Credit Screening Process Optimization

Problem:
The client, an online finance company, processes a large volume of credit applications on a 24x7 basis. Processing time and cost of the application process are key ingredients to the client’s profitability. Part of the application process is to run the borrower’s information through a number of steps which include several internal systems and several different credit bureaus. Each of these steps happens in a prescribed sequence. After each step, a decision is made to either reject the borrower’s application or to go to the next step. Obtaining the data from each credit bureau has a unique cost and processing time. Running the borrowers information through each internal system also has an associated processing time. The client was interested in determining the best sequence of steps to optimize for the lowest average cost and/or lowest average processing time.

Solution:
Vose Consulting reviewed and analyzed the client’s current process. Client data on processing time, cost and reject rates for each step in their process was used to calculate conditional rejection probabilities for each potential sequence of steps. A risk-based optimization model was developed which determines the sequence of steps that provides the lowest average cost and/or lowest average processing time.

Result:
A flexible model was provided which allows the client to optimize the sequence of steps in their screening process. It also allows the client to run what-if scenarios when considering the addition or removal of steps from their existing process. A graphical representation of the “efficient frontier” was also provided showing processing time versus processing cost for each sequence of steps which allows the client to visualize trade-offs between cost and time. The model, as well as documentation and training in the use of the model, was delivered to the customer within budget and on time. The customer is very satisfied with the results of the project and expects to realize significant cost savings from use of the tool.

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Health Risk Analysis

Problem:
Given concerns about human risk from antibiotic-resistant bacteria from using antibiotics in animals, the US Food & Drug Administration (FDA) was faced with the question of whether to continue to allow use of fluoroquinolones in poultry.

Solution:
Vose Consulting led a team of scientists at FDA to develop an appropriate risk analysis rationale and performed a quantitative risk analysis.

Result:
Based on the work by Vose Consulting, the FDA decided to withdraw the drugs. The drug sponsor appealed the decision, and the risk analysis was aggressively attacked. Vose Consulting played a key role in responding to the technical challenges to the risk analysis in the ensuing legal dispute, and drew up a strategy for the FDA legal council to counter the drug sponsor's opposing risk analyst. In a very technical case, the judge was nonetheless able to conclude that the FDA was right, and that the drug sponsor's risk analyst was an unreliable witness. David Vose received the Commissioner's Special Citation, the highest award offered by the FDA, for his work. On July 28th, 2005, U.S. Food and Drug Administration (FDA) Commissioner Lester Crawford issued a precedent setting, final decision to withdraw approval for use of Cipro-like antibiotics in poultry (see FDA decision here).

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Project Risk Analysis

Problem:
The Dublin Light Railway System (LUAS) is the light rail system for Dublin and its suburbs. The LUAS was constructed between 2000 and 2004 to relieve the city traffic problem.

Solution:
Vose Consulting was brought in to help develop a risk analysis model that would incorporate all important risks and uncertainty to give a realistic timeframe for the completion of the complex €750 million project.

Result:
The project was completed within the estimated timeframe range.

Types of organizations that can use the same expertise:

• Motorway, airport, railway and other infrastructure building

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Financial Risk Analysis

Problem:
This innovative UK venture capital firm was negotiating the purchase of the European Division of Six Flags - the world's largest regional theme park operator, but there was great uncertainty about its real financial value that had to be assessed in order to secure financial backing.

Solution:
Vose Consulting not only helped this client get a better insight into the greatest uncertainties and risks of this project, but also brought financial risk analysis expertise to the firm that will be used in future projects.

Result:
The venture capital firm successfully raised the necessary funds and purchased the business, which was later sold for a healthy profit as predicted (see here).

Types of organizations that can use the same expertise:

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Project Risk Analysis

Problem:
Over the past decade, industrial giants and European governments have strived to attain rail interoperability, so that trains can cross borders without stopping. Today, each country still has its own rail "language" for managing the movement of the trains on its network. In order to redress these incompatibilities, the European Rail Traffic Management System project has been set up to create unique signaling standards throughout Europe.

Solution:
Vose Consulting helped Network Rail to assess the financial uncertainty of implementing the system in the UK.

Result:
Network Rail was able to understand better the contribution of the various components of its cost model to the total cost uncertainty. Recommendations from Vose Consulting resulted in a restructuring of the model to get a more targeted understanding of the contributing risks.

Types of organizations that can use the same expertise:

• Broadly useful for any medium to large scale capital investments:
• Uncertain costs
• Uncertain schedule

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Portfolio Allocation

Problem:
A new venture capital firm was in the process of structuring its US$30 million fund to determine an optimal distribution of the different future cash flows to the various stakeholders.

Solution:
Vose Consulting worked together with the managing director of the firm and outside experts to determine the risks of the individual investments and developed a comprehensive Monte Carlo simulation model.

