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When Outsourcing Analytics Offshore Makes Sense

May 25, 2016 at 3:00 PM

Thanks to its broad applicability, data analytics has rapidly become a critical business function for modern organisations. But with expertise in the field in short supply and high demand, companies with an identified need for data analytics are looking beyond their traditional borders to monetise their information assets.

Forrester Research predicts that a third of businesses will “pursue data science through outsourcing and technology” as organisations become less process-driven and look to their data to find new opportunities for innovation. And with globalisation and technological advancements making outsourcing a realistic and practical option for businesses, this trend is set to gain momentum. With this in mind, let's take a look at why an organisation would even consider outsourcing their analytics capabilities in the first place.

Addressing Capacity and Capability

One of the primary reasons many organisations are outsourcing some to all of their analytics requirements is the shortage of data scientists and general analytics expertise.

There are countless small-to-medium sized businesses that appreciate the value of data analytics, but that do not have the resources or experience to build an in-house team of their own. This is where analytics outsourcing can provide the data expertise they need at an affordable cost. But there’s also demand on the other end of the spectrum, with large companies that already have an internal analytics team. In this case, the value comes from outsourcing low-level analytics and reporting, while handling the more advanced processes internally.

So, depending on the size and level of maturity of a company’s data analytics team, the requirement can either be to fill in a capacity gap of lower-level analytics skills for certain projects, or a capability gap of higher-level industry specific knowledge (e.g. credit analytics).

Whether the move to outsource is a temporary or a long-term strategic one, the challenge for businesses is to match their analytics requirements with a service provider that understands the intricacies of their business. Companies would do well to define an analytics roadmap in order to identify clear objectives that correlate with the BPO’s ability to meet them.

Read our blog on how credit managers are turning into information addicts

Technology-readiness means the time is right for outsourcing of analytics offshore

With global internet maturity, increased computing and data storage capacities, as well as a host of technological leaps acting as catalysts for business transformation, companies are able to extend their operations across borders with little consideration for geographical boundaries. Countries like South Africa, in particular, are attractive outsourcing destinations due to a favourable exchange rate, extensive technological infrastructure, complemented by cultural adjacency to English-speaking nations.

According to Tebogo Molapisane CEO of BPESA, after more than a decade in operation, the South African BPO industry is maturing to offer a range of business solutions to international prospects. In addition, as a long-standing destination of choice for BPO services, the country's familiarity with international business practices, norms and etiquette, along with its infrastructural and technological readiness, makes it an ideal offshore analytics destination.

Contact Us to Discuss Your data analytics Business Requirements

Julian Diaz
Julian Diaz
Julian Diaz was Head of Marketing for Principa until 2017, after which he became Head of Marketing for Honeybee CRM. American born and raised, Julian has worked in the IT industry for over 20 years. Having begun his career at a major software company in Germany, Julian made the move to South Africa in 1998 when he joined Dimension Data and later MWEB (leading South African ISP). Since then, Julian has helped launch various South African technology brands into international markets, including Principa.

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The 7 types of credit risk in SME lending

