UCSD Jacobs School of
Engineering - Research Review
“Better Decisions thru Data at FI”
Larry Rosenberger
Vice President, R&D
2/28/2002
What fuels my perspective?

Techie background


Started at FI in ’74 as a “kid out of school”


Physics and Operations Research
30 employees then, approx 2300 now
Long sequence of assignments = lots of scar tissue

Client projects

R&D/new product development

CEO ’91-’99

R&D/mentor/spiritual leader of our scientific community
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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2
TOPICS
 Fair, Isaac in a nutshell
 Evolution and revolutions in
“demand-side analytics” for
consumer businesses
 “Strategy Science” – the newest
frontier
Some of our product portfolio: “Franchises”

FICO scores Distributed through the 3 Credit Bureaus, predicts
future credit risk of consumer. They are used in most US lending
decisions, including ¾ of mortgage originations.



myFICO.com Helps Million+ consumers manage their credit
health. Superbowl ad.“See how lenders see you”
FALCON Used to protect more than 450 million credit, card accounts
worldwide, 65% of all card transactions. Incorporates Patented,
profiling system to render real-time decisions. Related Fraud
protection products for TELCOM (1000+ tps), for the Internet, for
Application Fraud.
TRIAD used to manage 65% of world’s credit card accounts.
Automates principles of Adaptive Control to enable banks implement
and test different strategies (preferably that use advanced analytics).

PMAX: real-time transaction monitoring of consumer’s “touchpoints” (purchases, payments, non-mons, …)
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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4
Market Verticals
Credit
Mortgage
Government
Retail
Consumers
Insurance
Telecommunications
Healthcare
25 Billion Decisions a Year
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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5
We power better decisions among
a blue-chip roster of brands
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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6
History: Innovators since 1956
Strategy
Design
Strategy Science
Automated Credit
App Processing
Decision
Mgmt.
v
Blaze Advisor (HNC)
TRIAD Account
Management
Roamex (HNC)
Comprehensive
Liquid Credit
Medical Bill Review (HNC)
myFICO.com
Insurance Claims Reserving (HNC)
Workers Comp Fraud (HNC)
Predictive
Analytics
FICO Scores
Application
Scoring
FICO for Mortgages
Falcon (HNC)
Insurance
Scores
Customer Profitability (HNC)
HNC Founded 1986
Fair, Isaac
Founded 1956
HNC
Merger
Fair, Isaac IPO 1987
DynaMark Acquired 1992
1950
1960
1970
1980
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
1990
2000
20027
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A Few Summary Numbers

$625MM-$650MM in annual revenues

Approx 2300 employees


Clients in over 50 countries


About 100 PhDs
Over 20 locations around the world
Market value $2.2B-$2.5B
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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Better Decisions through Data
Where We Add Value
Information
DATA
DATA
External
Data
Internal
Data
DATA
MGMT.
D. WareHouse
Prod.
Ops. Analytic
Data
Mart
Results
DB
Decision Strategies
ANALYTICS
STRATEGY
EXECUTION
Predictions
Predictive
Modeling
PA
Exploratory
Analysis /
Data Mining
EA
ED
Decision
Modeling
and
Strategy
Design
Prod.
Ops.
Rules
Mgmt
Case
Mgmt
DA
Insights
Decision
Engine
AC
Reactions
Actions
Prospects &
Customers
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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Production Environment – Falcon Example
Merchant
Merchant
Rule Engine
Auth
System
Authorization
Fraud Risk
Evaluation
Profiles
Updates
Falcon
Neural Engine
profiles
Falcon
Server
Account Status
Change
Manager’s
Priorities
Manager
Case
Management
System
Productivity
and case
reports
Analyst’s
Action
High risk
accounts
Analyst
Falcon
Workstations
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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10
FI’s Scientific Community’s Mission
To provide the “analytic heart” of our current and future
decision technology that powers the most widely used and
useful decision-making solutions and tools for the global
consumer economy:

