The Recipe to a Strong Model Development (Part 1)

July 30, 2009 by Guest Contributor

By: Tracy Bremmer

Preheat the oven to 350 degrees. Grease the bottom of your pan. Mix all of your ingredients until combined. Pour mixture into pan and bake for 35 minutes. Cool before serving.

Model development, whether it is a custom or generic model, is much like baking. You need to conduct your preparatory stages (project design), collect all of your ingredients (data), mix appropriately (analysis), bake (development), prepare for consumption (implementation and documentation) and enjoy (monitor)!

This blog will cover the first three steps in creating your model!

Project design involves meetings with the business users and model developers to thoroughly investigate what kind of scoring system is needed for enhanced decision strategies. Is it a credit risk score, bankruptcy score, response score, etc.? Will the model be used for front-end acquisition, account management, collections or fraud?

Data collection and preparation evaluates what data sources are available and how best to incorporate these data elements within the model build process. Dependent variables (what you are trying to predict) and the type of independent variables (predictive attributes) to incorporate must be defined. Attribute standardization (leveling) and attribute auditing occur at this point. The final step before a model can be built is to define your sample selection.

Segmentation analysis provides the analytical basis to determine the optimal population splits for a suite of models to maximize the predictive power of the overall scoring system. Segmentation helps determine the degree to which multiple scores built on an individual population can provide lift over building just one single score.

Join us for our next blog where we will cover the next three stages of model development:  scorecard development; implementation/documentation; and scorecard monitoring.