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An Introduction to Predictive Analytics

For Business Rule Developers

Mac Belniak
Principal Sales Consultant, Model Builder

Monday, August 24, 2009


This presentation cannot be reproduced or shared without FICOs express consent.

2009 FICO Corporation.

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

2009 FICO Corporation.

2009 FICO Corporation..

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

2009 FICO Corporation.

2009 FICO Corporation..

Uncertainty clouds decision making


Delinquency History Current Limit Current Balance

Decision Timeline

Odds of Default

Approve/Decline Loan

Default?

Profit/ Loss
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2009 FICO Corporation.

Predicting if an event will occur parts the clouds


Binary outcome models
What are the odds an event will occur in a future time period? E.g. We cant know if a borrower will not miss a payment next year.
But we can predict the odds that they will not miss a

payment next year!

10:1

The prediction can help inform future decisions. Examples


What are the odds that a prospect will respond to a

campaign? What is the likelihood that this transaction is fraudulent? What are the odds that a customer will attrite if I lower their credit limit?

2009 FICO Corporation.

Predicting amounts brings even more clarity


Continuous outcome models
What will an amount be in a future time period? E.g. We cant know how much we will lose if a borrower defaults.
But we can predict the amount that will be lost! $106,000

The forecast can help inform future decisions. Examples


How many dollars will the prospect spend if they respond

to the campaign? How much will a cardholders utilization change if I increase their credit limit?

2009 FICO Corporation.

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

2009 FICO Corporation.

2009 FICO Corporation..

Predictive models have a natural lifecycle

Data Access Prepare Explore Discover

Model Approve Deploy

Rapid scorecard development

Streamlined model review

Fast migration into decision application

2009 FICO Corporation.

Historical data is a key input for predictive modeling


History 2007 Behavior Measurement Months since account opened. Tenure?

Development

2008

24 Months

Delinquency?

Search for Credit?

30 days delinquent in last year.

Utilization?

# Inquiries last 6 months. Balance / Credit Limit.

2009 Performance 3 Months Target: Good or bad? Was the customer 30, 60, or 90 days delinquent or charged off during the performance period?

2009 FICO Corporation.

Predictive models learn from historical patterns


Historical Data
InputVariables 30daysdelinquentinlastyear Monthssinceaccountopened TargetVariable

Model Development

Predictive Model

#inquirieslast6months

Balance/CreditLimit

CustomerID

GoodorBad

Scorecard Algorithm

000000001 000000002 000000003 000000004 000000005 000000006 000000007 000000008 000000009


10

9 2 11 7 8 17 3 11 23

0 0 0 1 0 0 0 0 0

1 0 2 1 1 0 1 1 2

30% 64% 100% 84% 30% 37% 83% 41% 73%

0 0 0 1 0 0 0 0 0

2009 FICO Corporation.

For each variable, understand if and how it predicts historical outcomes

20:1

Total Portfolio Odds

10:1

5:1

1:1 # inquires in the last 6 months None 1 2 3 4

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2009 FICO Corporation.

Odds of Good

15:1

Find the most informative set of variables


Odds of Good # inquires in the last 6 months Odds of Good

Years at current address

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2009 FICO Corporation.

Train the predictive model


InputVariables 30daysdelinquentinlastyear Monthssinceaccountopened TargetVariable

Scorecard Algorithm

#inquirieslast6months

Balance/CreditLimit

CustomerID

GoodorBad

Variable None 1 2 10 None 1 3 2 4 3 Max 0 36 37 Max

Weight 64 53 55 34 48 24 74 53 60 24 53 63 45 33 45 51 24 75

# inquires last 6 months

000000001 000000002 000000003 000000004 000000005 000000006 000000007 000000008 000000009

9 2 11 7 8 17 3 11 23

0 0 0 1 0 0 0 0 0

1 0 2 1 1 0 1 1 2

30% 64% 100% 84% 30% 37% 83% 41% 73%

0 0 0 1 0 0 0 0 0

# times 30 days delinquent last year

Months since account opened

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2009 FICO Corporation.

Generate scores and rank order the customers


InputVariables 30daysdelinquentinlastyear Monthssinceaccountopened

Variable None 1 2 10 None 1 2 3 Max 0 36 37 Max

Weight 64 55 48 74 60 53 45 51 75

# inquires last 6 months

#inquirieslast6months

55

CustomerID

# times 30 days delinquent last year

+
74

000112354

+
51

Months since account opened

=
Good

180

Bad Score
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2009 FICO Corporation.

150

175

200

225

Evaluate the quality of the ranking


100% % Bad Customers Below the Score 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Customers Sorted by Scores 10% 40% 70% 20% 30% 50% 60% 80% 90% Worst Customers 100% 0% Best Customers

The 20% of customers with the lowest score cover over 70% of the bads!

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2009 FICO Corporation.

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

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2009 FICO Corporation.

2009 FICO Corporation..

Measuring benefit of analytics with champion/challenger


Champion: The rules and models that currently automate decisions. Challenger: Alternative rules and models that are likely more effective. Champion/Challenger: Running the challenger on a small fraction of the population to verify that it is better. IF account_number ends in 0-8 Champion IF behavior_score > 650 && utilization > 70% THEN up limit by 10% ELSE Challenger IF behavior_score_1 > 750 && utilization > 80% THEN up limit by 5%
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2009 FICO Corporation.

