Evaluating the ROI of Moving to a Decision Engine for Risk Management
Introduction
Decision engines give lending companies a way to streamline loan approval, reduce development cost, and improve risk management. This article looks at the ROI of moving from hard-coded risk logic to a decision engine, using an imaginary lending company in Latin America as the case.
The Current State of Affairs
- Internal software development cost per man-day: $800
- Additional costs: QA, DevOps, Business Analysts
- Process: Risk analysts write business requirements, review them, then move to software development
Challenges Faced
- Capacity Constraints
Competing priorities often leave too little development capacity. - Hidden Costs
Some costs are hard to quantify, especially in risk management where issues can cascade. - Time-to-Market
Long development cycles, testing, and UAT slow risk logic updates. - Explainability
Auditing rules often require risk analysts to read code, which slows the audit process.
Cost-Benefit Analysis: Transitioning to Decisimo
- Direct Cost Savings
Fewer development man-days means direct savings. Even a 25% reduction in development time cuts cost at the $800/day rate. - Efficiency in Risk Management
Update risk algorithms faster, and reduce the exposure from fraud and related effects. - Reduced Time-to-Market
Shorter approval and deployment cycles mean faster response to market needs. - Enhanced Explainability
Decision engines like Decisimo provide rule management features that improve explainability without code changes.
ROI and Cost-Benefit Analysis
Cost Implications: Current System
Consider the cost of making recurring changes to risk logic:
- Risk Analyst and Business Analyst: $1,200
- Software Development: $4,000
- QA Testing: $1,600
- DevOps Deployment: $800
Total Monthly Cost: $7,600
Annual Cost: $91,200
Cost Implications: Decisimo
By moving to Decisimo:
- Monthly Subscription Fee: $1,500
- Retained Internal Costs: $600
- Amortized Integration Cost: $133.33
Total Monthly Cost: $2,233.33
Annual Cost: $26,800
ROI Breakdown
The ROI is the key measure for the transition:
- Monthly Savings: $5,366.67
- Annual Savings: $64,400
- ROI: 240%
Accounting for Internal Costs
Account for internal integration work. Two man-days for IT development at $800/day total $1,600. Spread that cost over 12 months.
Conclusion
Moving to a decision engine like Decisimo can remove several pain points for lending companies. It can reduce cost, improve risk management, shorten time-to-market, and make audits easier. For companies with limited capacity and hard-coded rules, the operational case for change is clear.
Frequently asked questions
What ROI does moving from hard-coded risk logic to Decisimo deliver?
In the hypothetical Latin American lending-company case, moving from hard-coded risk logic to Decisimo is estimated to deliver a 240% ROI. The estimate compares recurring costs under the current system with Decisimo’s subscription, retained internal costs, and amortized integration cost.
What costs are included in the Decisimo cost estimate?
The Decisimo cost estimate includes a subscription fee, retained internal costs, and integration work amortized over a year. The comparison also accounts for analyst and business analyst work, software development, QA testing, and DevOps deployment under the current system.
How can a decision engine improve risk management?
A decision engine can support risk management by allowing risk algorithms to be updated faster, which can reduce exposure from fraud and related effects. Rule management features can improve explainability without code changes, and faster updates can help lending companies respond to market needs sooner.
