ucsd jacobs school of engineering - research review “better decisions thru data at fi” larry...

UCSD Jacobs School of UCSD Jacobs School of Engineering - Research ReviewEngineering - Research Review

“Better Decisions thru Data at FI”“Better Decisions thru Data at FI”

Larry RosenbergerLarry RosenbergerVice President, R&DVice President, R&D

2/28/20022/28/2002

Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here

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What fuels my perspective?What fuels my perspective?What fuels my perspective?What fuels my perspective?

Techie background

Physics and Operations Research

Started at FI in ’74 as a “kid out of school”

30 employees then, approx 2300 now

Long sequence of assignments = lots of scar tissue

Client projects

R&D/new product development

CEO ’91-’99

R&D/mentor/spiritual leader of our scientific community

Fair, Isaac in a nutshell

Evolution and revolutions in “demand-side analytics” for consumer businesses

“Strategy Science” – the newest frontier

T O P I C S


4

Some of our product portfolio: “Franchises”Some of our product portfolio: “Franchises”Some of our product portfolio: “Franchises”Some of our product portfolio: “Franchises”

FICO scores Distributed through the 3 Credit Bureaus, predicts future credit risk of consumer. They are used in most US lending decisions, including ¾ of mortgage originations.

myFICO.com Helps Million+ consumers manage their credit health. Superbowl ad.“See how lenders see you”

FALCON Used to protect more than 450 million credit, card accounts worldwide, 65% of all card transactions. Incorporates Patented, profiling system to render real-time decisions. Related Fraud protection products for TELCOM (1000+ tps), for the Internet, for Application Fraud.

TRIAD used to manage 65% of world’s credit card accounts. Automates principles of Adaptive Control to enable banks implement and test different strategies (preferably that use advanced analytics).

PMAX: real-time transaction monitoring of consumer’s “touch-points” (purchases, payments, non-mons, …)


5

Market VerticalsMarket VerticalsMarket VerticalsMarket Verticals

25 Billion Decisions a Year

GovernmentRetail

Insurance

Mortgage

Telecommunications

Credit

Consumers

Healthcare


6

We power better decisions among We power better decisions among a blue-chip roster of brandsa blue-chip roster of brandsWe power better decisions among We power better decisions among a blue-chip roster of brandsa blue-chip roster of brands


7

v

History: Innovators since 1956History: Innovators since 1956History: Innovators since 1956History: Innovators since 1956

1950 1960 1970 1980 1990 2000 2002

DecisionMgmt.

StrategyDesign

Fair, Isaac Fair, Isaac Founded 1956Founded 1956Fair, Isaac Fair, Isaac

Founded 1956Founded 1956

HNC Founded 1986HNC Founded 1986HNC Founded 1986HNC Founded 1986

Fair, Isaac IPO 1987Fair, Isaac IPO 1987Fair, Isaac IPO 1987Fair, Isaac IPO 1987HNC HNC

MergerMergerHNC HNC

MergerMerger

FICO ScoresFICO ScoresFICO ScoresFICO Scores FICO for MortgagesFICO for MortgagesFICO for MortgagesFICO for Mortgages

Customer Profitability (HNC)Customer Profitability (HNC)Customer Profitability (HNC)Customer Profitability (HNC)

PredictiveAnalytics

Automated CreditApp Processing

Automated CreditApp Processing

TRIAD Account Management

TRIAD Account Management

Liquid CreditLiquid Credit

Strategy ScienceStrategy ScienceStrategy ScienceStrategy Science

DynaMark Acquired 1992DynaMark Acquired 1992DynaMark Acquired 1992DynaMark Acquired 1992

Blaze Advisor (HNC)Blaze Advisor (HNC)

Application Application ScoringScoring

Application Application ScoringScoring Falcon (HNC)Falcon (HNC)Falcon (HNC)Falcon (HNC)

Insurance Insurance ScoresScores

Insurance Insurance ScoresScores

ComprehensiveMedical Bill Review (HNC)

ComprehensiveMedical Bill Review (HNC)

Insurance Claims Reserving (HNC)Insurance Claims Reserving (HNC)Insurance Claims Reserving (HNC)Insurance Claims Reserving (HNC)

Workers Comp Fraud (HNC)Workers Comp Fraud (HNC)Workers Comp Fraud (HNC)Workers Comp Fraud (HNC)

myFICO.commyFICO.com

Roamex (HNC)Roamex (HNC)