Champion $ Profit / Account

Challenger $ Profit / Account

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

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2009 FICO Corporation.

2009 FICO Corporation..

Model Builder supports the entire analytic lifecycle


Access
SAS Datasets
Special Values

Prepare
Replace Missing Sample
Stratified Random

Explore
View Table Statistics
Summary Frequency Correlation By-Variable

Model

Deploy

Teradata Oracle SQL Server Fixed-Width & Delimited Text;


ASCII & EBCDIC

MB Native Files

Partition Train/Test Sort Join/Merge Append Filter/Where Variable Creation


Arrays, Regular Expressions, etc.

Dataset Comparison

Linear Regression Services-Oriented Logistic Architecture Batch Regression Transactional Neural Networks PMML Reason Codes Blaze Advisor K-Means & Bang Teradata Clustering Scorecard Tracking PCA Char. Analysis Evaluation Population Stability Reports
ROC, GINI, KS, etc.

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2009 FICO Corporation.

Historically, deployment has been expensive


Traditional technique
Document model Ask IT to recode Lengthy testing
Predictive Model Specs IT Software Development Compiled Executable

How many

$ lost per day?

SQL in Database

Time To Deploy Predictive Models


Self-Reported Measures, Global Financial Companies

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2009 FICO Corporation.

Quickly deploy via Blaze Advisor

Rule Service

Model Builder

Java

Import
DM Repository
Rule Service
.NET

Imported models are available to rule developers and authorized business users can see and modify them PMML integration

Code Gen
COBOL

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2009 FICO Corporation.

Model Builder supports scorecard tracking to trigger model refresh


Easily evaluate population stability Track shifts in score distribution

Analyze characteristic-level changes

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2009 FICO Corporation.

Demonstration
Behavior Risk Scorecard Import Data from SAS Check the Data Find Predictive Patterns Select Best Predictors Evaluate Scorecard Quality Export to Blaze Advisor

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2009 FICO Corporation.

Agenda
Decisions & Uncertainty Predictive Analytics Analytics & Rules Model Builder Demonstration Decision Management Q&A

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2009 FICO Corporation.

2009 FICO Corporation..

Fast, Fast, Fast


Data Access Prepare Explore Discover Model Approve Deploy

Stronger predictive models in less time Accelerated analytic review & approval Rapid deployment into production systems

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2009 FICO Corporation.

Minimizing Time to Better Decisions with Model Builder

FICO address all stages of the customer lifecycle


Customer Lifecycle Solutions ACQUIRE Marketing Decision Management Applications Lifecycle Analytics and Services Marketing Solutions Origination Capstone Decision Manager LiquidCredit Service Origination and Small Business Scores MANAGE Customer Management TRIAD adaptive control system Transaction Risk Scores Collections & Recovery Debt Manager Recovery Management System Debt Placement Services Collection Scores PROTECT Fraud Falcon Fraud Manager CardAlert Service

PreScore Service

Across the Lifecycle Analytics Industry Standard and Custom Credit Bureau Scores: FICO Score Global FICO Score FICO Expansion Score Insurance Scores FICO Credit Capacity Index MyFICO Custom Analytics: Predictive Analytics Optimization Portfolio Analytics For Application Developers and In-House Analytics Teams Business Rules Management: FICO Blaze Advisor Model Development: Model Builder Optimization: Decision Optimizer Xpress-MP Suite Analytic Consulting Business and Technology Consulting

Decision Management Tools

Professional Services
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2009 FICO Corporation.

Create value by connecting decisions


Decision Management Application Other Applications and Lifecycle Areas

Decision Logic Data Shared Workflows Analytic Capabilities

Smarter Decision

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2009 FICO Corporation.

FICO is the leader in Decision Management


PIONEER
Introduced many analytic breakthroughs, including credit scoring Integrated predictive analytics with rules management Products that serve whole industries at high scale 10 billion FICO scores sold a year Reviewing 20 billion card transactions a year for fraud Expertise on best practices in Decision Management, including operational, legal and regulatory issues Serving many of the worlds top businesses: 9 of the top 10 Fortune 500 companies 2/3 of the top 100 banks in world 2/3 of top US P&C insurers 1/2 of the top US retailers

LEADER

PARTNER

FICO is where the mathematical approach to problem-solving that is inherent in todays scores and analytics all began. William Blair & Company
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2009 FICO Corporation.

To Learn More
Webinar: Enabling COBIT and IT Governance through Business Rules September 9 FICO Decision Management Tools User Group September 16-18
Register at: www.fico.com/events

Webinar: Business Change using BPM and BRMS September 23


Or contact us: info@fico.com +1 888 342 6336 +44 (0) 207 940 8718 Visit the Decision Management Community: decisions.fico.com
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2009 Fair Isaac Corporation. Confidential. FICO Corporation.

Agenda
Decisions & Uncertainty Predictive Analytics Model Builder Demonstration Analytics & Rules Decision Management Q&A

30

2009 FICO Corporation.

2009 FICO Corporation..

THANK YOU

Mac Belniak
847.873.3633 MacBelniak@FICO.com

This presentation cannot be reproduced or shared without FICOs express consent.

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2009 FICO Corporation.