Evaluating the ROI of Moving to a Decision Engine for Risk Management
Published on: 2024-08-10 18:36:09
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.
