FINANCIAL INSTITUTIONS MUST BALANCE FLEXIBILITY AND CONTROL WHEN IMPLEMENTING BUSINESS RULES MANAGEMENT SYSTEMS

Needham, MA - 10 October 2007

New TowerGroup Analyst in Consumer Lending Practice Examines Benefits of Business Rules Governance

A growing number of consumer lending institutions are seeing the benefits of moving business rules out of legacy architectures and the sole control of IT departments into new systems that allow them to adapt more quickly to changing business conditions. These IT offerings include both enterprise business rules management systems (BRMSs) and specialized applications with embedded business rules engines. New research from TowerGroup finds that when organizations implement these new systems, it is critical for them to adopt governance principles that put appropriate controls in place while allowing for flexibility.

Systems designed to help automate complex decision making are a natural fit for incorporating techniques of business rules management. In mortgage lending, good examples are in determining loan product eligibility, setting base pricing and making pricing adjustments, and evaluating opportunities for workouts with customers in default.

Part of the justification for adopting a BRMS is to gain speed and reduce cost by handing over more of the technology development cycle to professionals in the line of business rather than to IT specialists. Yet with this shift comes a greater risk of errors. To reduce the likelihood of unwanted outcomes, institutions must put appropriate controls in place.

The author of the research is David Hamermesh, a senior analyst and the newest member of the TowerGroup Consumer Lending service.
“Business rules management systems have the potential to give great power to business organizations trying to escape the constraints imposed by traditional technology architectures and processes,” said Hamermesh. “However, institutions must ensure that the move to a business-configured system is more streamlined than the traditional IT-driven development process and involves key people in the organization. Ultimately, the balancing act a lender must perform is to figure out what controls are needed without bogging down the process of changing the business rules.”

Highlights of the research include:

• Optimal use of a BRMS requires a comprehensive business-configuration methodology that differs radically from development processes fully managed by IT organizations.

• The controls that an institution puts in place for deploying a BRMS should be a blend of the appropriate people, process, and technology. Success depends on following the right recipe. It starts with “people controls,” adds process around those people, and then leverages the best technology available to get the most out of the mix.

• When controls combining people, process, and technology are effectively implemented, they offer a solution to mitigate the possible risks to financial services institutions without significantly eroding the benefits of the new system.
Before joining TowerGroup, Hamermesh spent 13 years at ABN AMRO Mortgage Group. His final position was as first vice president and senior project manager in the Program Management Office. His expertise includes implementing loan origination systems and business rules management systems, automating underwriting systems, and retaining customers. At ABN AMRO, Hamermesh covered both the retail and wholesale aspects of mortgage banking and played key roles in various business process and architecture improvement projects. Hamermesh received his M.B.A. with high honors from the University of Michigan’s Ross School of Business and a bachelor’s degree summa cum laude from Princeton University.

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