Is Your Model Due for an Overhaul?

Over the past three weeks, I have been meeting with European banks to discuss model governance, along with IDC Financial Insights research director Michael Versace. The issue we’re exploring isn’t a new one — ever since banks began using predictive models back in the 1960s, analytics teams have been focused on how to monitor their performance. Are the predictions turning out to be what we thought, are we making better decisions as a result, and when should we rebuild a model to improve performance?

Today, this is more complicated because banks are using more models than ever, and both global regulators (Basel) and local ones are demanding that banks keep better track of their models. Fortunately, it’s also being made easier by new tools such as FICO™ Model Central  that provide a complete environment for managing predictive models in a reliable, automated and integrated way. The best of these tools not only enable better model management and reporting, they can also accelerate the deployment of predictive models into a bank’s operational systems.

Anything called “governance” is likely to sound boring. Put “predictive models” in front of it and you are already dozing! I challenge banks to change their thinking. This isn’t a regulatory compliance issue. This is a profitability issue, plain and simple. Models that perform better means better decisions, and that means greater profitability. Put it that way, and model governance is as stimulating — and as important —  as your morning coffee.