A scorecard with automation still does not provide a complete solution, and many organisations have found this out the hard way. The environment in which we do business is dynamic not static, and the demographic and risk profile of new applicants consequently changes over time. It is vital to have an effective monitoring tool in place to provide feedback to management and to adjust and refine the scorecards, policy rules and associated credit and marketing strategies.
Benefits of Monitoring:
Early monitoring of a new Scorecard and an application processing system:
The introduction of new credit application processing procedures require the need for some monitoring. During the implementation various errors can occur in the capturing of data and the programming of Scorecards and associated credit strategies. Monitoring allows the credit manager to quickly test data integrity, reject rates and scoring strategies shortly after implementations. Clearly, failure to monitor an implementation can result in a long lag time for error correction and a consequential increase in bad debt or loss of business.
Monitoring during the lifetime of a scorecard:
Scorecards are built using a sample from a point fixed in time and as a consequence are tuned to perform optimally with this sample. As a scored population evolved with time then a scorecard’s discriminating power may start to deteriorate. It is essential that a credit manager is able to monitor the changing profile of credit applicants and determine whether a Scorecard is still making optimal accept / reject decisions.
The benefits of Scorecard Monitoring can be summarised as follows:
- Ensure that scorecards are discriminating between good and bad applications
- Ensure that the scorecard cut-off points are appropriate
- Monitoring the population profile to detect shifts in the underlying demographics
- Identifying sub-populations that are performing better or worse than expected
- Data analysis for further refinement or development of scorecards