Business Rules vs. Business Strategy
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If you've read my past few columns, you've seen me mention strategy as part of what I refer to as business knowledge. What you're probably wondering is: how do business rules and strategy relate? One of the ways to implement business strategy is through business policies. Business policies should be looked at as a "higher order" of business rules. Let's take a look at a real-life example.
The Importance of Simplifying Your Business Rules
Recently, we worked with a major financial institution where they found they took too long to adjudicate a mortgage application. A quick root cause analysis showed that their evaluation criteria for adjudicating a mortgage were too complex. Their automated system had to kick out over 50% of the applications for manual adjudication. This resulted in long adjudication times and inconsistent results.
Their strategy to stay competitive was to simplify their evaluation criteria. Those evaluation criteria are, of course, rules. Some of you might know that mortgage is adjudicated based on the 'five Cs'. Those 'five Cs' are:
Character — whether you were involved in fraudulent or criminal activities, terrorism, etc.
Credit — whether you have good credit scores
Capital — whether you have sufficient down payment
Capacity — whether you have the capacity to make payment
Collateral — whether the property has stable value
This particular financial institution found that they were taking too long to evaluate mortgage applications because it was looking at each one of these Cs in detail, each C with its own set of complex rules. During the strategy discussion session, one of the questions raised was whether they really NEEDED to evaluate each one of the Cs.
An intense discussion was centered around 'Collateral'. The final conclusion was that if there were enough collateral for the mortgage, then the financial institution was not going to lose money if the applicant stopped paying. With that in mind, they reassessed the policies around the 5Cs and simplified the rules around all the other 4Cs except for Collateral. This enabled easier and much more accurate automation of the rules, which meant much less manual adjudication. The final outcome was that the financial institution was able to provide mortgage decisions much more quickly and more consistently across its branches.
So there you have it: Rethinking your strategy, revising your policies, and refining your rules can be key to helping you stay competitive.
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