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Increasing Precision, Consistency and Agility of Operational Business Decisions with Enterprise Decision Management

  Article published in DM Direct Special Report
May 2, 2006 Issue
 
  By James Taylor

According to a 2005 report by the Cutter Consortium, "Enterprise decision management (EDM) is emerging as an important discipline, due to an increasing need to automate high-volume decisions across the enterprise and to impart precision, consistency, and agility in the decision-making process."1

What is EDM? EDM entails designing, deploying and managing automated decisions, typically those decisions that an organization uses to manage its interactions with customers, employees and suppliers. Computerization has changed the way organizations are approaching decision-making by enabling decisions to be based on historical data, prior decisions and their outcomes, corporate policies and regulations.

Organizations are adopting EDM because they need a higher return from previous infrastructure investments, are dealing with increasing business decision complexity, and face competitive pressure for more sophisticated decisions. Increasingly, short windows of competitive advantage also mean that the speed of business is outpacing the speed of information technology to react.

EDM draws a new measure of value from decades of IT investments. It marshals resources to operate effectively in a world where immensely complex, in-stream decisions must also be exact and rigorous, and where commoditization and fierce competition force you to go deeper to find insights on how to better serve your customers.

EDM builds on the success companies have had with business intelligence (BI), while closing the insight gap between BI reporting and operational decisions. BI gives companies insight into business performance. EDM makes insight operational through automating decisions and actions, frequently in real time. Think of EDM as "deployable BI" that extends the value of analytics-driven insights, allowing businesses to make smarter strategic, tactical and operational decisions.

EDM involves delivering decisions within transaction streams based on a set of business rules and analytics. Many companies find that they are able to automate 75 percent or more of their business decisions, leading to faster turnaround and higher throughput with less drain on staff resources. These decisions are also pushed to the point of sale or customer touch point, resulting in more once-and-done transactions.

There are a few key elements that differentiate EDM from other approaches:

  • EDM builds flexibility into decision processes and delivers true business user control of the decision logic.
  • EDM means that intelligence is injected into the transaction processing stream for real-time decisions not just applied after the fact for analysis.
  • EDM delivers solutions that are independent from applications and databases so that decision logic can be updated in one central location and carried out to other various systems.
  • EDM implies a closed-loop capability for managing and improving decisions over time.

EDM offers great potential benefits to organizations that have large numbers of dynamic, high-impact operational decisions. Within such organizations, business owners can improve the quality and consistency of customer decisions, and take more control of the decisions that drive their business while CIOs and IT directors can reduce their backlog, create more agile systems and deliver consistency across multiple existing systems. Those managing analytics can make a bigger impact on decisions by deploying models more quickly and learning at a faster pace through continual feedback loops.

EDM can deliver both business and operational benefits to a wide variety of organizations. Business benefits come in the form of increased revenue and profitability by improving the consistency, relevance, speed and precision of customer decisions-getting more value from every customer interaction. Businesses and other organizations can also improve customer relationships and retention through more targeted offers, faster response to service requests and more consistent treatment. Losses can be minimized through the use of analytics for more accurate and consistent risk assessment and fraud detection, and companies can gain competitive advantage by being more nimble than the competition-bring new strategic initiatives, products, campaigns and pricing to market faster and with greater precision and consistency. Lastly, EDM allows companies to ensure and demonstrate rigorous compliance with corporate and regulatory policies.

Additional operational benefits include reducing the costs associated with decision-based processes while improving decision consistency, speed, and quality. EDM allows for better use of existing investments in data warehousing and customer relationship management (CRM) systems while reducing ongoing maintenance costs required to change/fine-tune decisions that are in production. This in turn frees up IT to work down its backlog, accelerating progress of other projects with revenue or profit benefits.

Examples of decisions suitable for EDM solutions include:

  • Which offer best matches this customer's need, given what I know so far?
  • What price does the data on this application imply for this customer?
  • How likely is this claim to be fraudulent?

