Using Predictive Analytics to Achieve Optimal Cost Efficiency
In the current slow-growth economy, aggressive cost reduction initiatives continue to be a key board-level imperative for credit unions. New regulations, competitive threats and re-architecture requirements of aging IT systems continue to perpetuate a “leaner is better” mindset throughout the industry.
After undertaking numerous rounds of cost efficiencies over the past five years, today many within the industry have reached the laws of diminishing returns with their current cost reduction programs — or worse, are beginning to see adverse effects on growth and profitability as a result of short-term cost cutting actions.
4 Steps to Improve Cost Management Programs in 10 Weeks or Less
- Model current system behavior – While there are many opportunities to set and achieve strategic cost management goals, it is most advisable to start by identifying a single, high-priority business problem to solve—with the goal being to quickly demonstrate success and prove that gains can be realized through the applied use of predictive analytics. Credit unions can use pre-built models and templates to accelerate time to value and fill in data gaps.
- Interpret current system behavior – Once the model have been proved, users can start identifying root causes of an increasing cost base and/or decreases in quality of service. Then prediction capabilities can be used to identify which systems and infrastructure will cause potential bottlenecks and constraints as services adapt and scale to meet increasing demands in the future.
- Identify improvements to business and IT systems – “What if” analysis can be performed to determine the effect of aging on current systems while prescriptive capabilities can be used to identify which remedial actions are required to improve the environment. Additionally, benchmarking can be used to expose new opportunities for improvement. Clear graphical displays help users prioritize which changes will yield the most significant improvements in terms of efficiency, cost and quality.
- Model future system behavior – Once the optimal future state has been identified, credit unions can validate if planned changes will yield the desired results before changes and investments are made. The overall effectiveness of any service process or project can be measured in terms of throughput, quality, cost and risk, while corporate dashboards can be used to assess performance against key business metrics.
Today, costs are undoubtedly a major concern for credit unions that need to adapt to a tougher regulatory landscape and improve competitive position amid uncertain economic conditions.