Evaluating the ROI of Transitioning to Decision Engines for Risk Management - Decisimo - Decision Intelligence Services

Introduction

Decision engines offer lending companies the ability to streamline loan approval processes, reduce development costs, and enhance risk management. This article evaluates the ROI of transitioning from a hard-coded risk management system to a decision engine, using an imaginary Latin America-based lending company as a case study.

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, undergo reviews, then proceed to software development

Challenges Faced

• Capacity Constraints
  Competing priorities often result in a shortage of development resources.
• Hidden Costs
  Costs are sometimes difficult to quantify, particularly in risk management where problems may have cascading effects.
• Time-to-Market
  Long development cycles, testing, and UAT increase the time to deploy risk management updates.
• Explainability
  Auditing rules require risk analysts to read the actual code, complicating the audit process.

Cost-Benefit Analysis: Transitioning to Decisimo

• Direct Cost Savings
  Reduction in development man-days means direct cost savings. Even a 25% reduction in development time translates to savings given the $800/day rate.
• Efficiency in Risk Management
  Quickly update risk algorithms, reducing the risk of fraud and its cascading effects.
• Reduced Time-to-Market
  Quicker approval and deployment cycles mean faster response to market needs.
• Enhanced Explainability
  Decision engines like Decisimo offer rule management features that enhance explainability without requiring coding expertise.

ROI and Cost-Benefit Analysis

Cost Implications: Current System

Let's consider the cost involved in making two changes to risk algorithms per month:

• 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 transitioning 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 a critical indicator of the viability of the transition:

• Monthly Savings: $5,366.67
• Annual Savings: $64,400
• ROI: 240%

Accounting for Internal Costs

Consider internal costs for integration. Two man-days estimated for IT development at $800/day totaling $1,600. Amortize this over 12 months.

Conclusion

Transitioning to a decision engine like Decisimo can resolve multiple pain points for lending companies. It can lead to significant cost savings, enhanced risk management, quicker time-to-market, and better auditability. For companies facing resource constraints and complex, hard-coded rule systems, the financial and operational advantages make a compelling case for change.