ITECH7406 Business Intelligence and Data Warehousing Management

Introduction

Modern financials are responding to the challenges like market segmentation, development of new product, acquisitions and mergers, aggressive competition, increased expectations of the clients and process automation. Simultaneously, banks also harmonies and manage risks for business operations with international regulations and growing national like AML, IAS, and BASEL II. Decision management comes on top of management and decisions should be efficient, timely and based totally on reliable and accurate data. On daily huge amount of financial data are recorded for customers on their financial features, property, psycho-social and personal along with their credit liabilities, transactions per account and account. This information is created in information system of financial industry and thus stored in transactional databases. Give us a chance to assume that bank administration needs to set up the qualities of customers that have bankrupt before. Such data can more often than not be asked for from IT staff at the financial industry, must invest a lot of energy to deliver the asked for report, on top of the customary workload. When the report achieves the supervisor's work area, it might be past the point of no return for basic leadership. (Asset, 2011)

Scope

The improvement of ICT gives fruitful answer for the previously mentioned issues. A vast subset of business data and information administration, and the initial move towards a learning association is an arrangement of strategies, apparatuses and applications indicated by the sweeping term "business knowledge" (BI). These days, BI is viewed as a different train enveloping components of data innovation, system, administrative bookkeeping, and corporate investigation and showcasing. It empowers gathering, breaking down, dispersing and acting in light of the business data, gone for encouraging the determination of administration issues and making the best business choices (Balaban, 2006). A business insight framework does not exist as a last item; its makers offer innovative stages and learning for their usage.

Data warehouse

Financial industries are known for adopting the new knowledge and technologies, that’s the reason they are fertile for executing such infrastructure. Data warehouse is the special databases type, that get generated for meeting the requirements of systems, where information is organized in convenient manner for performing analytical procedures on the huge sets of data. OLAP and data warehouse form informational basis for assigning the intelligence of business. (Ciric, 2008) Knowledge discovery and data mining are significant segments of the business intelligence.

Advantages of using Business Intelligence (BI)

Tools for financial industry can use to use client information for bits of knowledge that can prompt more quick witted administration practices and better business choices. With that in mind, here's a glance at a portion of the ways financial organizations are utilizing Business Intelligence (BI) answers for drive the build the competitive advantage, reduce risks and profitability.

1. Enhanced Operational Efficiencies: In today's ultra-aggressive commercial center monetary establishments should be as lean and effective as could be expected under the circumstances. Utilizing BI answers for break down operational procedures, associations can lessen continuous expenses and amplify existing assets and skill.
2. Enhanced Products and Services: BI arrangements enable associations to track singular income streams to better figure out which items and administrations are beneficial and which are definitely not. This empower money related associations to investigate huge measures of client information to pick up bits of knowledge about client needs and feelings in regards to managing an account that can be utilized to enhance items and administrations. (Curcic, 2009)
3. Enhanced Marketing: Using BI, advertisers can break down CRM information in light of a scope of criteria to reveal the most gainful client profile. What's more, the client base can be dissected to distinguish and grow new strategically pitch and up-offer open doors, and to do more focused on internet advertising efforts.
4. Enhanced Customer Retention: As beforehand talked about, BI applications can help money related foundations recognize and seek after those clients that are the most productive. BI likewise assumes an essential part in enhancing client maintenance and faithfulness. Utilizing business investigation instruments and methods, associations can find the reasons why clients change to a contending establishment.
5. Growing New Investment Strategies: Asset administrators are using new informational indexes to grow new methodologies for contributing. By creating models around online networking, financial specialists can increase particular understanding on opinion and create exchanging signals.
6. Reduction of Risk: The budgetary world is always showing signs of change and loaded with vulnerability. Like never before, managing an account and back foundations need to utilize each device available to them to decrease hazard. The capacity to track client exchange histories enables foundations to rapidly recognize and decrease the episodes of false exercises, the most outstanding being Mastercard extortion. The capacity to track the interchanges and conduct of interior representatives in exchanging securities helps establishments agree to new direction structures brought on by the money related emergency and late insider exchanging cases. (Krsmanovi?, 2002)

Precisely evaluating the risk of client credits in light of key criteria, for example, the borrower's winning limit and current money related resources—while figuring in new informational indexes and the predominant monetary atmosphere—is another risk alleviation advantage that BI can give. BI devices can likewise be utilized to examine credit portfolios, identify potential wrongdoing cases early, and make speedy protection move.