Such operational decisions as these are often made in real time and delivered through CRM systems, Web sites or authorization systems. Decision automation using an EDM approach leads to consistency in decision-making, faster turnaround and higher throughput with less drain on resources. EDM solutions can also flag exception cases and pass them to experts for further review. While the initial focus of EDM in an enterprise is typically to automate clear-cut steps and rules, as businesses become more confident in their processes and more sophisticated in their use of EDM, a higher and higher percentage of decisions that once required expert review can be automated.

EDM allows you to make great decisions consistently across multiple processes and systems. As such, it adds value to, rather than replaces, your BI/data warehouse (DW) infrastructure, business process management (BPM) initiatives, CRM systems and corporate performance management (CPM) systems.

To deliver on this value, organizations must grab the decision by the throat and not let go. Treating decisions, especially operational decisions, as a corporate asset in this way is the first step toward delivering the value of EDM. It allows decisions to be managed, controlled and exploited. The key first step in such an approach is to identify and design decision management applications or decision services. These are applications within an application portfolio or services in an SOA that automate and manage highly targeted decisions. These decisions are typically high volume, part of the organization's day-to-day operation, crucial to its overall profitability and can have the largest impact towards achieving strategic goals. A decision service isolates the logic behind business decisions from the mechanical operations of application procedural code. The most sophisticated decision services allow the application of analytics to the development of decision strategies, considering the mathematical relationships between varying business objectives, actions, probable customer reactions, constraints and outcomes.

A decision service is designed to ensure that these decisions are:

  • Precise in that the risk and reward of the decision is known and managed;
  • Consistent so that the decision does not vary by time, channel or customer unless the organization intends it to vary;
  • Agile so that it can be evolved rapidly in the face of new regulations, policies, risk or reward calculations;
  • Cost-effective so that no more money is spent on it than absolutely necessary;
  • Fast enough so that it is taken in "right time" or near real-time as it adds value for both the organization and its customers.

How is this approach better?

  • Using traditional techniques, decision logic is hidden deep inside software and is time-consuming and costly to develop.
  • By separating decision logic from application code and making it visible and accessible, companies can reduce development and maintenance costs dramatically. In addition, IT resources are no longer consumed by trying to support multiple decisioning code bases for different channels and operating environments, because the same decision can be deployed across them all.
  • Improvements also come from reducing labor and cycle times through automation, increasing decision quality and consistency, better and earlier detection of various kinds of risk (credit, attrition, fraud), more sophisticated balancing of risk/reward, more granular segmentation enabling more precise targeting of offers and treatments, and deeper insights into customer behavior and preferences.
  • Closed-loop decisioning enables organizations to capture results from production systems and immediately put them into useful form for development and refinement of rules, models and decision strategies. In fact, companies can keep moving the bar upward, executing a new or enhanced strategy before competitors have even had the chance to react to their last move.
  • Sustainable competitive differentiation can be injected into processes effectively by identifying key decisions and using modern software technologies such as business rules and predictive analytics to take control of these decisions.
  •  "Smart" process techniques are becoming more and more common and are highly complimentary to this approach. Many processes remain fairly static over time, while the risk assessment, value calculations, policies and regulations that determine the outcomes of decisions within them change all the time. The use of a technology designed for these kinds of problems also makes the decisioning logic more visible and accessible to the business experts who set the policy, not just to the programmers who can read the code.

Reference:

  1. Curt Hall. "Enterprise Decision Management." Business Intelligence Advisory Service Executive Report vol. 5, No.6 Cutter Consortium, 2005.
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For more information on related topics visit the following related portals...
Analytics, Business Intelligence (BI), Enterprise Intelligence, Real-Time Enterprise and Strategic Intelligence.

James Taylor is vice president of marketing for Enterprise Decision Management at Fair Isaac where he is responsible for working with clients to identify and bring to market advanced decision management solutions that better solve the demands of business users and IT. You can contact him at jamestaylor@fairisaac.com. For more information, please visit www.fairisaac.com/edm and visit Taylor's blog at http://edmblog.fairisaac.com/.



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