Invent it

Develop it

Integrate it with our other capabilities

Deliver it to our clients

Support it
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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11
 Fair, Isaac in a nutshell
TOPICS
 Evolution and revolutions in
“demand-side analytics” for
consumer businesses
 “Strategy Science” – the newest
frontier
Evolution in “demand-side analytic
technology” for consumer businesses
Profiling &
Segmentation
Predictive
Models
or “Scores”
Multi-Dimensional
Trade-Off
Assessment
Strategy
Science
HIGH
X X X
X X
X
X
X X X
X X X
X
X
X
Benefit
X
X
X
X
X
X
X X
X
X X XX
X
X
X XX X
X X XX XXX
X X X X XXXX
XX XX
X
XX
X XX
X XXX X X
X
X
X
• Establishes broad
segments based on
customer profile data
Incremental
Profit
Impact
• Rank orders prospects
on a single dimension
• Creates micro segments
by matrixing 2 or 3
predictive models
• Brings all predictive analytics
into a single decision
framework
• Assigns the optimal action
for each prospect/account
given specific business
constraints
0-10%
10-30%
5-20%
5-35%
… identifying the right actions to take for each account
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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“3rd Revolution” in Data-Guided Decisioning
Where Are We?
Profit
Improvement
today
Predictive
Modeling
20-30%
Adaptive
Control
20-30%
Strategy
Science
20-30%
Time
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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14
 Fair, Isaac in a nutshell
 Evolution and revolutions in
“demand-side analytics” for
consumer businesses
TOPICS
 “Strategy Science” – the newest
frontier
Strategy Science replaces guesswork in
strategy design with science
• Establish mathematical
relationships between
customer treatment options,
their reactions and profitability
Decision
Modeling
Optimization and
Visualization
Technology
Accelerated
Learning
• Engineer profit-improvement
strategies - subject to
constraints on key metrics
Optimal Strategy
STRATEGY SPACE
• Learning beyond historical
operating regions to yield
superior performance
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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Predicting Vs. Decisioning – Prediction focus
DATA
Profit
Score
Judgmental Decision
Strategies
DATA
Response
Score
DATA
Revenue
Score
Expert
Judgment
Actions
DATA
Risk
Score
DATA
Prospects & Customers
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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Predicting Vs. Decisioning – Decision focus
DATA
Profit
Score
DATA
Response
Score
DATA
Revenue
Score
DATA
Risk
Score
DATA
Optimal Decision
Strategies
Strategy
Science
=
Decision
Actions
Modeling
+
Strategy
Optimization
+
Accelerated
Learning
Prospects & Customers
Response data collection
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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Strategy Science solutions

Acquisitions


Origination


Strategy Science for Acquisitions
Strategy Science for Initial Credit Line assignment,
Installment loan limit, Installment/Indirect loan pricing
Account Management

Strategy Science for Cross Sell, Credit Line Management,
Retention, Repricing, Balance Transfers, Collections
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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FAST adoption!

Strategy Science applications

3 countries

25 clients

41 projects – in progress/completed
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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What Strategy Science does
#1. Links decisions to the underlying economics
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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What Strategy Science does
#2. Captures customers reactions to lender’s actions
Customer
Revenue score = 720
Risk score = 680
Current Balance = $1,250
Current Pricing = 11.25%
Relationship length = 3 yrs
…
Revenue score = 720
Risk score = 680
Current Balance = $1,250
Current Pricing = 11.25%
Relationship length = 3 yrs
…
Action
Retention Offer #1:
0% balance transfer
for 8 months
Reaction
P(Acceptance) = 30%
E(Balance change) = $650
E(Incremental cost) = $28
…
Retention Offer #2:
Free air miles
&
$1,000 line increase
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
P(Acceptance) = 25%
E(Balance change) = $150
E(Incremental cost) = $33
…
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What Strategy Science does
#3. Connects decisions to lender’s business constraints
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
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What Strategy Science does
#4. Simulates many scenarios and allows lender to
choose the most attractive
Profit / account
Profit / account
$95 (+30%)
$83 (+14%)
Baseline
Profit / account
$73
Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved.
Profit / account $78 (+7%)
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Q/A
Better Decisions thru Data
at Fair, Isaac