Innovation is changing the keeping money and back industry, and it's not done yet. Going ahead, those foundations that receive and completely use BI answers for oversee risk, increment operational productivity, and give items and administrations that meet genuine client needs will be better situated to appreciate maintained development, benefit and a focused edge for a considerable length of time to come. (Amster, 2016)

In financial industry areas encompassed by BI

They give from all the segments of business the decision maker’s ability for exploiting and managing the potential data of the multitude data resources as external and internal. There are various areas that are covered by BI and the most significant are as below:

• Compliance
• Liability and Asset management
• Enterprise management of risk
• Financial Performance management
• Analytical CRM (Customer relationship management)

Analyzing and considering the full relationship with customer is important for the successful operations in banks or financial industry in current growing competition condition.

Business Intelligence focus

The BI domain are focused on the segmentation of market, defining understandable picture for customer and relationship with the bank or finance, defining understandable picture of potential of market and ability for using it. (Mosimann, 2007)

1. Segmentation – The customer segment is composed of client group that are based on explicit characteristics.
2. Profitability of client – The profitability analysis is the one with expected impact on the profit of the bank or financial industry, and thus full return on equity. (ROE)
3. Up-selling and cross-selling – These analysis types enable customer’s access with ability of having various services and products simultaneously such as e-banking, cards, deposits and loans
4. Effectiveness of channel – It enables the analysis and recognition of several channels for customer communication and products delivery with the help of such channels.
5. Campaign management – The major aim is for comparing and analyzing the marketing campaign effects on increase of level and numbers of sold earnings, products and client’s number.

ALM is the procedure of dealing with the receivables and liabilities of bank or financial industry, gone for building up benefit and risk adjust, setting up a connection among the receivables and liabilities, and controlling the effect of risk on operations of banks and also results of financial industry. (Dedi?, 2016)

Risk management is the procedure where bank pr financial industry methodologically deals with all the stages that are risk processing (reporting, control, measurement, analysis and identification) representing the threat for accomplishment of the activities of individual business and objectives, so that accomplished level of risk ought not endanger the stable operation and bank's or financial industry safe.

Credit risk is characterized as the likelihood that the customer won't reimburse the credit taken from bank or any financial industry within agreed contract terms. This risk can get characterized all the more extensively – as the portfolio for bank's or financial industry credit probability is for losing its esteem. The reason for banking solutions for risk examination is to empower investigating credit risk examination relying upon how loan misfortunes and influence varieties in the profit of bank of financial industry. (Coker, 2014) Some of the analysis types for credit risk management for BI solutions are:

• Security analysis
• Exposure to portfolio credit
• Outstanding analysis
• Analysis of non-performing loan
• Exposure of involved party
• Analysis of debt restructure
• Credit risk profile for client
• Mitigation assessment for credit risk
• Assessment of credit risk
• Collections analysis (Ciric, 2008)

Reporting system

Within the tasks of the performance management, managers would monitor the important indicators of the business performance with the help of the scorecard reports. This is used for the ongoing monitoring with defined aims of present balance. Score-carding bolster arrangements ought to give clients fast and proficient access to scorecards demonstrating the important values for performance indicator, alarm them when such qualities surpass as far as possible, and encourage drill-down. Additionally, the previously mentioned system of reporting, meeting execution administration approach necessities likewise requires giving a foundation to support the arranging and planning procedure. This implies the framework ought to bolster the likelihood of characterizing the objective values crosswise over of all measurements of business operations (organizational, products and clients units), considering the dimension of time. (Chugh, 2013)

Architecture of BI system in financial industry

The architecture of the financial system for business intelligence is very much heterogeneous and consists of various layers:

• Front-end (information access layer)
• Layer for data access (data mining, OLAP and much more)
• Layer for data warehouse
• Transformation and data integration layers
• External data and operational database

Transactional (operational) databases are built for meeting the requirements of operations on daily basis. OLTP (Online Transaction processing) is the bank or financial industry system that contains basic information. Their major role is for helping in the daily activities related to business transactions (interest rate transactions, commission processing, recording transactions, loan contracts and processing and entering deposit, payment orders for processing and entering). (Watson, 2007)

The transformational layer and data integration include procedures for transforming the information from external and operational sources into the suitable form for the storage of database. They are cumulatively referred as the processes of Extract Transform and Load.

DW (data warehouse) is the analytical database that is utilized for BI system basis, designed for huge data amounts in the manner that are enabling efficient and simple management of data for reason of building the data that is needed in the process of decision-making.

OLAP refers to software technology category enabling users for gaining data in interactive, consistent and quick way. This is the data processing form and database interfaces that enable users for extracting the information easily and quickly. (Luhn, 2008)

DM (Data mining) is the procedure for analyzing and exploring meaningful rules and stacks. This uses various algorithms and techniques from areas of artificial intelligence and statistics for finding important stacks in the huge set of data. This can very important for financial industry and for this application it can have numerous instances.

Information access layer interacts directly with the client. This layer consists of applications and tools that are used on day-to-day basis with end users. Below are the forms which are used by contemporary practices for presenting and accessing the information:

• The basic presentation forms are reports. They are normally having minimum analytic needs, static and generated usually with the classical queries of SQL.
• Examinations meet the requests of much more intricate questions (identified with time, customers, items, appropriation channels and so forth.)
• Scorecard tables empower visual monitoring and content-based of important indicators of performance, which can get utilized whenever for looking at and controlling the match among the defined performances of target and present state.
• Dashboards incorporate all data needed for the decision making at one place, regardless of whether as scorecard, analyses or reports tables, empowering customize for every individual decision maker or client. Dashboards are plenteous in realistic information portrayal, and are particularly valuable for top chiefs, giving simple, what's more, and quick access to every single key data and their patterns. (Inmon, 2008)

BI system for help to idea of ALM

The concept of ALM

Fast changes on the market of financial industry cause quick changes in the bank's accounting report resources and liabilities, and their introduction to different risks, for example, interest rate risk, foreign exchange risk and credit risk. With the end goal of security and more effective risk administrations, banks decide on an incorporated way to deal with dealing with the whole on adjust and cockeyed structure. This makes conditions for connecting anticipated risks to the scope of high risks. The essential assignment of the ALM idea is to set up the connection between's the risk and gainfulness of individual financial exchanges. (Rodriguez, 2010)

Within ALM concept Risk management

The risk management purpose is for enabling the bank or financial industry for controlling and monitoring the concentrates and sizes of risks that are resulting from such activities. It consists of various interconnected phases: risk management and risk financing, risk control, risk assessment and evaluation and risk exposure identification. The process of risk management implies analyzing and identifying all the associated risks within banks or financial industry, defining correct limits of risk and monitoring the limits of risks with the help of contemporary system of information in the controlled manner. (Boulier, 2011)

Below are the risks that the AML concept applications need to continuously enhance and changes the management system of risk:

1. Financial, legal and business risks
2. Transactions risks based on financial derivatives
3. Credit risks
4. Liquidity risks
5. Risks of market – the important elements for the market risk management are
6. Setting limits for the exposure of maximum risk
7. Setting limits for the rates of loss

Interest rate risks are checked by utilizing two sorts of investigation: sensitive analysis and gap analysis. Gap investigation distinguishes mismatch among loan costs, while sensitive examination measures the effect of changes consequently on the banks or financial industry liabilities and assets.

Liquidity is one of the central standards of working together in keeping banking and financial industry and signifies the capacity of bank for meeting its current financial commitments constantly. The pith of liquidity is showed in transfer of fluid resources, implying that the bank can, at any given minute, meet its current due liabilities to contributors promotion loan bosses.

The income analysis for interest rate gives data on the below:

• Margin of transformation - dissimilarity among opportunity for the interest rate on the item or portfolio and interest base rate.
• Conditional margin – dissimilarity among interest rates that are contracted with the opportunities interest rates and customers
• Interest income variation in relation to the modification in the rates of interest (Margin Valiance for Net Interest)
• Interest rate
• Average rate of interest
• The average interest amount over provided observation period, divided among time intervals that are customized within the schemes that are analytic.

Liquidity analysis gives data on:

• Maturity deposit
• Liquidity ratio and gap (graphic and numeric)
• Maturity of interest and principal absolutely on the items of portfolio analyses over the period that is chosen
• Maximum loss or gain on the item or portfolio, by various means of different scenarios of liquidity and assumed various values of interest rates and exchange
• Impact of stress tests for stimulated liquidity
• Projected liquidity position and current bank or financial industry

Conclusion

The requirement for meeting the increasing demand that are complex by market and the clients, the requirement for business operations that are automated, process management is very efficient and control the contemporary financial industry is related to the requirement for the information system that is adequate. The basic information systems for financial industry are developed continuously and advanced for meeting few of their demands. Thus, to make full utilization of the huge potential created in the information systems that are basic every day, they needs updates as business knowledge frameworks. Additionally, integrated insight into memorable information, BI frameworks likewise empowers financial industry to expect future conduct of framework and the vast majority of their business pointers. They likewise empower demonstrating customer conduct – as far as utilizing new administrations as well as from the viewpoint of potential risks. A characteristics case of utilization of BI framework helps to timely decision making and high quality is management of liability and asset. Keeping in mind the end goal is to give data support to contemporary concept of ALM, programming ought to empower anticipating and figuring the future estimations of cash flows, liquidity, portfolios, down to giving projections of accounts for profit-and-loss and asset reports at every levels.

References

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Coker, Frank (2014), Pulse: Understanding the Vital Signs of Your Business. Ambient Light Publishing, pp. 41–42

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Inmon, B., A. Nesavich, (2008), "Unstructured Textual Data in the Organization" from "Managing Unstructured data in the organization", Prentice Hall, pp. 1–13

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