Smarter Risk Management in the “New Normal” Economy

Argos Risk Online delivers continuous credit risk assessments and suggested best actions for minimizing risk and maximizing revenue across an organization’s universe of suppliers, customers and competitors. By helping these organizations take appropriate actions to mitigate risk, it delivers a rapid return on investment and dramatic cost savings across many functional areas. For example, within a typical mid-market company with $75 million in annual revenue, Argos Risk Online generates an estimated total of $855,000 in overall annual business value that consists of:

• $450,000 annual benefit by improving the efficiency and effectiveness of the revenue cycle
• $260,000 annual benefit by improving sales and strategy capabilities such as prospect evaluation and staffing priorities
• $145,000 annual benefit by optimizing the payment cycles of customers and suppliers

Can my customer pay me?
Small and midsize businesses cannot afford the uncertainty and financial risk of excessive payment delays, cash-draining delinquencies, or worse, bad debt write-offs. These challenges are further magnified in today’s stormy economic environment where delays, delinquencies or defaults can threaten their survival. What may seem obvious isn’t always the case, and the implications, while understood, are often ignored because there isn’t an effective way to deal with these issues.

A small or midsize business that offers credit to a customer is like a bank, but without any of the credit analysis tools or experience a banker would have at their fingertips. Extending credit is a necessary element of doing business. So the decision companies must make isn’t whether to grant credit, but rather how to mitigate the risks when doing so. The bottom line is that extending credit without meaningful insight can put any business at great risk, or conversely, not extending credit when perceived risks are not real can stunt growth potential. And because the current trend is for banks to push more of those credit responsibilities back to their customers, the ability to manage risk is more critical than ever.

It all comes down to one simple question, “Can my customer pay me?” Businesses recognize the importance of answering that question, but the means to gain a meaningful answer aren’t as simple. They must decipher a wealth of complex, diverse content that poses a variety of difficulties including:

• Data that is out-of-date and not reflective of current business conditions
• The high cost of acquiring trusted third party credit information
• The absence of key demographic factors influencing credit worthiness such as geographic location
• Data that is difficult to interpret and to confidently develop actionable insight
• Lack of credit inquiry solutions for small to midsize organizations

The end result has been a wide variety of practices and processes—or even no process at all—to address this fundamental question. Where there is a process, it is often outdated and relies on suspect information sources. Furthermore, many credit-related decisions are often wrongly influenced by long-standing relationships with a strong personal connection without sound, objective analysis. Combining these inconsistent or non-existent processes with decisions based on intuition or “gut feel” is a recipe for poor financial results.

Creating a new way to manage risk
Argos Risk was formed through a creative spark by the owners of PrinSource Capital, a 15-year-old asset- and invoice-based lender. Over its history, PrinSource developed and honed a proprietary combination of critical data, experience-driven business analytics and predictive indicators designed to reduce credit risk.

The Argos Risk leadership team saw an opportunity to help organizations who “play banker” to their customers—or rely on suppliers’ ability to supply critical components or services—make more informed, fact-based decisions to ensure healthy financials and an effective supply chain. They realized if they could help companies approach credit management in a different manner through an innovative solution, the impact on those organizations would be significant.

“Our experience is that a typical customer can save hundreds of thousands of dollars annually—or more—through greater operating efficiencies and by better managing their credit risks,” said Steve Foster, CEO, Argos Risk.


Argos Risk saw three key outcomes from any solution they would create:

• Take emotion out of the credit decision process. Everyone wants to give their customer the benefit of the doubt, but with the dynamic economic
climate, the days of asking a customer “how their business is doing” as the bellwether for offering credit are long gone. Decisions need to be made based upon objective data that delivers a clear, accurate view of a customer’s credit status.

• Be diligent and consistent. Companies need to follow a consistent process in performing their basic research on every customer. The process
needs to be easy to follow, and have the capability to continuously monitor credit status. The landscape for a customer can change dramatically in a very short period of time - even within hours.

• Help customers understand the value of credit monitoring and risk management. Cash is king for all businesses, but especially so for small to midsize organizations where making payroll and covering operating costs are key factors for long-term success and solvency. Keeping an eye on the credit status of customers who owe money is the smartest, most effortless way to ensure every sale converts to cash.

The ingredients of their strategy were simple. They would combine their years of credit risk expertise with the cryptic and seldom-used streams of credit and economic data from industry-leading companies like Dun & Bradstreet and Moody’s Analytics, among others. They would develop an advanced analytical framework rooted in a sound, time-tested and proven methodology, and deploy it through an enterprise-wide technology platform for sophisticated, real-time credit information analysis.

To succeed, the solution would have to be quick to deploy, easy to use and understand and provide an intuitive dashboard that companies could use to readily take action and make decisions. That’s why the Argos Risk team selected Cognos Business Intelligence as the foundational platform for their solution.

“IBM Cognos Business Intelligence allowed us to build a solution, not an application. That was critical to meeting the demands of our customers in today’s uncertain economic times,” said Foster.

The new solution, Argos Risk Online, was built on the Cognos Business Intelligence platform to enable the highest levels of flexibility, customization and ease-of-use for the end user. Because it requires little or no training to implement and run, most subscribers can be operational on the system in less than one day. The Cognos Business Intelligence platform allows users to easily tailor the dashboard to determine which customers, partners and competitors they wish to monitor for risk. They can even monitor their own business status to understand how others might be viewing their performance and risk profiles.

The Cognos Business Intelligence platform is essential to the success of Argos Risk Online because it delivers sophisticated functionality that can be easily accessed by any end user via the internet. It provides advanced business intelligence features such as variable image rendering, prompt macros for dynamic runtime SQL joins, generation of backgrounds for charts, integrated security, email report delivery, dimensionally modeled relational (DMR) data, summary/drill through reporting and report books.

“In quick order Cognos Business Intelligence has enabled us to integrate disparate sources of information and execute complex analytics, ultimately presenting the results in a flexible manner that is easily digested, ultimately driving more informed decisions,” said Foster.

Foster and his team felt that other solution options would compromise their requirements for Argos Risk Online. But with Cognos Business Intelligence and the credit risk expertise of the solution architects, they were able to achieve both their internal and customer-facing requirements:

• Ease of use by Argos Risk customers. Argos Risk Online is intuitive and easy to use by people across a variety of job functions and skill levels.

• Simple to deploy by Argos Risk customers. A user can literally set up their credit monitoring solution in days, if not hours.

• Able to build a complete solution in weeks not months. Argos Risk wanted to get their vision for a solution in the market as quickly as possible. This was going to be a challenge with other vendors that offered less flexibility and required more specific coding and IT skills.

• Powerful analytics and presentation. With Cognos Business Intelligence, the presentation of credit risk insight is simple and easy to understand for a subscriber. The solution leverages powerful analytics with a great capacity to rapidly evolve as subscriber demands change, and is tightly integrated with a sophisticated, yet easy-to-interpret, customizable user interface for dashboards and reports.

• Ability for enterprise-wide collaboration. Cognos Business Intelligence offered unprecedented capabilities for collaboration across a subscriber’s organization. The ability to collaborate across functions like finance, sales, marketing and strategy development were critical to maximizing the power of the solution.

Implementing the new solution
Argos Risk chose eCapital Advisors, a management consulting firm based in Minneapolis, to partner with them on their first deployment of this innovative new solution. As a leading IBM business partner with IBM Cognos-certified professionals on staff representing a combined total of over 180 years of consulting and industry experience, it was a perfect fit.

eCapital Advisors understood the business challenge and the solution Argos Risk was trying to create. With very specific industry expertise around financial services, specifically managing credit risk, and strong technical skills around Cognos Business Intelligence solutions, they felt they help could build and deploy the solution in the most effective manner to help Argos customers.

“Argos Risk Online is an enterprise class solution on a consumer budget,” said Jim Plantan, Partner, eCapital Advisors.

Argos Risk Online originally utilized IBM Cognos 8 Business Intelligence with no customizations or JavaScript to create a dynamic, interactive dashboard and analytic reporting solution. A number of Cognos Business Intelligence features have been incorporated into the solution to improve performance and create an easy-to-use, easy-tounderstand user interface. These include variable image rendering, prompt-driven macros for dynamic runtime SQL joins, generated backgrounds for charts and graphics, integrated security, e-mail report delivery, dimensionally-modeled relational (DMR) data, summary and drill-through reporting capability and robust report books.

When IBM Cognos 10 became available, Argos Risk quickly migrated to this revolutionary platform to take advantage of a number of unique capabilities, including the powerful new 64-bit engine. Cognos 10 gave Argos Risk the confidence that their solution could continue evolving to meet the rapidly expanding needs of their broad customer base, within a highly complex business economy fraught with more and greater risks.

For example, Cognos 10 provided Argos Risk Online with extensive monitoring and feedback loops. When a customer or supplier being monitored by Argos Risk Online has any material change in their business—such as a change in payment history, lawsuits filed, change in corporate office holders or any other significant news—automatic notifications and alerts are immediately sent to Argos Risk subscribers to ensure nothing “slips through the cracks.” Users can also tailor the content in customizable dashboards and reports to ensure the right information is delivered to the right individual at the appropriate time.

“The upgrade from IBM Cognos 8 to Cognos 10 was seamless and readily supported the existing application with no material modification required. We upgraded to take advantage of the enhanced visualization, scalability of the 64-bit environment, and to position us for future integration of new Cognos 10 capabilities,” said Jeff Houdek, CFO, Argos Risk.

At the time Argos Risk migrated from Cognos 8 to Cognos 10, they also moved Argos Risk Online to a private cloud environment. They view this software as a service (SaaS) environment as an important way to maximize IT efficiencies, and provide a seamless, secure and up-todate environment for their customers to access and work within.

Delivering a significant ROI to customers
The Argos Risk Online solution is unique in how it delivers value. While Argos Risk has enjoyed internal benefits and IT efficiencies from using the Cognos platform to host Argos Risk Online, the majority of benefits accrue directly to their subscribers who are using the solution as the foundation of their credit risk operations. Customers of Argos Risk Online typically enjoy a return on their investment of 18 to 24 times their initial investment, with benefits accruing across many functional areas of the organization including finance, sales, marketing and strategy development among others.

A typical Argos Risk customer tends to be in the midmarket with annual revenues of $75 million. Through discussions with customers and analyses of their businesses, Argos Risk has identified the typical quantifiable outcomes these businesses are accruing from their solution. At one end of the spectrum, a company that was already following an established process with current credit information is likely to see incremental cost-saving benefits after switching to Argos Risk Online. At the other end, a company that is able to spot a problem with a large customer or supplier that would have otherwise gone unnoticed, and then take appropriate action, may avoid disrupting their supply chain or entering bankruptcy, for incalculable benefits.

“Even one bad credit decision can significantly impact a company’s financial health. Argos Risk Online provides the information to help companies avoid ever having to face that outcome,” said Houdek.

The estimated annual benefits realized are $855,000, and fall into four categories.

Revenue Cycle: Annual Benefit $450,000

• Efficiency—A company can quickly standardize the often costly customer credit limit process, dramatically reduce the time and expense associated with credit underwriting, credit validation and credit application processing, and allow quicker, more effective use of credit and collection resources.

• Effectiveness—Argos Risk Online helps a company reduce their Days Sales Outstanding (DSO), prioritizes and optimizes customer payment schedules, alerts staff to customer credit problems before they occur, and reduces uncollectable receivables by upwards of 25 percent.

Sales and Strategy: Annual Benefit $260,000

• Prospect evaluation—Argos Risk Online lets a customer determine which prospects or existing customers are the most profitable candidates to actively promote more products and sales based upon their credit worthiness. Conversely, it can highlight customers who appear to be credit risks, and are therefore not worth pursuing with aggressive sales strategies.

• Sales process staffing—Insight into credit worthiness helps companies allocate scarce and expensive sales and marketing teams and resources
toward high-value, high-potential accounts.

Payment Cycle: Annual Benefit $145,000

• Supplier management—Optimizes supplier payment terms by using the supplier’s own payment history to optimize cash flow by “stretching payables” as much as possible.

• Customer management—Allows custom credit terms for customers based on their own policies and payment history.

Strategic Opportunities: Annual Benefit Undefined

• With real-time, deep insight into market risks, industry financial structure, competitors’ financial health and other business vulnerabilities, Argos Risk Online customers can uncover opportunities that previously would have gone unnoticed. For example, if a competitor is having credit problems, a strategy that targets their customers by offering more appealing terms, pricing or service could be the tipping point to securing a long-term, highly profitable new customer.

Another compelling benefit of the solution is its usability. Argos Risk Online subscribers confirm the solution is easy to use, simple to implement, and provides them with deep insights into key metrics that directly impact the bottom line of their businesses. “It is not just a snapshot of a customer or vendor’s payment status. Our people like the simplicity of the dashboard and how it works. It is a great way to quickly get a feel for someone’s payment habits. It has helped our people document the managed risk that we’re taking,” said Brad Krohn, CEO of The Business Bank in Minnesota and Argos Risk Online subscriber.

Planning for the future
Argos Risk is already back at the drawing board, planning more improvements and capabilities to help its solution deliver even greater business value.

First, they plan to incorporate IBM SPSS technologies to provide powerful predictive and advanced analytics capabilities to Argos Risk Online. The intention is to add even stronger predictability to the Argos Risk Score, which is the primary metric for evaluating a customer’s creditworthiness. Providing an extra layer of analytics powered by IBM SPSS software will empower companies to use the Argos Risk Score as a credit recommendation that drives confident decisions and actions, as opposed to one key element in a broader decision process. IBM SPSS predictive analytics can determine the appropriate range or level of credit to offer through evaluation of multiple factors such as geography, demographics and firmographics.

Next, the Argos team believes that IBM Cognos Consumer Insight, through its ability to mine unstructured data, will provide even deeper, previously untapped, insight into social media outlets to better understand customer sentiments and trends that could point to possible risk concerns.

In addition, Argos Risk plans on deploying IBM Cast Iron Systems to improve system integration and connectivity. This deployment will allow Argos Risk to reduce the complexity and cost of their IT infrastructure by rapidly integrating Argos Risk Online, a SaaS and cloud-based solution, with their subscribers’ ancillary systems. Those systems contain critical data for the credit monitoring decision processes, including CRM applications such as Salesforce.com, and enterprise packaged applications from software vendors like SAP, Oracle, Microsoft and others. The solution from IBM Cast Iron
systems will provide a single, integrated platform that bridges cloud applications like Argos Risk Online with little deployment effort or time.

A business survival tool
Ultimately it’s all about giving companies easy, affordable access to critical credit and risk information. In a demanding economy, companies that don’t have insight into the risks posed by their relationships with customers, suppliers and partners as well as threats from competitors, are at a distinct disadvantage. However, with Argos Risk Online and the IBM Cognos Business Intelligence platform, they have access to a business survival tool that generates new value every day.

About IBM Business Analytics
IBM Business Analytics software delivers actionable insights decisionmakers need to achieve better business performance. IBM offers a comprehensive, unified portfolio of business intelligence, predictive and advanced analytics, financial performance and strategy management, governance, risk and compliance and analytic applications. With IBM software, companies can spot trends, patterns and anomalies, compare “what if” scenarios, predict potential threats and opportunities, identify and manage key business risks and plan, budget and forecast resources. With these deep analytic capabilities our customers around the world can better understand, anticipate and shape business outcomes.