Using business rules to make processes simpler, smarter and more agile

Using Business Rules to Make Processes Smarter, Simpler and More Agile Session ID 1582 James Taylor CEO Decision Management Solutions IBM IMPACT 2009 Conference May 2009

James Taylor  Independent consultant working with clients to : Find the right decisions to apply business rules, analytics Implement a decision management blueprint Maximize the value of existing technology investments  Passionate advocate of decision management  20 years experience in all aspects of software © Decision Management Solutions, 2009 2

The One Slide You Need  Current business conditions require smarter, simpler and more agile processes  Making business processes simpler, smarter and more agile requires managed, automated decisions  Business rules are the best platform for automated decisions  Analytics, not just your policies and expertise, must influence operational decisions  Decisions take time to play out so you must test and learn  Decision Management is the business discipline that best leverages business rules and puts analytics and optimization to work in every transaction © Decision Management Solutions, 2009 3

Businesses Are Facing Complex Challenges Real-time Timeliness Days Complex Objectives Straightforward Trade-Offs Regulations Complex and global Local and simple Very High Uncertainty Low Constant Changes to Strategy Every 3-5 Years Increasingly Decision-Making Well-Defined Complex High Low Operational Volume © Decision Management Solutions, 2009 4

Businesses Must Respond  Manage Uncertainty  Ensure Compliance  Improve Agility  Cut Costs  Resource Efficiency  Core Application Value © Decision Management Solutions, 2009 5

Business Process Management Delivers  Manage Uncertainty  Process simulation and impact analysis  Ensure Compliance  Run processes exactly as documented  Improve Agility  Easier workflow and processes changes  Cut Costs  Avoid coding changes to multiple applications  Resource Efficiency  Measure and adapt human workflow  Core Application Value  Share processes across the enterprise © Decision Management Solutions, 2009 6

But More Is Possible  Manage Uncertainty  Predict and test the future  Ensure Compliance  Demonstrate compliance in every action  Improve Agility  Give business users control with stable processes  Cut Costs  Lower maintenance costs and fewer manual reviews  Resource Efficiency  Focus people on higher value tasks  Core Application Value  Modularize and modernize © Decision Management Solutions, 2009 7

We Need Processes That Are  Smarter Learn from data Learn through experimentation  Simpler Transparent and Demonstrably Compliant Externalized decisions  More Agile Business-Driven Process Agility AND Decision Agility  And Operational Real-Time Customer-Centric © Decision Management Solutions, 2009 8

These Processes Make More Decisions Manual Not Made Managed Before After Not Made Manual Managed New Larger boxes represent more decisions, by volume Smart (Enough) Systems, Prentice Hall 2007 © Decision Management Solutions, 2009 9

More And More Operational Decisions Can Be Automated Expert Decisions Value Manual Decisions Automated Decisions Complexity Smart (Enough) Systems, Prentice Hall 2007 © Decision Management Solutions, 2009 10

When All You Have Is A Hammer Everything Looks Like A Nail © Decision Management Solutions, 2009 11

These Things Are Not The Same Process Decision  Business users determine  Business users determine sequence actions  Based on business policies  Based on and services regulations, policies, expertise, a nalytics  Rapidly model, assemble,  Rapidly define and evolve the deploy, govern services behavior of a service  Reuse business processes  Reuse business rules across and services services  End-to-end visibility of  Visibility within critical business business process services © Decision Management Solutions, 2009 12

A Vessel Underwriting Example Gather Policy Application Data May include customer visits, collection of forms, etc. Validate Policy Completeness Triggers more data Triggers rejection gathering process Reject Bad process steps Applicants Conduct Physical Inspections Calculate risk and determine price, may trigger exception handling Underwrite Policy  Process Tasks  Decision Tasks Process Paperwork © Decision Management Solutions, 2009 13

Decision Management A business discipline that builds on existing systems and processes to create processes that: handle uncertainty support business objectives are flexible and business-led are compliant and easy to change are data-driven and constantly improve © Decision Management Solutions, 2009 14

Five Keys To Decision Management Predictive Analytics Business Rules and Optimization Operational Decisions Adaptive Control Decision Analysis and Simulation © Decision Management Solutions, 2009 15

What Is A Decision Anyway?  Decisions involve a choice, a selection of a course of action.  Decisions are arrived at after some consideration  Decisions ends uncertainty or dispute about something  Decisions select from alternatives  Decisions result in an action being taken, not just knowledge being added to what’s known. © Decision Management Solutions, 2009 16

Delivering Decision Management Decision Discovery Decision Services Decision Analysis © Decision Management Solutions, 2009 17

Delivering Decision Management Decision Discovery • Find and Prioritize • Link to business objectives and measures • Manage for reuse and consistency Decision Services • Define business rules for compliance • Empower business owners for agility • Analytically enhance for increased accuracy Decision Analysis • Measure then improve • Simulate, test and learn • Close the loop and optimize over time © Decision Management Solutions, 2009 18

