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					Business Process Change through
         Business Rules


  Automating Decisions
  across the Enterprise
jboissy@ilog.com              November 2004
www.ilog.com
                                      Joe Boissy
                                           ILOG
                   Director, Market Development
                                             1
Outline


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

                     Copyright © ILOG, 2004   2
 Automation today
                                  Levels of Automation in the Enterprise

Highly Automated (STP)
                         More than 90%
   Level of Automation




                             75 to 90%


                             50 to 75%


                             25 to 50%


                         Less than 25%
                          No Automation
                                         0%   10%          20%               30%        40%           50%

                                                       3 years ago            Today

                                                    Copyright © ILOG, 2004
                                                                                Source : IDC / ILOG Survey , October 2004   3
  History of automation
                                 Stages of Automation
 Highly
Automated
  (STP)                                                                         Automated Decisions
       Level of Automation




                                                                                 Human interventions
                                                                                  only for handling
                                                                                     exceptions


                                                         Automated Process
                                                   Fewer Human interventions
                                                   mostly for Decision-making
                                                            activities


                             Little or No Automation
                                Manual Processes
    No                       Many Human interactions
Automation                       and exchanges
                                                                                               time


                                                       Copyright © ILOG, 2004                          4
Business Rules for automation
          The traditional implementation path


                                                                           Automated Decisions
                                                                            Human interventions
                     Pricing / Quoting Rules                                 only for handling
                                                                                exceptions
                     Case Assignment Rules
                      Fraud detection Rules
                         Underwriting Rules
                                          …




       In house
                      Spreadsheets         ERP/CRM            Mainframes       Databases
      Applications


                                     Copyright © ILOG, 2004                                       5
Automated decisions and business
rules
                        Where are your business rules?


           Embedded within software packages                           56%                        25%      11% 8%


                       Embedded within database                       51%                 19%           20%      11%


           Hard-coded within legacy application                   46%                      27%           18%      9%


Implemented by macros/formulae in spreadsheets            29%                 21%               33%            17%


                                           Manual        23%                  31%                 31%           16%

                                                    0%          20%            40%          60%          80%         100%


     Frequently used        Moderate use       Rarely used          Never used


                                                                              Source : IDC / ILOG Survey , October 2004
                                                     Copyright © ILOG, 2004                                                 6
Challenges facing automation
         Need for Agility
                                   Internal process
               Competition                              Regulation


      Market                                                         Crisis




                             Business Operations




                   Drivers for Change
                               Copyright © ILOG, 2004                         7
Challenges facing automation
              Issues in the traditional way of implementing business rules


 Business            • Cannot act on new business opportunities
 Manager             • Knowledge workers are overloaded with routine work
                     • All policy updates must go through IT group
  Policy             • Lead-time for business rules updates is unrealistic
  Owner              • Lack of control, don’t trust the system

                     • High cost and impact of requirement changes or
    IT               update request
  Manager            • Developers can’t focus on new projects
                     • Limited knowledge of legacy applications


            In house
                          Spreadsheets         ERP/CRM            Mainframes   Databases
           Applications


                                         Copyright © ILOG, 2004                            8
The Answer : Business Rules
Management System (BRMS)



                                                               Externalized
                                                               Rules become :
                                                   Business
                                                               - Readable
                                                    Rules
                                                               - Maintainable
                                                               - Auditable




 From traditional monolithic           To new generation of
  Business Application…                Business Applications


                               Copyright © ILOG, 2004                           9
Business Rule Management System
(BRMS)
               Anatomy of a BRMS

 • Create rules in a business                           Business Rules Management System (BRMS)

   language                                                           Rules




                                                                                     Management
                                                                    Repository
 • Execute rules (rules engine)




                                                                                        Rules
 • Edit and change rules                                              Rules
                                                                    Versioning

   Procedural        Business Rule
   Approach            Approach                                       Rules
                                                                     Analyzer




                                                                                     Editing
                                                                                      Rules
                                                                      Rules
                                                                      Editor
                      Business Rules




