When a company embarks on a digitization strategy, it faces two significant barriers: lack of awareness of Digital Transformation and lack of knowledge on where to begin. The approach is already a stepping stone because you'll have learned that you don't want to lose competition due to your digital inexperience. Your company isn't expanding anytime soon if you don't do something about it.

Digital transformation must be viewed as an ongoing innovation process, which we depict as a continuous cycle.

In many financial institutions (FIs), the end-to-end model life-cycle environment includes model development, affirmation, and supervision plagued by inefficiencies, instability, lack of accountability, and inadequate control mechanisms, all of which lead to slow response times, competitive challenges, and regulatory requests. The COVID-19 pandemic has put a greater focus on these issues, prompting many firms to speed up their efforts to rebuild their infrastructure around the end-to-end model life cycle.

Implementing a more proactive and holistic approach to managing the model life cycle, beginning with a cost-effective end-to-end automated reorganization spanning activities—development, validation, and other continuing operations (such as monitoring and periodic verification) helps break the vicious cycle of massive investments.

FIs on the frontline of these efforts frequently start with three steps:

• Describing the goal state
• Identifying present pain points
• Laying out design principles for resilient infrastructure
  

Let's discuss these in detail.

Describing the goal state:

‍When it comes to prioritizing automation, there are three main factors to consider:

• Prioritizing tasks that will optimize the automation's impact
• Deprioritizing models that require periodic structural or design modifications
• Analyzing similarities in methodology across models to find scaling potential
  

Identifying present pain points:

Inefficient activities:

• Companies are compelled to repeat manual procedures for model creation when documentation and codes are not consolidated or conveniently available.

Inconsistent activities:

‍ Coding standards, testing rigor, and documenting quality will differ in a fragmented model life-cycle environment.

Transparency is lacking:

• It's tough to gain a comprehensive view of the model landscape throughout the business and its change over time because of the fragmented environment and the absence of a control tower to systematically collect and evaluate key performance indicators (KPIs) and key risk indicators (KRIs).

Lack of controls:

• ‍It's frequently challenging to maintain versioning and repeatability with correct code, data sets, and quality management to perform and support development and testing using a decentralized infrastructure.

Laying out design principles for resilient infrastructure: ‍

After defining a goal state that can address these issues, the firm should start laying out the design concepts for newer and more resilient infrastructure. 

Due to the complexities of the global economy, FIs must enhance their digitization and model life cycle management to increase efficiency and controls. While COVID-19 has expedited the timeframe for this overhaul and increased the sense of urgency, success will be contingent on overall coordination across the bank.

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