  It is common knowledge in the industry that the credit risk assessment of a consumer applying for credit is far less complex than that of a business that is applying for credit. Why is this the case? Simply put, consumers are usually very similar in their requirements and risks (homogenous) whilst businesses have far more varying risk elements (heterogenous). In this blog we will look at all the different risk elements within a business (here SME) credit application. These are: Risk of proprietors Risk of business Reason for loan Financial ratios Size of loan Risk industry Risk of region Before we delve into this list, it is worth noting that all of these factors need to be deployable as assessment tools within your originations system so it is key that you ensure your system can manage them. If you are on the look out for a loans origination system, then look no further than Principa’s AppSmart. If you are looking for a decision engine to manage your scorecards, policy rules and terms of business then take a look at our DecisionSmart business rules engine. AppSmart and DecisionSmart are part of Principa’s FinSmart Universe allowing for effective credit management across the customer life-cycle.  The different risk elements within a business credit application 1) Risk of proprietors For smaller organisations the risk of the business is inextricably linked to the financial well-being of the proprietors. How small is small? The rule of thumb is companies with up to two to three proprietors should have their proprietors assessed for risk too. This fits in with the SME segment. What data should be looked at? Generally in countries with mature credit bureaux, credit data is looked at including the score (there is normally a score cut-off) and then negative information such as the existence of judgements or defaults; these are typically used within policy rules. Those businesses with proprietors with excessive numbers of “negatives” may be disqualified from the loan application. Some credit bureaux offer a score of an individual based on the performance of all the businesses with which they are associated. This can also be useful in the credit risk assessment process. Another innovation being adopted internationally is the use of psychometrics in credit evaluation of the proprietors. To find out more about adopting credit scoring, read our blog on how to adopt credit scoring.   2) Risk of business The risk of the business should be managed through both scores and policy rules. Lenders will look at information such as the age of company, the experience of directors and the size of company etc. within a score. Alternatively, many lenders utilise the business score offered by credit bureaux. These scores are typically not as strong as consumer scores as the underlying data is limited and sometimes problematic. For example, large successful organisations may have judgements registered against their name which, unlike for consumers, is not necessarily a direct indication of the inability to service debt.   3) Reason for loan The reason for a loan is used more widely in business lending as opposed to unsecured consumer lending. Venture capital, working capital, invoice discounting and bridging finance are just some of many types of loan/facilities available and lenders need to equip themselves with the ability to manage each of these customer types whether it is within originations or collections. Prudent lenders venturing into the SME space for the first time often focus on one or two of these loan types and then expand later – as the operational implication for each type of loan is complex. 4) Financial ratios Financial ratios are core to commercial credit risk assessment. The main challenge here is to ensure that reliable financials are available from the customer. Small businesses may not be audited and thus the financials may be less trustworthy.   Financial ratios can be divided into four categories: Profitability Leverage Coverage Liquidity Profitability can be further divided into margin ratios and return ratios. Lenders are frequently interested in gross profit margins; this is normally explicit on the income statement. The EBIDTA margin and operating profit margins are also used as well as return ratios such as return on assets, return on equity and risk-adjusted-returns. Leverage ratios are useful to lenders as they reflect the portion of the business that is financed by debt. Lower leverage ratios indicate stability. Leverage ratios assessed often incorporate debt-to-asset, debt-to-equity and asset-to-equity. Coverage ratios indicate the coverage that income or assets provide for the servicing of debt or interest expenses. The higher the coverage ratio the better it is for the lender. Coverage ratios are worked out considering the loan/facility that is being applied for. Finally, liquidity ratios indicate the ability for a company to convert its assets into cash. There are a variety of ratios used here. The current ratio is simply the ratio of assets to liabilities. The quick ratio is the ability for the business to pay its current debts off with readily available assets. The higher the liquidity ratios the better. Ratios are used both within credit scorecards as well as within policy rules. You can read more about these ratios here. 5) Size of loan When assessing credit risk for a consumer, the risk of the consumer does not normally change with the change of loan amount or facility (subject to the consumer passing affordability criteria). With business loans, loan amounts can range quite dramatically, and the risk of the applicant is normally tied to the loan amount requested. 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In the graph below the performance of an industry is tracked for two years and then projected over the next 6 months; this is then compared to the country’s GDP. As the industry appears to track above the projected GDP, a positive outlook is given to this applicant and this may affect them favourably in the credit application.                   7) Risk of Region   The last area of assessment is risk of region. Of the seven, this one is used the least. Here businesses,  either on book or on the bureau, are assessed against their geo-code. Each geo-code is clustered, and the projected outlook is given as positive, static or negative. As with industry this can be used within the assessment process as a policy rule or within a scorecard.   Bringing the seven risk categories together in a risk assessment These seven risk assessment categories are all important in the risk assessment process. How you bring it all together is critical. If you would like to discuss your SME evaluation challenges or find out more about what we offer in credit management software (like AppSmart and DecisionSmart), get in touch with us here.

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