Following up on part 1 and part 2, McKinsey’s Jump-starting resilient and reimagined operations highlighted how COVID-19 will rapidly increasing expense transparency in organizations. Increasing transparency generally is one of the key benefits of our approach to working with clients – our use of decision modeling and business rules technology often dramatically increases the general level of transparency in their decision-making for instance. But this paper focused in on expense transparency and how that can be used to reassess and improve operations. This is also an area where digital decisioning can help.
Digital decisioning improves expense transparency in two primary ways – by revealing where you spend money on decisions and by revealing which decisions have downstream cost implications.
When organizations make decisions they can incur a variety of costs:
- Inspections such as home valuations, safety inspections for business insurance, shipment inspections for quality assurance
- Third party data such as motor vehicle reports, background checks, supplier checks
- Third party services like title searches or nurse visits
- Internal human review of applications, documents etc.
Many organizations find they incur these costs for every transaction because they have a process that incurs these costs before they attempt to make a decision. For instance, most mortgage refinance processes insist on a home inspection even if the state of the home is not material to the refinance decision (because the land is sufficiently valuable for instance). Others find that they incur these costs inconsistently and don’t really know why they incur them for one transaction and not for another.
Digital decisioning resolves these issues. Building a model of the decision – a decision model – shows the structure of the decision and so clarifies exactly why each piece of data is needed. Automating this decision enables the organization to check for a decision multiple times during a process, seeing if there’s enough data to make the decision yet or if more costs must be incurred. Logging how the decision was made makes it clear when the data resulting from these costs was used and when it was not, allowing for ongoing refinement of the decision to avoid the costs when possible. Consistency is guaranteed but it is not mindless consistency – over time costs are only incurred when they improve the decision. And a focus on continuous improvement means that changing market and other conditions result in cost models that reflect these changes.
Some decisions also involve downstream costs. Rejecting a claim that should have been paid incurs rework and investigation costs. Incorrectly identifying a vehicle as repairable incurs costs while the repair is estimated and organized. Manual reviews and rework can be created in any process. With digital decisioning you know WHY these costs are being incurred. Each decision made can be reviewed and the way it was made considered. Those transactions that resulted in rework can be reviewed to see if they decision can be tweaked to be correct more often and simulation of the automated decision means that side effects of proposed changes can be considered too. Continuous review and improvement of the decision-making gradually reduced the downstream costs of a decision.
Digital decisioning delivers a dramatic increase in transparency about the costs of your operations. The first step is to understand the decision so you can automate it for efficiency and agility. Check out our white paper on Agility and Efficiency with Decision Modeling to learn more and sign up for our newsletter.