                                                                                     Execution
                                                                                      Rules
                                                                   Decision
                                                                    Engine
  Application Code   Application Code

                                        Copyright © ILOG, 2004                                    10
Authoring Rules in a BRMS
       Business language for business users




                   Copyright © ILOG, 2004     11
Authoring rules in a BRMS
               Rules with templates

                     Prepare
                                                      Scoring/
       In             Input        Validation                        Eligibility
                                                    Risk Assmnt.
                   (XML / Java)
     Request



                                     Refuse
                                                    Hard no          Evaluate
      Out                                                          (Yes / hard no
                                     / Iterate
                                                                     / soft no)
     Refuse



      Out
                                                    Soft No

      Refer
    Policy rule sample
                       Post
                      Pricing
      Out         (Payment Plans
                                      Rate
                                   Adjustments
                                                        Yes
                                                   Base Pricing
                                                   (Rate Sheets)
                       Fees)
     Accept
 Case handling rule sample
                         BRMS-based Decisioning Service
                                       Copyright © ILOG, 2004                       12
Authoring rules in a BRMS
             Rules in decision tables

                                                                Rate sheet sample
                  Prepare
                                                   Scoring/
     In            Input        Validation                       Eligibility
                (XML / Java)                                Rate adjustment
                                                 Risk Assmnt.                    sample
   Request



                                  Refuse
                                                 Hard no          Evaluate
    Out                                                         (Yes / hard no
                                  / Iterate
                                                                  / soft no)
   Refuse



    Out
                                                 Soft No

    Refer

                    Post
                   Pricing
    Out        (Payment Plans
                                   Rate
                                Adjustments
                                                     Yes
                                                Base Pricing
                                                (Rate Sheets)
                    Fees)
   Accept

                     BRMS-based Decisioning Service
                                    Copyright © ILOG, 2004                                13
Authoring rules in a BRMS
             Rules in score cards

                     Prepare
                                                     Scoring/
      In              Input       Validation                        Eligibility
                                                   Risk Assmnt.
                   (XML / Java)
   Request



                                    Refuse
                                                   Hard no          Evaluate
     Out                                                          (Yes / hard no
                                    / Iterate
                                                                    / soft no)
   Refuse                                                                         Multi dimension
                                                                                    score card

     Out
                                                   Soft No

     Refer

                      Post
  Single dimensionPricing
     score card (Payment Plans
     Out
                                     Rate
                                  Adjustments
                                                       Yes
                                                  Base Pricing
                                                  (Rate Sheets)
                      Fees)
   Accept

                        BRMS-based Decisioning Service
                                      Copyright © ILOG, 2004                                        14
Policy change lifecycle in a BRMS

                   Moving toward “Zero” time to Market


                      Rule Change/Add request                               Validation
  Business                                                                               Deployment
    Logic                           Coding               Test
 Embedded
               Business
(hard coded)                                                                                          In Production
                   Org.
   in the
Applications      IT Org.


               Time line

 Business      Business
   Rules        / IT Org.           In Production
  within a                                                                           Business
 Business                      Test / Validation
   Rule                                                                               Rules
               Real-time Rule Change/Add
Management
  System



                                                   Copyright © ILOG, 2004                                             15
Avoid the silos of automation


                                                                                    @
                                                                                  Web Service




                                                                                    @
                                                                                  Web Service




                                                              Central Business Rules Repository

   Manual             Silos of Automation                       Whole Process Automation
  Processing
 No automation   Rules automate an application                  Rules across applications
                                     Copyright © ILOG, 2004                                       16
ILOG BRMS in Enterprise Architecture




                                            Rule Authoring and
                                            Maintenance Tools




                            Rule
          Rules            Service
        Repository                     Pool of Engines      Ruleset(s)



          Application Server, EAI, BPM Server, Web Server


        Message Broker                                       Back End
                              DB           CRM / ERP         Services



                         Copyright © ILOG, 2004                          17
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)