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A Few Summary NumbersA Few Summary NumbersA Few Summary NumbersA Few Summary Numbers

$625MM-$650MM in annual revenues

Approx 2300 employees

About 100 PhDs

Clients in over 50 countries

Over 20 locations around the world

Market value $2.2B-$2.5B

Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job Number

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Better Decisions through DataBetter Decisions through DataWhere We Add ValueWhere We Add Value

ExternalData

InternalData

InformationInformation Decision StrategiesDecision Strategies

Prospects &Prospects & CustomersCustomers

ActionsActionsReactionsReactions

D A

T A

D A

T A

D A

T A

D A

T A

ANALYTICSANALYTICS

D. Ware-House

Analytic Data Mart

Results DB

ED

PredictivePredictiveModelingModeling

PAPA

ExploratoryExploratoryAnalysis /Analysis /

Data MiningData MiningEAEA

DecisionDecisionModelingModeling

andandStrategyStrategyDesignDesign

DADA

PredictionsPredictions

InsightsInsights

DATAMGMT.

Prod.Ops.

STRATEGYEXECUTION

DecisionEngine

Rules Mgmt

CaseMgmt

Prod.Ops.

ACAC


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Production Environment – Falcon ExampleProduction Environment – Falcon ExampleProduction Environment – Falcon ExampleProduction Environment – Falcon Example

Falcon Server

AuthSystem

FalconNeural Engine

Analyst

Profiles Updates

Case Management

System

Merchant

Fraud Risk Evaluation

Authorization

Account Status Change

Manager’s Priorities

Productivity and case

reports

Analyst’s Action

High risk

accountsManage

rFalcon

Workstations

profiles

Rule EngineMercha

nt


11

FI’s Scientific Community’s MissionFI’s Scientific Community’s MissionFI’s Scientific Community’s MissionFI’s Scientific Community’s Mission

To provide the “analytic heart” of our current and future decision technology that powers the most widely used and useful decision-making solutions and tools for the global consumer economy:

Invent it

Develop it

Integrate it with our other capabilities

Deliver it to our clients

Support it




T O P I C S


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Evolution in “demand-side analytic Evolution in “demand-side analytic technology” for consumer businessestechnology” for consumer businessesEvolution in “demand-side analytic Evolution in “demand-side analytic technology” for consumer businessestechnology” for consumer businesses

… identifying the right actions to take for each account

Benefit

Incremental ProfitImpact

• Brings all predictive analytics into a single decision framework

• Assigns the optimal action for each prospect/account given specific business constraints

5-35%

• Creates micro segments by matrixing 2 or 3 predictive models

5-20%

• Rank orders prospects on a single dimension

10-30%

• Establishes broad segments based on customer profile data

0-10%

HIGH

Strategy Strategy ScienceScience

Strategy Strategy ScienceScience

Multi-DimensionalTrade-OffAssessment

Multi-DimensionalTrade-OffAssessment

PredictiveModelsor “Scores”

PredictiveModelsor “Scores”

Profiling &Segmentation

Profiling &Segmentation

XX

XX

X

X

X X

XX

XX

X

XXX X

X

X

XXXXX X

X

X X

X

XX

X

XX

X

X

X

X

X

XXXXX X X

X X

X

XX

X

XX

XX X

XX

X

XX X

X

X

X

X

XX


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Time

Pro

fit

Imp

rove

men

t

PredictiveModeling

20-30%

AdaptiveControl

20-30%

Strategy Science

20-30%

today

“ “33rdrd Revolution” in Data-Guided Decisioning Revolution” in Data-Guided Decisioning Where Are We?Where Are We? “ “33rdrd Revolution” in Data-Guided Decisioning Revolution” in Data-Guided Decisioning Where Are We?Where Are We?