Different Kinds Of Decisions High ECONOMIC IMPACT OF INDIVIDUAL DECISION High-value, low-volume decisions Medium-value, medium-volume decisions Low-value, high- volume decisions Low Low High DECISION VOLUME After Smart (Enough) Systems, Prentice Hall 2007 © Decision Management Solutions, 2009 19

ALL Decisions Matter “Most discussions of decision making assume that only senior executives make decisions or that only senior executives’ decisions matter. This is a dangerous mistake.” Peter Drucker © Decision Management Solutions, 2009 20

Decisions, Decisions, Decisions © Decision Management Solutions, 2009 21

Better Results From Operational Decisions 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Test Group 1 Test Group 2 Test Group 3 Blanket Personalized © Decision Management Solutions, 2009 22

Types Of Operational Decisions  Eligibility  Risk “Is this person eligible for Risk is acquired one this product/service” transaction at a time Should be made A big gap between a consistently every time. good decision and a bad They are rules-based Analytics and rules  Calculations  Opportunity Mostly rules-based Customer-centric. The rules are generally A small gap between fixed and repeatable. good and bad decisions. Calculations are often Analytics predict embedded in code response and potential © Decision Management Solutions, 2009 23

What Are Operational Decisions For? Event 2 Event Event What 1 3 Step 1 Step 2 Next? What Next? Should I do this? ..or that? © Decision Management Solutions, 2009 24

Applications have evolved User Interface Browser Process Logic BPM Data Enterprise Database © Decision Management Solutions, 2009 26

Evolution Completed What is a decision service? A self-contained, callable service with a view of all the conditions and actions that need to be considered to make an operational business decision. Logic Decision Services A service that answers a business question for other services and processes. © Decision Management Solutions, 2009 27

Decisions Remain In Sync With Market Changes Conventional Approach Decision Management Other Systems CRM CRM System Decision System Service Other Systems Infrequent code changes Frequent code changes Programmers Programmers Frequent policy changes Policy Changes Businessusers Businessusers Smart (Enough) Systems, Prentice Hall June 2007. Fig 2.11 © Decision Management Solutions, 2009 28

How People Make Decisions Analysis of Context Information Expertise and experience Pre- conceptions & biases Policies and regulations © Decision Management Solutions, 2009 29

The Decision Management Stack Business Process Management Decision Service Optimization Adaptive Control Data Monitoring Analytics Simulation Decision Business Analysis Rules Platform © Decision Management Solutions, 2009 30

Building Decision Services Predictive Analytics System Decision Service Business Business Process Data Rules Warehouse Enterprise IT Infrastructure Adaptive Operational Control Data Store Smart (Enough) Systems, Prentice Hall June 2007. Fig 5.1 © Decision Management Solutions, 2009 31

Business Rules Drive Decisions Decision Regulations Policy History Experience Legacy Applications © Decision Management Solutions, 2009 32

Why Manage Business Rules Reduce Costs • Fewer resources, less time to change decisions • Lower fines, legal costs from bad decisions • Reduced IT costs to implement decisions Improve Decision Making • Clear policies and procedures • Consistently applied across channels, systems • Increased accuracy from business users control Business Agility • More rapid response to business threats • Fewer missed opportunities • Faster time to market © Decision Management Solutions, 2009 33

Business Rules Management System Decision Validation Services Testing Validation and Verification Decision Deployment Service Production Rule Application Repository Rule Engine Rule Execution Server Design Rule Tools Management Applications Operational Rule Team Database Rule Studio Server After Smart (Enough) Systems, Prentice Hall June 2007. Fig 6.6 © Decision Management Solutions, 2009 34

Process Rules are Not Decision Rules Flow control, routing  Analyst/IT ownership  Business Governed as part of  the process Process Lifecycle dependent  Rules on process lifecycle Business Process Decision Point Business decision making  Tasks Analyst/LOB Manager  ownership Governed by the business  Independent lifecycle  Decision Rules After Gladys Lam, BRSolutions © Decision Management Solutions, 2009 35

Help the Business to Manage Decisions I want to relax my underwriting policy I want to be able to promote a new product So you business- combination types want to be able to change your business rules? I need to add the new regulations No… © Decision Management Solutions, 2009 36

Which Would Your Users Prefer? public class Application { private Customer customers[]; private Customer goldCustomers[]; ... public void checkOrder() { for (int i = 0; i < numCustomers; i++) { Customer aCustomer = customers[i]; if (aCustomer.checkIfGold()) { numGoldCustomers++; goldCustomers[numGoldCustomers] = aCustomer; if (aCustomer.getCurrentOrder().getAmount() > 100000) aCustomer.setSpecialDiscount (0.05); } } } © Decision Management Solutions, 2009 37

Or Maybe They Would Rather Use Word… © Decision Management Solutions, 2009 38

Rules reduce IT costs Non-Programmers No IT resources to Manage Rules make updates 5 months ROI 10-20x v hard coding not 30 months © Decision Management Solutions, 2009 39

Five Keys To Decision Management Predictive Analytics Business Rules and Optimization Operational Decisions Adaptive Control Decision Analysis and Simulation © Decision Management Solutions, 2009 40

