to ensure that those who resisted the change do not revert back to their old habits. Achieving change is not an easy process, especially when time is not on your side.  If you take a second look at the change that you are trying to implement and do the necessary planning, you have a greater chance for success than if you or your organization fails to fully evaluate the consequences. Effective change management should be part of any financial risk management process. Take charge of your institution’s future through a calculated approach to change management and your organization will be in a better position for the next change that is coming around the bend.

I've previously posted content around an overall risk-based approach to Red Flags compliance. I also want to keep current in mentioning the use of Knowledge Based Authentication (KBA) as an effective component in an Identity Theft Prevention Program.  I get this question often:  "Is KBA a fraud detection tool or a verification tool?"  Short answer:  "It's both."Beyond fraud detection and prevention, KBA implementation can provide your program real returns in a few key areas:Reconciliation of initially detected "Red Flag" conditionsKBA allows you to positively pass consumers who may have some level of initial authentication challenge or high-risk condition.  The reality of identity verification is that regardless of all the data assets potentially leveraged, there are still those cases in which a good consumer identity continues to pose challenges to basic verification checks.Cost reduction in referral / reconciliation processesKBA can replace more subjective decision making and process invocation, turning instead to objective question presentation and performance to drive overall decisioning.Customer experienceConsumers are more willing today than ever before to participate in a KBA session, and most would prefer this activity over provision of documentary evidence, for example.KBA, when used in combination with strong analytics and comprehensive authentication results, can be valued tool in your overall Red Flags Identity Theft Prevention program.

Behavioral scoring is one of the most important tools that allow collections management and account management groups to evaluate accounts in an efficient and cost-effective manner. Although behavioral models are developed in a similar manner as new applicant models, there are several key differences that make behavioral models a better choice for many account management applications and collections workflow systems:By using only internal master file data as opposed to external credit bureau data, for example, accounts can be regularly evaluated without incremental cost. The most common practices are to score accounts on a weekly or monthly basis, which allows for quick strategic responses to a customer’s change in behavior. Frequent evaluations can result in automated or manual actions such as the acceleration or deceleration of collections efforts, adjusting credit limits and changing terms and conditions.The performance definitions of behavioral scores are very specific to each strategy and task, and it is typically not advised to use models in applications for which they were not designed. For example, a new applicant model definition of “bad” may be a high probability of charge off during the initial term of a line of credit. For collections strategy, a more appropriate bad definition might be the likelihood of an account rolling to the next delinquency bucket, regardless of the age of the account. Behavioral models also have a much shorter outcome period of three to four months versus new applicant models that forecast over one to two years. Since behaviors with one creditor can typically be recognized more quickly than with all lending institutions associated with a particular debtor, behavioral models provide a unique and timely evaluation of the ongoing risk once the account is already on the books.