T O P I C S


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Strategy Science replaces guesswork in Strategy Science replaces guesswork in strategy design with sciencestrategy design with scienceStrategy Science replaces guesswork in Strategy Science replaces guesswork in strategy design with sciencestrategy design with science

Decision Decision ModelingModeling

Accelerated Accelerated Learning Learning

Optimization and Optimization and Visualization Visualization TechnologyTechnology

• Establish mathematical Establish mathematical relationships between relationships between customer treatment options, customer treatment options, their reactions and profitabilitytheir reactions and profitability

• Engineer profit-improvement Engineer profit-improvement strategies - subject to strategies - subject to constraints on key metricsconstraints on key metrics

• Learning beyond historical Learning beyond historical operating regions to yield operating regions to yield superior performancesuperior performance

Optimal Strategy

STRATEGY SPACE

Expert Decision

Income

Revenue Score

LowLow

100

Risk Score MediumMedium High High

LowLow MedMed

LowLow High High

HighHighLowLow MedMed HighHigh

High High LowLow

100 100 2000 1000 2000 1500

Product DD D A B/C A/C A


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Prospects & Customers

Judgmental Decision Strategies

Actions

Predicting Vs. Decisioning – Prediction focusPredicting Vs. Decisioning – Prediction focusPredicting Vs. Decisioning – Prediction focusPredicting Vs. Decisioning – Prediction focus

ExpertExpertJudgmentJudgment

ProfitScore

ProfitScore

D A T AD A T AD A T AD A T A

ResponseScore

ResponseScore

RevenueScore

RevenueScore

RiskScoreRisk

Score






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Predicting Vs. Decisioning – Decision focusPredicting Vs. Decisioning – Decision focusPredicting Vs. Decisioning – Decision focusPredicting Vs. Decisioning – Decision focus

ProfitScore

ProfitScore


StrategyScience

Prospects & CustomersProspects & Customers

Optimal Decision Strategies

ResponseScore

ResponseScore

RevenueScore

RevenueScore

RiskScoreRisk

Score





ActionsDecisionModeling

StrategyOptimization

AcceleratedLearning

=

+

+

Response data collection


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Acquisitions

Strategy Science for Acquisitions

Origination

Strategy Science for Initial Credit Line assignment, Installment loan limit, Installment/Indirect loan pricing

Account Management

Strategy Science for Cross Sell, Credit Line Management, Retention, Repricing, Balance Transfers, Collections

Strategy Science solutionsStrategy Science solutionsStrategy Science solutionsStrategy Science solutions


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FAST adoption!FAST adoption!FAST adoption!FAST adoption!

Strategy Science applications

3 countries

25 clients

41 projects – in progress/completed


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What Strategy Science doesWhat Strategy Science does#1. Links decisions to the underlying economics#1. Links decisions to the underlying economicsWhat Strategy Science doesWhat Strategy Science does#1. Links decisions to the underlying economics#1. Links decisions to the underlying economics


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What Strategy Science doesWhat Strategy Science does#2. Captures customers reactions to lender’s actions#2. Captures customers reactions to lender’s actionsWhat Strategy Science doesWhat Strategy Science does#2. Captures customers reactions to lender’s actions#2. Captures customers reactions to lender’s actions

Customer Action Reaction

P(Acceptance) = 25%

E(Balance change) = $150

E(Incremental cost) = $33

…

Retention Offer #2: Free air miles

&$1,000 line increase

Revenue score = 720

Risk score = 680

Current Balance = $1,250

Current Pricing = 11.25%

Relationship length = 3 yrs…

Revenue score = 720

Risk score = 680

Current Balance = $1,250

Current Pricing = 11.25%

Relationship length = 3 yrs…

Retention Offer #1: 0% balance transfer

for 8 months

P(Acceptance) = 30%

E(Balance change) = $650

E(Incremental cost) = $28

…


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What Strategy Science doesWhat Strategy Science does#3. Connects decisions to lender’s business constraints#3. Connects decisions to lender’s business constraintsWhat Strategy Science doesWhat Strategy Science does#3. Connects decisions to lender’s business constraints#3. Connects decisions to lender’s business constraints


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Profit / account $78 (+7%)


Baseline

Profit / account $73


What Strategy Science doesWhat Strategy Science does #4. Simulates many scenarios and allows lender to#4. Simulates many scenarios and allows lender to choose the most attractive choose the most attractive

What Strategy Science doesWhat Strategy Science does #4. Simulates many scenarios and allows lender to#4. Simulates many scenarios and allows lender to choose the most attractive choose the most attractive

Q/AQ/A

Better Decisions thru Data Better Decisions thru Data at Fair, Isaacat Fair, Isaac

ucsd jacobs school of engineering - research review “better decisions thru data at fi” larry...

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