Business Case
Increasing profit by 14% through tree-based optimisation
Business Challenge
The client had an existing tree-based strategy for line assignment, and had carried out limited champion/ challenger testing. The strategy had been refined over the years to recognise changes in the market, customer requirements and product development. This had led to an overly complex decision tree.
The business wanted to investigate alternate approaches to strategy development and assess performance improvements that could be achieved for the objective of increasing profitability, reducing bad debt and yet still satisfying existing portfolio and customer constraints.
The Decision Analytics answer
The client chose Decision Strategy Optimisation from Experian to assist in designing a tree which maximises objectives within business constraints. This tree identifies the optimal set of limits to be assigned that maximises profitability, while reducing bad debt and maintaining average credit limits and average balances.
The system produces a visible decision tree with recognised decision keys. The tree was designed through an iterative process combining expert banking staff knowledge and optimisation consultancy.
The Benefits
- Increased profit by 14% in first year of deployment
- Reduced bad debt by 9% in first year of deployment
- Maintained balances and overall lending volumes across the portfolio
- Basel II modelling incorporated into predictive modelling used in the decision strategy.
- Quick and easy implementation of a tree into Strategy Management
- Reduced time and resources to manage tactical strategies allowing more time for strategic development
- Rapid reaction to changing conditions with the ability to simulate the impact of changes
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