The predictive side of analytics

Business intelligence has been a priority for those in the financial industry for years due to its ability to offer insights into operational performance, improve and analyse decision-making skills. David Potterton, gives an insight into where this key business tool is heading.

The financial industry faces a whole host of challenges, from strict governing regulations to demanding customers. Banks need strategies to develop and maintain secure internal processes and systems, ensure transparency and make sound decisions. One analyst firm has found that most organisations do not have the processes and business tools in place. It predicts that by 2012, more than 35 percent of the top 5000 global companies will regularly fail to make insightful decisions and significant changes in their businesses and markets.

However, there is light at the end of the tunnel. An IDC report released earlier this year predicts that the take-up of business intelligence in 2010 will see double-digit growth this year, with European spending increasing by 40 percent over 2009's figures. Statistics show that around a third of firms on the continent are looking to significantly ramp up their outlay on business intelligence tools, with the financial services sector especially keen to ramp up investment as a result of the large quantities of data that this sector continually deals with.

David Potterton, Vice President for Global Research at IDC Financial Insights, explains that business intelligence is used effectively in two key areas of financial services. First and foremost in the governance, risk and compliance category: looking at those aspects of analytics that are key to managing risk as well as within asset liability management particularly focusing on capital adequacy. Second, it is used to analyse consumer preferences and profitability: looking at the preferences around consumer channels and products that are being utilised to drive better decision-making from those analytics to deliver customer value.

"The advantage of using business intelligence in financial services is that if you do it right, you're in a better position to understand what is happening internally in your organization and externally with your customers. Overall this will make you  a more efficient organisation," explains Potterton,. It also puts you in a better position to survive any issues that happen in the marketplace. "Certainly when it comes to risk and compliance, it  can provide greater transparency and put  you in better stead with the regulators, which everybody wants," he continues.

"On the consumer side, it's really about understanding that if you do it right, you are better able to understand the drivers of your profitability as an institution." With so many elements negatively impacting the earnings of financial institutions, these drivers of profitability are now more  crucial than ever to the future of the organisation. By making better decisions, it is possible to drive more profitable products and services to the client base and focus on the solutions that consumers value the most.

Best practices

In terms of ensuring you employ best practices when choosing and deploying a business intelligence solution, Potterton advises that it is crucial to start the process by looking across the entire enterprise, doing a risk assessment and then gradual supplementing business intelligence in the key areas that would genuinely benefit from the introduction of intelligence. "While you should start with the areas of greatest need, it's really important that you start to drive business intelligence across the enterprise and for that you need a road map in place and a plan on how to deploy it effectively," says Potterton.

On the consumer side, he explains, a similar plan should be implemented. By starting in a specific key area it is possible to plan out the key steps to rolling it out gradually across the enterprise. "Start on the lending side or on regular DDA services and slowly look to roll it out to other areas over time," says Potterton.

Another key to remember is that business intelligence and analytics should be looked at both from a past tense perspective, as well as a predictive side. In other words moving away from data for data's sake and looking at what the data means and the possibility of making better decisions based on this predictive side of the analytics. It's the decision that it enables versus the data that it supplies. "This is really the key to business intelligence," says Potterton. "Any time that you can use these tools to enable better decisions, that's really where the value resides."

"While its necessary to look at trends over time, the real key is what it means for the future and how do I change my behaviour or asset liability mix or customer mix to get maximum value. That's really where the major benefits are going to be found."

Potterton goes on to explain that he is seeing more and more development on this side of business intelligence. "Solution providers understand the key is having data integration without multiple silos. They also see the importance of the predictive side of analytics in making more informed decisions. Half the battle is won when institutions understand that's the path they should take."

Indeed, Potterton believes that the market is really warming up and will see spend across the board. He explains that it will also be interesting to see how far business intelligence solutions will extend to alternative delivery mechanisms such as software as a service (SaaS) and also cloud for example. "I definitely believe that as we move forward that business intelligence solutions will move to these delivery channels in addition to being brought in house.  Regardless of the model, however, we are sure to see business intelligence solutions deployed increasingly in the financial services space."

Challenging times

David Potterton, Vice President for Global Research for IDC Financial Insights, explains that the challenges facing business intelligence in the financial services industry are mainly around utilising the infrastructure for the entire organisation as opposed to keeping it in silos. "You've got various data repositories - or various versions of the truth we like to say. Being able to manage that is not easy. Integration is the key challenge from an enterprise perspective."