                       Copyright © ILOG, 2004   18
Business benefits of a BRMS



         Impact                            Business Value
 Business Agility        • Faster reactive and proactive time to market
                         • Business users empowered to create &
                           manage rules previously hard-coded

 Decision Making         • Test rule-based scenarios at lower cost

 Revenue Opportunities   • Greater product pricing and service flexibility
                           allowing incremental revenue streams

 Customer Satisfaction   • More customizable service offerings

 Regulatory Compliance   • Greater visibility to regulatory bodies and
                           easier change processes


                         Copyright © ILOG, 2004
                                                            Source : Gartner 2003   19
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
                                  Copyright © ILOG, 2004                              20
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
                      Copyright © ILOG, 2004   21
Business




                    in Action
       Rules
        ILOG BRMS



   Case Studies
                                22
Enabling Strategic Applications
        In Banking and Financial Services


                             •Loan Configuration
                             •Online Lending
                             •Product Recommendation

              •Campaign                                 •Financial
              Management                                  planning
                                                          •Compliance
                                                          •Fraud Detection
          •Underwriting
          •Loan Pooling
          •Billing                                        •Credit
                                                          Processing
              •Insurance
              underwriting
                                                        •Claims
                                                        processing
               •Risk Management

                              •Portfolio Management
                              •Program Trading
                              •Trade Order Management


                               Copyright © ILOG, 2004                        23
Case Study 1: Campaign Management

         Major Retail Bank                                          Case
                                                                       Study
  • 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




                             Copyright © ILOG, 2004                         24
Case Study 1: Campaign Management

         Major Retail Bank                                   Case
                                                                Study
  • 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




                           Copyright © ILOG, 2004                     25
Case Study 1: Campaign Management

                       Major Retail Bank                                                    Case
                                                                                               Study
            Integrated Development                                               Interact
                  Environment

                       IDE                                                ILOG Engine              Self
                                     Product & Customer                                          Service
Technical           Debugger
  User
                                         Knowledge
                  Impact Analysis                                        Cross/Up Sell
                      Profiler              ILOG
                                        Business Rule                     ILOG Engine
                                         Repository
                                                                                               Call Center,
              Rule Management                                                                   Customer
                                          Access Control                       Configure      Representative
                Environment
                                         Query Language

                                        History / Versioning
                  Rule Editors                                            ILOG Engine
Business
                    Light Client
  User                                      Product &
                Business Languages           Process                               Price
                                              Rules
                 Rules Templates                                                                 Brokers,
                                          Product DB                                             Dealers,
                     Lifecycle                                            ILOG Engine            Partners
                                         Customer DB


              Administration             Copyright © ILOG, 2004   Deployment                 Channels
                                                                                                   26
Case Study 1: Campaign Management

           Major Retail Bank                                    Case
                                                                   Study
  • 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
                             Copyright © ILOG, 2004                     27
Case Study 2: Automated Underwriting

          Major US sub-prime lender                      Case
                                                            Study
  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

                           Copyright © ILOG, 2004                28
Case Study 2: Automated Underwriting

         Major US sub-prime lender                               Case
                                                                    Study
  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
                             Copyright © ILOG, 2004                         29
Case Study 2: Automated Underwriting

         Major US sub-prime lender                 Case
                                                      Study
  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

                          Copyright © ILOG, 2004         30
Case Study 3: Reference Data
Compliance
        Major EU Asset Manager                Case
                                                 Study
  Business Goals
  • Consolidate Reference Data feeds from 6
    different sources
  • Introduce a centralized for Data
    Administration and Control
  • Reduce and monitor errors




                     Copyright © ILOG, 2004         31
Case Study 3: Reference Data
Compliance
        Major EU Asset Manager                Case
                                                 Study
  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




                     Copyright © ILOG, 2004         32
Case Study 3: Reference Data
Compliance
        Major EU Asset Manager                Case
                                                 Study
  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
                     Copyright © ILOG, 2004         33
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
                    Copyright © ILOG, 2004      34
            Thank you
                     Q                  &
jboissy@ilog.com
www.ilog.com
               Copyright © ILOG, 2004       35

				
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