How Investments in Data Quality Boost Risk Management Productivity

October 4th, 2017

data-10-4-17.pngA direct correlation exists between data quality and productivity improvements within the risk management function. Poor quality data can result in increased time to develop models, lower confidence in the model results and less time to analyze results. Less precise modelling caused by poor data quality can mean that banks have to set aside higher capital buffers and loss allowance provisions.

There are numerous processes available for banks to define data quality, and guiding principles that can be implemented to improve data quality. When defining the firm’s framework for data quality in risk analytics, the following guidelines can be applied:

  • Specifically document how data are defined and constructed.
  • Ensure that data accurately quantifies the concept that modellers intend to measure.
  • Independently verify numerical correctness by using backlinks to primary sources, quality declarations, unique identifiers and accessible quality logs.

Moody’s Analytics recently published an article entitled “When Good Data Happen to Good People: Boosting Productivity with High-Quality Data.” This article quantifies the impact of data quality on improvements to analytical productivity, and provides a functional definition of data quality along with detailed examples of the impact of improving data quality on efficiency in analytical tasks. To read the full whitepaper, click here.

rcross

Richard Cross is an assistant director responsible for numerous analytical productivity and data quality initiatives. He designs, implements, and operates systems that apply lean manufacturing principles to data production.

cderitis

Cristian deRitis is a senior director who develops credit models for a variety of asset classes. His regular analysis and commentary on consumer credit, housing, mortgage markets, securitization, and financial regulatory reform appear on Economy.com and in publications such as The Wall Street Journal and The New York Times.