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Best Practices in Global Risk Management

In today’s global marketplace, a number of factors make it difficult to act upon an effective global risk management process.

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Best Practices in Global Risk Management

  1. 1. Frank Cirillo | Sr. Consultant Advanced Analytics, Dun & Bradstreet Jack Scarpelli |VP North America Credit Risk Officer, Xerox Corp Sebastien Lacraz | Global Risk Analytics Director, Xerox Corp Best Practices in Global Risk Management
  2. 2. AGENDA Global Risk Management Challenges Data & Analytics to the Rescue Introduction to Global Business Ranking Takeaways Featured Customer – Xerox
  3. 3. Global Risk Management Challenges
  4. 4. 4 In today’s global marketplace, a number of factors make it difficult to act upon an effective global risk management process D I F F I C U L T Y B R I N G I N G T O G E T H E R D I S P A R A T E , U N S T R U C T U R E D D A T A N E E D C O M P L E T E D A T A & P R O V E N B E S T P R A C T I C E S A D D R E S S I N G C O M P L E X I T Y O F T E N R E Q U I R E S A P H A S E D A P P R O A C H Need common format, consistent field names and definitions, and the ability to archive over time to make useful for predictive analytics With each country collecting separate data and setting their own decision rules , it is difficult to transition to a set of credible standards that will be well adopted Need a clear path of brining together internal data, external data, decision systems and expertise while all along, working through significant change management
  5. 5. 5 To address theses challenges, D&B’s Data & Analytics approach is focused on five key areas G L O B A L C O R E C A P A B I L I T Y I M P R O V E M E N T S I N T O P M A R K E T S U S S M A L L B U S I N E S S C O M P L E T E N E S S I M P R O V E M E N T S P R E D I C T I V E I M P R O V E M E N T S G L O B A L S C O R E C A P A B I L I T Y I M P R O V E M E N T S I N T O P M A R K E T S E N H A N C E C U S T O M A N A L Y T I C S C A P A B I L I T I E S - Identity coverage and accuracy - Multi-lingual Identity Resolution - People data (i.e. digital marketing) and people in context of a business - Coverage on non- traditional indicia (i.e. Tax ID, URL’s) - Severe Risk analytics (i.e. business identity theft) - Trade coverage (traditional payment information) - Proxies for trade when and where trade is not available - Focus on selected countries - Focus on failure, delinquency and supplier risk - Create a Global Score, with consistent scaling - Focus on selected verticals and selected solutions - Offer at different levels of complexity tailored to customer needs
  6. 6. Data & Analytics to the Rescue
  7. 7. 7 What is Global Archive Data? D&B Global Archives is a central repository in which a monthly archived view of key risk data elements are stored for use by customers and local markets that are interested in model development and other analytical activities There are 240 Global Archive data elements, that cross ten data categories including: Not every participating market has every data element available. For example, while we have firmographic data for the Netherlands from 2007, trade data is only available in Netherlands beginning in 2013.We have Failure score for the Netherlands but not Delinquency score for this market. 1 . I D E N T I T Y 2 . F I R M O G R A P H I C 3 . L I N K AG E 4 . F I N A N C I A L S 5 . G E N E R A L I N F O R M AT I O N 6 . P R E D I C T I V E A N A LY T I C S 7 . T R A D E 8 . L E G A L & S I G N I F I C A N T E V E N T S 9 . P RO F E S S I O N A L C O N TAC T S 1 0 . S H A R E H O L D E R S
  8. 8. D&B Has Global Archive Data for 25 Countries D&B OWNED JOINT VENTURE CORRESPONDENT PARTNER OWNED Efforts are underway to add new Global Archive markets NORTH AMERICA - Canada - Mexico - United States SOUTH AMERICA - Argentina - Brazil EUROPE-ASIA - Russia - Turkey - China - Hong Kong - Japan EUROPE - Austria - Belgium - France - Germany - Greece - Hungary - Ireland - Italy - Lithuania - Luxembourg - Netherlands - Portugal - Spain - Switzerland - United Kingdom
  9. 9. 9 In many countries we are deriving new insights from new sources to develop new capabilities E X P O R T D A T A M A T C H A U D I T W E B T R A F F I C C R O S S - B O R D E R I N Q U I R I E S P A R C E L D E L I V E R Y I N T E L L I G E N T C H A N G E M G T
  10. 10. Introduction to Global Business Ranking
  11. 11. 11 Global Business Ranking (GBR) is a multi-dimensional relative risk ranking tool predicting the likelihood that a business will become inactive in next 12 months G B R M A J O R B E N E F I T S B U S I N E S S A C T I V I T Y U N A B L E T O C O N F I R M O U T O F B U S I N E S S I N V O L U N T A R Y O U T O F B U S I N E S S V O L U N T A R Y • 100% Coverage on all records in D&BWorldbase file – customer will be able to make a decision on each business • Consistency – for multinational portfolios, it provides consistent measurement of Risk across the globe • Convenience – Single Score Append; Single Team that supports the score • Addresses Relative Risk between countries by incorporating Macro-Economic Data • Incorporates D&B Proprietary Signals Data not utilized in other scores • Includes Data Depth component that provides transparency into data driving the score