Defining Analytics  A process encompassing a range of techniques dealing with the collection, classification, analysis, and interpretation of data to gain insight, reveal patterns, anomalies, key variables and relationships.  Data-driven insight for better decisions  Analytics simplify data to amplify its value  Predictive Analytics turn uncertainty into usable probability © Decision Management Solutions, 2009 41

Analytics Have Power Customer Online Acquisition Campaign Retention Conversion Rates Response Fraud Wasted Crime Risk Spend © Decision Management Solutions, 2009 42

The Challenge Is To Put Analytics To Work © Decision Management Solutions, 2009 43

Data Mining - Improve Rules High High income, Income low-moderate education Moderate-high education Low-moderate low-moderate income income, young Education High Moderate education, low income, middle-aged High Low education, low income © Decision Management Solutions, 2009 44

Predictive Analytics – Add Insight Member renews Member fails to renew © Decision Management Solutions, 2009 45

Straight Through Processing Eliminated many Underwriters manual reviews manage rules 8 Point Reduction in Combined Ratio Focus on book Improved risk management, agents management © Decision Management Solutions, 2009 46

Optimization Makes Sense when  Have interrelated choices – circular dependencies or a need to change several variables at once  Risk/reward trade-offs within a regulatory framework for instance  Answer is not obvious and is more than a simple chain of calculations  Trying to minimize or maximize something © Decision Management Solutions, 2009 47

A mathematical process for finding the best Optimization decision for a well defined problem – highest profit, lowest cost etc. Decision Variables Constraints Objective function Solver Data Solution Variable 1: xxx Variable 2: yyy … © Decision Management Solutions, 2009 48

Optimization and Rules Business Modeling Team Analysts Update Model Update Rules Rules Configure Data Solver Results Engine Model © Decision Management Solutions, 2009 49

Closing The Loops Information Evaluate Results Reaction Decision Update Update Decision Models Action Business & Analytic Experts Create Refine Challengers Rules Customer © Decision Management Solutions, 2009 51

Business Rules Make Processes More Agile Act in an agile and automated way Decide which Acting Sensing events matter Improve collaboration Communicating Strategizing Communicate between business and IT Deciding Analyze and test possible rules Source: Gartner (April 2006) Smart (Enough) Systems, Prentice Hall June 2007. Fig 1.3 © Decision Management Solutions, 2009 57

Analytics Make Decisions (and Processes) Smarter  Automate Decision  Apply rules http://www.f  Close the Loop Web  Segment customers Call Centre  Adaptive Control Email  Predict risk, value  Optimize decision Mobile © Decision Management Solutions, 2009 58

Risk and Benefits Process without Decisions Process with Decisions  Decisions an afterthought  Decisions first class object  Decisions buried in process  Decisions linked not buried  Process becomes complex  New process is simplified  Inconsistency of rules likely  One version of rules  Decisions only evolve with  Independent process & process decision changes  Hard to share decisions  Decisions (and Decision Services) are reusable © Decision Management Solutions, 2009 59

“The essence of strategy is choosing to perform activities differently than rivals do.” Dr. Michael Porter, Harvard Business School © Decision Management Solutions, 2009 61

Consequences Of Decision Management Business Control of Decisions Externalization Control and Agility Integration Points from Legacy in Business for Advanced Applications Processes Analytics Focus on Decisions © Decision Management Solutions, 2009 62

Some IBM Examples Process Results • Speed to market gain over 50% Healthcare Claims • Changes to business rules now implemented in Processing days • Significant productivity gain on 1M+ claims processed on a monthly basis • 93% improvement for approval - 15 days to 1 Commercial Loan • Cost savings from greater control & easier audits Origination • Better service - clear & consistent processing Government Social • Transparency & auditability Benefits Eligibility • Rapid response to changes in government policies © Decision Management Solutions, 2009 63

Action Plan  Identify your decisions  Adopt Business Rules Decisions that matter to Approach and technology customers Management and governance Hidden decisions Change the relationship Transactional decisions between business and IT  Consider  Investigate Data Mining and Predictive Analytics Who takes them now Data Mining for rules What drives changes in them Predictive reporting What the context is for them Executable analytics  Assess  Build Adaptive Control into Change Readiness your applications Technology adoption Organizational change © Decision Management Solutions, 2009 64

The One Slide You Need  Current business conditions require smarter, simpler and more agile processes  Making business processes simpler, smarter and more agile requires managed, automated decisions  Business rules are the best platform for automated decisions  Analytics, not just your policies and expertise, must influence operational decisions  Decisions take time to play out so you must test and learn  Decision Management is the business discipline that best leverages business rules and puts analytics and optimization to work in every transaction © Decision Management Solutions, 2009 65

More on Decision Management jtonedm.com decisionmanagementsolutions.com smartenoughsystems.com ebizq.net/blogs/ brcommunity.com/taylor.php decision_management james@decisionmanagementsolutions.com © Decision Management Solutions, 2009 66

Using business rules to make processes simpler, smarter and more agile

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