Result:
The model helped the firm better understand the risks to each of the stakeholders involved under different scenarios. The decision on how to structure the fund was greatly influenced by the results. Currently, the fund is investing in a variety of attractive opportunities.

Types of organizations that can use the same expertise:

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Project Risk Assessment Review

Problem:
A national tax authority had committed to moving over to a system of self-assessment with a firm date set by government by which time the system had to be in place. Self-assessment required a new IT infrastructure throughout the country, including developing new software and training of personnel in use of that software. The software contractor believed that it would meet the required timeframe based on a risked project plan. However, there was some reservation that the plan was realistic.

Solution:
Vose Consulting was brought in to review the risk assessment of the IT project schedule in the middle of this project. The revised assessment demonstrated that the intended launch date was very unlikely to be achieved without changes.

Result:
Changes were subsequently made to the project plan to minimize the delay, though nonetheless some delays and difficulties were still experienced as predicted.

Types of organizations that can use the same expertise:
Many projects involve considerable cost and schedule uncertainty, particularly those that involve new technology, high levels of complexity or changing scope. Project risk analysis is a mathematically simple application of risk analysis, but offers huge potential benefits by focusing the project team on the important risks and their drivers to maximize the chance of a successful project across all it performance criteria (e.g. construction industry, infrastructure, software, new product development).

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Fisheries and Oceans, Canada

Problem:
Canada and Australia were in a long-running dispute over Australia 's ban of Canadian ocean-caught salmon due to a perceived risk of the introduction of salmonid disease from Canada to Australia. Australia was using a qualitative risk assessment to support their argument for the ban.

Solution:
Vose Consulting produced a quantitative risk assessment based on Australia 's data demonstrating that the risk was negligible and vastly lower than other activities in Australia that were considered acceptable by their government.

Result:
The dispute was resolved in a World Trade Organization court in Geneva. Vose Consulting presented the risk assessment in court and assisted in developing Canada 's strategy throughout the proceedings. The court found in favor of Canada and instructed Australia to allow the import.

Types of organizations that can use the same expertise:

Professional Services Risk Modeling

Problem:
The professional services and consulting group for a global technology company requested assistance in building a risk analysis model. One function of this group is to provide assessments, costs benefit analyses and recommendations for large system replacement and consolidation. Part of the assessment process is to estimate the potential hard and soft cost savings from implementing their recommendations. Only a small number of experts within the group had the capability and skill to accomplish a comprehensive cost saving assessment. Even for the experts it was difficult to quickly generate an accurate estimate. The client wished to build a system that would allow all members of the team to generate realistic and accurate cost estimates.

Solution:
Vose Consulting reviewed and analyzed the elements involved in the assessment process. A Monte Carlo risk analysis based model was built to estimate the potential hard and soft cost savings. The model included an efficient user interface that the consultant doing the assessment can use to input their customer's current environment as well as potential consolidation scenarios. The model uses this information to rapidly generate a range of potential cost savings and probabilities for each scenario.

Result:
A user-friendly data collection software tool was delivered to the client along with a manual for running and modifying the tool. This tool led the client's agent through a series of data acquisition steps with visual cues, error checking and the ability to add notes and new elements. The tool effectively makes in-depth expert knowledge instantaneously available to all members of the team. In addition to standardizing the data collection so that all key elements are acquired, the tool dramatically reduces the time required to produce an assessment. Training was also provided on how to use the tool, and understand the results. Client personnel are actively using the system in the field. Vose Consulting developed an application that exported the collected data to a spreadsheet model that allowed a very rapid risk analysis model to be developed around the collected data.

Types of organizations that can use the same expertise:

Territory Optimization Model

Problem:
Pharmaceutical companies rely on their sales representatives (SR) to promote their products to the physician community. SR's usually have assigned geographical territories where they regularly do their promotion work. Each territory may have different numbers of physicians, proportions of specialists, numbers of specialists in different class categories, distances to travel, and market size, among many other factors. Since a large percentage of the SR's salary is based on the economic performance of their territories, making a fair and efficient allocation of territories is key for the success of the promotion operations, and to ensure that all SR's get fair territories. The regional sales management for a large pharmaceutical company retained Vose Consulting to produce a tool for performing optimal territory assignment.

Solution:
A model was developed that allowed the client to optimize the allocation of sales force territories in different regions of the country considering multiple variables and input from the sales team and other parties involved in the process. Special care was put into the user friendliness and flexibility of the model, so any user could apply it to different situations.

Result:
The model was delivered to the client along with documentation and training on use of the tool. This is allowing the customer to effectively use and modify the model as needed without re-engagement from Vose Consulting. The project has been so successful that the parent company is exploring ways to also deploy the model in other countries.

Types of organizations that can use the same expertise:

Inventory Optimization Model

Problem:
In-store availability of machine replacement parts greatly determines customer satisfaction and hence sales. To increase sales and profits, a very large agricultural machine manufacturer wanted to increase the probability of parts being available at each of their >300 dealer-sites. However, increasing the number of parts available at their dealers had to be balanced against the financial burden of holding stock and their dealers' inventory turn-over.