  12. 12. 12 Businesses are assessed based on varying levels of data depth D E R O G A T O R Y D A T A T R A D E F I N A N C I A L S F I R M O G R A P H I C S S I G N A L S M A C R O L O C A L C O U N T R Y W O R L D B A S E GBR segments the population based on depth of data.This design allows us to take a broad based approach and the ability to score all records in our database. PREDICTIVE DESCRIPTIVE GBR overall rating Depth of data D&B has on the business 9 G 1 -15 A – G/(H-R)
  13. 13. 13 Data Elements for Standard Predictive Scores F I N A N C I A L S - Liquidity/ Cash - Solvency - Profitability - Late filing/ age of accounts E C O N O M I C I N D E X - Reflects risk to specific industries during different economic conditions D E M O G R A P H I C S - Age & Size of business - Primary industry sector - Number of employees - Geographic Region (location & trading) P R I N C I P A L S - Number and experiences - Associated Failures T R A D E P A Y M E N T S - Payment score trends (PAYDEX) - Percent of trade experiences paid promptly or beyond terms - Volatility of payments P U B L I C D E T R I M E N T A L - County Court Judgements - Mortgages & Charges L I N K A G E - The size, strength & risk of a group of businesses as a whole. G B R A N D L O C A L M A R K E T D E L I N Q U E N C Y & F A I L U R E S C O R E S
  14. 14. 14 47.20% 8.44% 7.52% 5.22% 3.87% 3.87% 3.76% 3.75% % A C C O U N T S • 95% of the accounts are from 15 countries with USA contributing nearly 47% • $500+ million portfolio with ~77% of the exposure are from USA and 22% from 14 other major markets 76.86% 6.44% 2.29% % E X P O S U R E ( I N A M T ) USA ENGLAND FRANCE GERMANY BRAZIL ITALY SINGAPORE NETHERLANDS CANADA INDIA SPAIN AUSTRALIA SWITZERLAND SWEDEN Other Countries Case Study: SBM Software Portfolio – Accept/Reject New Applicants and Assign Credit Lines
  15. 15. 15 Adding GBR and New Scorecard Segmentation Significantly Improves Coverage of Scored Accounts and Predictive Performance US & CANADA COUNTRIES WITH FSS COUNTRIES W/O FSS WEIGHTS (%) WEIGHTS (%) WEIGHTS (%) WEIGHTS (%) Bankruptcy Date 10 16 Collection Count 2 14 PAYDEX 12mons 6 11 DBAi Failure Score (Score) 15 17 DNBi Failure Score (Fin. Stress Score) Delinquency Score (CCS) 30 4 Years in Business 6 13 Sales Indicator 2 Public/Private Indicator 2 Cash Ratio (Calculated Ratio) 5 12 12 Net Income 4 4 7 Tangible Net Worth 3 11 Current Ratio 3 Total Debt to Tangible Net Worth 3 Current to Total Liabilities 2 12 Sales to Trend 2 SIC Industry 15 17 33 GBR Score 14 16 32 Employee Count 11 14 D&B PROPOSED SCORECARD PRODUCTION SCORECARD VARIABLES 20 New variable in the modelExisting variable used in the model 47.08% 97.77% 24.68% 35.57% 0% 20% 40% 60% 80% 100% Production D&B Proposed Scorecard EXCLUDING US AND CANADA Coverage of accounts at 60% score weight threshold Performance (capture bad at the worst 20%)
  16. 16. Let’s hear from Xerox
  17. 17. 17 Xerox Overview Standardize Global Commercial Credit Functions Across NA and EU Modernize Default Scorecard to Support Increase Auto Decisioning on <$250K Data Integrity Cultural Change Regulatory Inconsistent Evaluations CHALLENGES: Focus Manual Reviews on Borderline, Critical Cases
  18. 18. 18 Overview of Xerox’s Global Risk Management Approach 1 2 4 Internal AR Data maintained at the local market levels with varying rules and processes. 3 65% of commercial business in the US and 35% crossing over Canada and EU – majority of volume in 18 counties. Auto-decision rates ~75% in US and ~25% outside of US. Need for better segmentation with focus on increasing approval rates while minimizing losses. Regional Credit Managers and analysts using different data providers, scoring scales, and platforms – process must accommodate multiple data sources with a goal to get to one consistent platform.
  19. 19. 19 It’s a Journey! What’s Next? 1 2 4 HEAVY LIFTING - Collecting, correcting, and organizing data requires time and close collaboration. 3 UNIVERSAL PLATFORM – Technology improvements planned for 2018 to support new, consistent auto-decision process. REGION BY REGION - New scorecard for Canada and UK now in-place followed by German, Italy and Benelux. US and other EU Regions – complete byYE2017. REPLICATE BEST PRACTICE – Statistical, high performing new account and behavioral scorecards implemented in US for many years prior to 2015. In 2015, initiated global scorecard development project.
  20. 20. Takeaways
  21. 21. D&B Analytics has driven powerful results for our customers 15-20% Reduction in DSO Reduce decision cycle time by 10-12 days Improved Coverage Added Precision Improve Cash Flow Accelerate Sales Achieve 100% Score Coverage Increase predictive performance 25%
  22. 22. 22 Q A
  23. 23. Presenter Contact Information FRANK CIRILLO Director,Advanced Analytics Dun & Bradstreet +1-973-921-5864 JACK SCARPELLI VP, North American Chief Risk Officer Xerox +1-847-928-5180 SEBASTIEN LACRAZ Global Risk Analytics Director Xerox +0033-648965317
  24. 24. ThankYou!