Business Process Change through Business Rules Automating Decisions across the Enterprise

1. Business Process Change through Business RulesAutomating Decisions across the Enterprise jboissy@ilog.com www.ilog.com November 2004 Joe BoissyILOGDirector, Market Development

2. Outline • History of automation • Business Rules in automation • BRMS for automation • BRMS anatomy and usage • Case studies • Campaign management • Automated underwriting • Reference data compliance

3. Automation today Level of Automation Levels of Automation in the Enterprise Highly Automated (STP) No Automation Source : IDC / ILOG Survey , October 2004

4. History of automation Stages of Automation Highly Automated (STP) Automated Decisions Human interventions only for handling exceptions Level of Automation Automated Process Fewer Human interventions mostly for Decision-making activities Little or No Automation Manual Processes Many Human interactions and exchanges No Automation time

5. Business Rules for automation The traditional implementation path Pricing / Quoting Rules Case Assignment Rules Fraud detection Rules Underwriting Rules … Automated Decisions Human interventions only for handling exceptions In house Applications Spreadsheets ERP/CRM Mainframes Databases

6. Automated decisions and business rules Where are your business rules? Source : IDC / ILOG Survey , October 2004

7. Challenges facing automation Need for Agility Internal process Competition Regulation Market Crisis Business Operations Drivers for Change

8. Challenges facing automation Issues in the traditional way of implementing business rules Business Manager • Cannot act on new business opportunities • Knowledge workers are overloaded with routine work • All policy updates must go through IT group • Lead-time for business rules updates is unrealistic • Lack of control, don’t trust the system Policy Owner • High cost and impact of requirement changes or update request • Developers can’t focus on new projects • Limited knowledge of legacy applications IT Manager In house Applications Spreadsheets ERP/CRM Mainframes Databases

9. The Answer : Business Rules Management System (BRMS) Business Rules • Externalized • Rules become : • Readable • Maintainable • Auditable From traditional monolithic Business Application… To new generation of Business Applications

10. Business Rule Management System (BRMS) Rules Management Rules Repository Rules Versioning Business Rule Approach Procedural Approach Rules Editing Rules Analyzer Rules Editor Business Rules Rules Execution Decision Engine Application Code Application Code Anatomy of a BRMS • Create rules in a business language • Execute rules (rules engine) • Edit and change rules Business Rules Management System (BRMS)

11. Authoring Rules in a BRMS Business language for business users

12. Authoring rules in a BRMS In Out Out Out Rules with templates Prepare Input (XML / Java) Validation Scoring/ Risk Assmnt. Eligibility Request Refuse / Iterate Evaluate (Yes / hard no / soft no) Hard no Refuse Soft No Refer Policy rule sample Post Pricing (Payment Plans Fees) Rate Adjustments Base Pricing (Rate Sheets) Yes Accept Case handling rule sample BRMS-based Decisioning Service

13. Authoring rules in a BRMS In Out Out Out Rules in decision tables Rate sheet sample Prepare Input (XML / Java) Validation Scoring/ Risk Assmnt. Eligibility Rate adjustment sample Request Refuse / Iterate Evaluate (Yes / hard no / soft no) Hard no Refuse Soft No Refer Post Pricing (Payment Plans Fees) Rate Adjustments Base Pricing (Rate Sheets) Yes Accept BRMS-based Decisioning Service

14. Authoring rules in a BRMS In Out Out Out Rules in score cards Prepare Input (XML / Java) Validation Scoring/ Risk Assmnt. Eligibility Request Refuse / Iterate Evaluate (Yes / hard no / soft no) Hard no Multi dimension score card Refuse Soft No Refer Post Pricing (Payment Plans Fees) Rate Adjustments Base Pricing (Rate Sheets) Single dimension score card Yes Accept BRMS-based Decisioning Service

15. Policy change lifecycle in a BRMS Rule Change/Add request Validation In Production In Production Deployment Coding Test Test / Validation Real-time Rule Change/Add Moving toward “Zero” time to Market Business Logic Embedded (hard coded) in the Applications Business Org. IT Org. Time line Business Rules within a Business Rule Management System Business Rules Business / IT Org.

16. Avoid the silos of automation @ @ Web Service Web Service Central Business Rules Repository Silos of Automation Whole Process Automation Rules automate an application Rules across applications Manual Processing No automation

17. ILOG BRMS in Enterprise Architecture Rule Service Ruleset(s) RulesRepository Pool of Engines Rule Authoring andMaintenance Tools Application Server, EAI, BPM Server, Web Server Message Broker DB CRM / ERP Back End Services

18. When do you need a BRMS? Volatility Analysis • Fast changing environment • Consistency across processes, applications and channels • Reporting, auditability and traceability • Enhance security (access control) • Enhance accountability (business users)

19. Business benefits of a BRMS Source : Gartner 2003

20. Analysts quotes “Mortgage industry firms manage thousands of internal and external policies and rules in mortgage credit evaluations, underwriting and loan pricing. A BRMS is essential in mortgage lending, which is one of the most complex account acquisition process in financial services” Craig Focardi – TowerGroup “By extending beyond process efficiency, speed and supporting business process modifications, technologies – such as BREs – now enable insurers to gain strategic knowledge” Kimberly Harris – Gartner “Insurance is a decisions business. Competitive success depends on making smarter decisions than the other guy. An insurer either selects, or is selected against. An insurer must price, underwrite and adjust claims consistently. It must keep in compliance with frequently changing regulations. Insurers are increasingly meeting pricing, underwriting and claims challenges by deploying business rules engines (BREs)” Donald Light – Celent

21. About ILOG Changing the rules of business • Founded in 1987 • Publicly traded (NASDAQ, Euronext) • Over 2000 customers • Over 400 ISV / OEM partners • Leader in business rules, optimization & visualization software • Operating in 30 countries

22. Business Rules in Action ILOG BRMS Case Studies

23. Enabling Strategic Applications In Banking and Financial Services • Loan Configuration • Online Lending • Product Recommendation • Campaign • Management • Financial • planning • Compliance • Fraud Detection • Underwriting • Loan Pooling • Billing • Credit • Processing • Insurance • underwriting • Claims • processing • Risk Management • Portfolio Management • Program Trading • Trade Order Management

24. Case Study 1: Campaign Management Case Study Major Retail Bank • Business goals • Effectively cross-sell and up-sell • Deliver optimum offers across the customer portfolio • Improve efficiency of marketing campaigns • Facilitate planning and execution, reduce overall cycle time and costs • Establish a foundation for additional CRM initiatives in the future • Enable customer-level treatment strategies, for both marketing and non-marketing interactions

25. Case Study 1: Campaign Management Case Study Major Retail Bank • Solution • Create a “Campaign Management” platform with • Extended and integrated Account & Customer information • ILOG BRMS to facilitate credit qualification, tagging, and program qualification • Simulation environment for testing new strategies and rule changes • Reporting infrastructure for standard reports such as waterfalls, frequencies, etc

26. Case Study 1: Campaign Management Case Study Integrated Development Environment Interact ILOG Engine IDE Product & Customer Knowledge Debugger Cross/Up Sell Impact Analysis ILOG Business Rule Repository ILOG Engine Profiler Configure Rule Management Environment Access Control Query Language ILOG Engine History / Versioning Rule Editors Light Client Price Business Languages ILOG Engine Rules Templates Product DB Customer DB Lifecycle Major Retail Bank Self Service Technical User Call Center, Customer Representative Business User Product & Process Rules Brokers, Dealers, Partners Administration Deployment Channels

27. Case Study 1: Campaign Management Case Study Major Retail Bank • Benefits • Approximate Cost Reduction of $2M per year due to reduced unproductive mail volume • Improved margin/revenue by enabling risk-based pricing to appropriately price customers based on their profile • More effective population and contact management of portfolio customers, by providing a rich, standardized set of data that enables contact strategies over time • Handle large volume of transactions (approx. 60 million credit card holders) • Establish a data and processing platform that can easily be extended to provide additional CRM capabilities

28. Case Study 2: Automated Underwriting Case Study Major US sub-prime lender Business Goals • Improve efficiency of Underwriting system: • Reduce cost and time • Eliminate redundancy in Rules and insure consistency in level of service • Empower Business Users to make the rule changes when appropriate • Improve Back-office skills / needs alignment • Comply with Regulatory and internal policies with tracing / reporting capability

29. Case Study 2: Automated Underwriting Case Study Major US sub-prime lender Solution • BRMS based end-to-end automated underwriting system: • Prequalification, Credit checking, Eligibility, Stipulations and Pricing • Web based interface: • dedicated language for business users • Simulation environment (what if analysis) • Central rules repository for all rules across stages and channels • Embedded reporting capacity for internal and regulatory purposes

30. Case Study 2: Automated Underwriting Case Study Major US sub-prime lender Benefits • Dramatic reduction in loan processing time (sub-second prequalification) • Dramatic reduction in cost per loan • Better alignment of skilled workforce with assigned tasks • Automated reporting for Compliance purposes

31. Case Study 3: Reference Data Compliance Case Study Major EU Asset Manager Business Goals • Consolidate Reference Data feeds from 6 different sources • Introduce a centralized for Data Administration and Control • Reduce and monitor errors

32. Case Study 3: Reference Data Compliance Case Study Major EU Asset Manager Solution • A centralized BRMS based gateway monitoring and filtering data from all feeds • A Dashboard console to monitor and analyze all exceptions and act upon the ones needing manual intervention

33. Case Study 3: Reference Data Compliance Case Study Major EU Asset Manager Benefits • Dramatic increase in error detection (close to 98%) • Rich statistical information about each data feed system in performance and reliability • Feedback loop enabled to improve on automating error handling • Bonus: Generating / adjusting payments according to Service Level Agreements

34. Dos and Don’ts when Implementing Business Rules • Consider adapting your existing applications before replacing them • Have Rules to validate the Business Rules • Make your Business Users responsible for Business Rules • Follow a Methodology from inception to production • Use an Incremental Approach, no big bang • Rely on an experienced partner

35. Q A & Thank you jboissy@ilog.com www.ilog.com