Solution:
Vose Consulting performed a complex statistical analysis of the large dataset of their historic sales and inventory. Those results were used to build a model that optimizes the in-store part-availability and the dealer inventory turns ratios.

Result:
The model was delivered to the client along with documentation and training on use of the tool. Initial field data suggest an increase in parts availability with essentially the same inventory levels as before. After full deployment of the inventory optimization system, the manufacturer therefore expects to considerably increase customer satisfaction and sales, while maintaining an acceptable inventory turn-over ratio.

Types of organizations that can use the same expertise:

Transportation Simulation Model

Problem:
The client receives very regular delivery of explosive material by ship at its site on a narrow shared waterway. During delivery, movements of other shipping traffic are restricted by certain rules and regulations, resulting in delays and interruption to other shipping. The client was investigating the benefits of constructing an alternative berthing system designed to reduce the impact of their activities on other shipping. Vose Consulting was asked to perform such an analysis and provide a visual representation of the model to help in their discussions with the other waterway users.

Solution:
Vose Consulting analyzed the transportation activity at the terminal. A comprehensive Discrete Event Simulation (DES) model of all terminal movement was developed. The model was used to perform impact and sensitivity analysis on the client's transportation activities. The stand-alone model, as well as documentation and training, were provided to the client.

Result:
The client was able to persuade the other shipping operators of the effectiveness of their plan. They are now able to assess the impacts of any future planned changes such as the terminal layout, fleet size and potential changes in regulations.

Types of organizations that can use the same expertise:

Project Cost Risk Assessment

Problem:
A large energy firm planned to build a $500M+ liquid natural gas pipeline. There were considerable risks associated with the project. Based on experience, the firm knew that project costs often exceed budgeted costs by a considerable margin. The firm commissioned Vose Consulting to perform a project cost risk analysis.

Solution:
Vose Consulting helped the client obtain and identify relevant cost and risk data. In close cooperation with the client, this data were used develop a Monte Carlo quantitative project cost risk analysis. The model output provided a range of probable project costs along as well as identified the areas of highest over-budget risk.

Result:
The client greatly increased its understanding of the main risks and possible risk management options; the original budget had a very low probability of being met! During the course of the project, the client also learned how to perform project costs risk analysis in-house and currently has several people dedicated to performing quantitative project costs risk analyses.

Types of organizations that can use the same expertise:

Review Monte Carlo Risk Analysis Model

Problem:
A government agency developed a Monte Carlo risk analysis model to support important policy decision-making. Because of the model's importance, the client desired an independent review of the model.

Solution:
Vose Consulting not only reviewed the large model that resulted in numerous recommended changes, but also in discussion with the client implemented all necessary recommendations. Detailed documentation was provided of all work performed.

Result:
The model accuracy greatly improved and the client learned many useful and new risk analysis techniques and principles, all in less than one week of work.

Types of organizations that can use the same expertise:

Exchange Rate Model

Problem:
To evaluate hedging and other potential risk mitigation decisions, the third largest bank in South America needed to forecast the exchange rate between its local currency and the US dollar.

Solution:
Using Bayesian Markov Chain Monte Carlo (MCMC) techniques, Vose Consulting performed an advanced statistical analysis and evaluated the performance of numerous state-of-the-art exchange rate models, including Jump Diffusion and various ARCH–type models. This analysis was used to create a risk analysis model that accurately reflects exchange rates patterns.

Result:
In addition to the forecasting tool, documentation and training on how to use and modify the model were provided to the client. The client is now self sufficient in their use of the tool and able to modify the model under shifting business conditions without re-engaging Vose Consulting. As a result, the client has recognized a competitive advantage in hedging its exchange rate risks.

Types of organizations that can use the same expertise:

Sales Commission Forecasting

Problem:
An electronics manufacturer with a large international sales team wanted to forecast annual sales commission payouts more accurately. The company's compensation system includes over 100 different pay plan structures. The legacy forecasting system was largely based on single-value, best estimates by sales management that provided inaccurate results and no insight to the range and probabilities of future commission liabilities.

Solution:
Vose Consulting reviewed and statistically analyzed historical sales and commission performance by individual, region and country. A Monte Carlo forecasting model was built that combined historical data and company forecasts along with inherent risks and uncertainties. The model generates a more accurate estimate of commission payouts by providing a range of possible outcomes along with probabilities. The model also helps identify the major drivers of uncertainty as well as takes into account actual sales performance when part way through the pay cycle.

Result:
A user-friendly forecasting model was delivered to the client along with a manual for running and modifying the model. Training was also provided on how to use the model, understand the results and modify the model. This enables the customer to change the model as needed when business needs shift without being required to re-engage Vose Consulting. This forecasting model is currently in use by client management.

Types of organizations that can use the same expertise: