The Benefits of Champion/Challenger Testing in Decision Management

What Is Champion/Challenger Testing?

Champion/challenger testing is an important methodological approach used in decision management to improve the success of business strategies.

The idea is that your current decision strategy serves as the “champion”, and you pit it against one or more "challenger" strategies. Each challenger differs from the champion in some measurable and defined way. Perhaps it has different business rules, perhaps it uses a different risk model, perhaps it is more aggressive about retaining customers. You then execute the champion against a subset of challenger cases, and study the results to see which strategy customers respond to better. If your challenger outperforms the champion, you can make it the new champion and test new challengers against it,

Champion/challenger experimentation objectively compares the performance of the current approach vs. new approach, which helps you to continuously evolve your decision strategies to improve results in a closed-loop model. Systems that operationalize champion/challenger testing — including FICO TRIAD Customer Manager, launched in the mid-1980s and used worldwide for credit management — are sometimes known as adaptive control systems.

How Does Champion/Challenger Testing Work?

The champion/challenger model works by testing both the established "champion" strategy and one or more "challenger" variants:

• Champion: The current decision strategy
• Challenger: A variation on the current decision strategy with one change – for example, lowering or raising risk acceptance criteria
• Testing: Both champion and challenger run simultaneously using real-world data, for enough time to reach significant results. The challenger is run on a small subset of the population, to ensure that any negative results are contained.
• Monitoring: KPIs such as profitability, traffic, costs, or accuracy are identified and monitored for the duration of the test
• Evaluation: Once the test is complete, compare performance to identify the winner. If the challenger shows clear gains, it becomes the new champion.

What Is the Difference Between Champion/Challenger and A/B Testing?

The advantage of champion/challenger over A/B test is that it allows us to consider multiple approaches in one test. In A/B testing, only two variants can be tested on the same audience or website section. This means potentially several attempts at an approach before we reach the optimal one.

In contrast, multiple challenger approaches can be tested at once, which means we can dramatically increase the decision space considered and move toward the optimal approach more quickly.

How Is Champion/Challenger Testing Different from Simulation and Optimization?

Simulation and optimization are both processes that are also used in strategy management, and there are some overlaps with champion/challenger testing. The most advanced organizations use all three together — running new challenger strategies through simulation prior to testing in a live environment, and using both optimization and human expertise to develop new strategies for testing.

Strategy Testing

Strategy Formulation

What Are the Benefits of the Champion/Challenger Testing Model for Decision Management?

A champion/challenger test, done with real transactions in a live environment, has multiple benefits for those looking to improve their decision management.

1. Continuous Improvement

Champion/Challenger tests create a structured framework for continuous improvement. They routinely examine a variety of potential strategies so organizations can create an operational environment capable of quickly responding to changes in customer demands or market conditions.

2. Multi-Strategy Approach

One of the great benefits of the champion/challenger method is the ability to test multiple strategies at the same time to save time and resources. Let’s say you assign one credit limit increase offer test to 10% of your customer, a collections test to another 10% of customers, and keep the remining 80% on the champion strategy. Different risk teams can monitor the tests in a clean and unbiased way and the results of one test is not influencing the results of the others.

2. Objective, Data-Driven Decision Management

Champion/challenger tests rely on empirical data, which means business leaders can make decisions based on quantifiable outcomes rather than assumptions. However, it should be noted that tests with small volume are more at risk of bias, unless organizations increase the sample size or monitor the results over a longer period. 

3. Risk Mitigation

Implementing a new strategy always carries risks. Champion/challenger testing significantly reduces the potential risks by isolating new processes, criteria or technologies within controlled tests. The potential negative impacts are contained, and only those alternatives that prove superior under real-world conditions are implemented. In addition, if a challenger underperforms it can easily be retired to leave the champion solution in place.

4. Customer Experience

The champion/challenger approach facilitates a continual improvement of customer experience—by systematically comparing and enhancing aspects like service efficiency, response accuracy, and personalization, organizations can deliver an elevated experience that builds loyalty and competitive differentiation.

5. Cost Efficiency

Another critical benefit of champion/challenger is cost efficiency. The champion/challenger tests eliminate underperforming aspects of strategies and reinforce strategy that demonstrates positive yields, so organizations can allocate their resources efficiently.

Overall, champion/challenger testing not only supports innovation and agility, but promotes a culture of data-driven decision making and operational excellence.

Champion/Challenger Use Cases

The champion/challenger testing model can be used in any industry where data-driven decision management is essential.

For instance, in the financial services sector, institutions commonly use the model to evaluate strategies in areas such as originations, loan pricing, credit line assignment, customer management, fraud management and collections to continuously refine risk assessment and customer targeting.

BMO, the 8th largest bank in North America by assets, had outgrown its legacy system and was looking for a solution that would support full digitization. They implemented FICO Platform and were able to increase their efficiency by 50% thanks to, in part, the champion/challenger mindset that encouraged the ongoing testing of new strategies.

In marketing, organizations leverage champion/challenger frameworks to test multiple campaign strategies or segmentation rules to identify the most effective approaches for customer engagement and conversion.

Insurance companies use champion/challenger to assess claims processing rules and pricing models, ensuring ongoing adjustment to market risks and regulatory changes.

E-commerce platforms employ these tests for dynamic pricing, recommendation engines, and inventory management by systematically contrasting alternative decision models.

The adaptability and rigor of champion/challenger testing allow organizations to make evidence-based adjustments across diverse business functions, leading to improved accuracy, operational efficiency, and enhanced profitability over time.

How FICO Can Help with Decision Management

FICO Platform revolutionizes how organizations make decisions and apply intelligence across the customer lifecycle. To understand more about our capabilities:

• Read the post Champion/Challenger Testing in TRIAD in the FICO Community
• Discover How to Estimate Proper Sample Sizes and Confidence Intervals to Run Effective Champion/Challenger Tests
• Read more about decision intelligence software and why companies should invest in it
• Learn more about FICO's intelligent decisions platform
• Download our free whitepaper on FICO's platform decision agents and the future of agentic AI
• Read the Gartner decision intelligence market guide