Early On High Risk Behavior Pattern Recognition and Subsequent
In a struggling economy the most critical steps for risk management to take is to identify early on those types of behaviors that will lead (if unchecked) to severe delinquencies which in turn effect provision and losses—two of the largest expense line items in the P&L. In many cases these high risk patterns will not be seen by standard or custom scores until too late.
It is advisable to implement a process of searching for and identifying specific behavior patterns that exist before accounts go delinquent and behavior/risk scores can accurately predict them—using advanced statistical and mathematical processes in combination with business acumen— to prevent further deterioration to these accounts and forego delinquency. This can be set up as an automated process to done on a periodic basis.
This document outlines the specific steps taken to perform such a program
Overview—Pattern Detection and Analysis
Identifying families of distinct high risk behavior patterns using:
- application of advanced time-series pattern detection methods
- cluster analysis of distinct risk segments or “family of patterns”
- advanced approach to proactively identify highest risk “family” patterns
It is critical to identify the specific behavior patterns that will lead to delinquency and high risk and that require immediate workouts to mitigate future hits to provision and losses.
Risk Quantification, Targeting and Offering
The second critical step is developing the strategy matrix using the behavior patterns identified in the previous step, and identifying the correct product/term offerings for each cell.
Establish a Best-in-class Test and Learn Strategy and Production Environment
Provide the expertise to integrate this matrix within your decision management systems. Insure that you have the proper tests and feed-back capabilities into the process for dynamic optimization of the “early intervention strategy” process. One phrase that has stayed with me for many years, “Do not pay twice for your learnings”!
Having these process and procedures in place will insure that your account management strategies not only remain effective, and profitability of your portfolio remains optimal.