Monday, August 21, 2006

Business Rules Revolution - Executives across all industries are using technology to rewrite the rules of business — literally.

By Kristine Blenkhorn Rodriguez

Reprinted courtesy of INSIGHT Magazine, The Magazine of the Illinois CPA society. For the latest issue, visit

IT’S ONE OF THOSE TOPICS THAT MANY EXECUTIVES DON’T LIKE TO admit they don’t know quite enough about. So they nod sagely while their tech savvy counterparts discuss the business rules “revolution.” The revolution part is easy enough to understand. But what exactly are business rules, at least in this context?

Business rules are the rules by which you run your business. Sounds too simple, right? Wrong. They can encompass any area, from tax withholding for employees to marketing strategy when a major competitor turns up the heat. Many are unspoken. They reside in the legacy code held within your computer systems. And they reside within your executives’ heads. Therein lies the problem, and here cometh the “revolution.”

“We’ve been implementing business rules ever since computers became mainstream,” says Ron Ross, a member of the Business Rules Group, an organization of professionals from the public and private sector who are dedicated to developing and supporting business rules standards, among other things. “We’ve taken a rule and translated it into computer code so your systems do what they need to do when they need to do it to help you run your business.”

Not necessarily revolutionary. But, with the increasing popularity of business rules engines— software that can be bought as a stand-alone item or as part of an enterprise system—your business rules have become simpler to create and change. “You use rules engines to change the behavior of your programs without having to reprogram anything,” explains Paul Haley, founder, EVP and CTO of Haley Systems, Inc, a technology solutions provider specializing in business rules management systems.

For example, he explains, take any sort of financial business. “Your staff goes by many rules. They probably say things like, ‘Revenue from a contract will not be recognized on balance sheets until the invoice is paid’ or ‘Here’s how we delineate between expense and capitalization.’ These rules are changes that occur on a regular basis as your business situation or pricing, etc. changes. You used to have to call in your IT people every time something like this was altered. They’d bring in an army of programmers who would then code everything to reflect the change. This could take some time and could get expensive on projects you had outsourced. A rules engine takes the specification of conditions, if X then Y, out of programmers’ hands and puts it into your executives’ hands.”

That change is key, says Rolando Hernandez, CEO and chief rules architect of BIZRULES, a firm specializing in business rules, business process and knowledge management. “You save time because you’re not hard-coding rules, anymore. Business rules engines are basically software development programs that minimize programming. They separate business logic from computer code, which allows business people—not programmers—to edit and change rules using a simple, user-friendly interface and plain English.”

The advantages, Hernandez explains, are plentiful. You reduce your time to market. You prevent business mistakes and fraud. You retain knowledge that might otherwise be lost through attrition. You manage risk by increasing the probability of across- the-board compliance. And you reduce application development and maintenance costs because you have enabled your own businesspeople—who make the rules—to write the rules instead of relying on a programmer to hard-code them.

Revolutionary? Yes. But not exactly new. Business rules in this form began in the 1980s, when rules engines were known as “expert system inference engines.” Which means that, while many companies haven’t yet taken advantage of business rules engines, they are far from their nascent stage, and are already a proven mission-critical technology in the Fortune 500.

But if you’re after revolutionary and new, then here you go: According to Hernandez, many call center operators here and overseas ultimately will be either aided by artificial intelligence (AI) business rules engines or replaced by knowledge-based expert systems that will give the right answer every time, 24/7.

“Imagine a call center with 200 people,” he explains. “There is high turnover in the center and a lot of your staff is new much of the time. These are your front-line employees, not senior execs, on the phone with your customers. The problem is that customers get different answers depending on who they talk to. Business rules can be applied here to improve service delivery. If operators were using rules engines, your customers would get the same, right answers every time. You could put this intelligence on the Web and enable customers to help themselves, using the knowledge and rules of your best experts. That could eventually eliminate some of those operators, but it will certainly reduce customer service costs. AI-based and rules-based self-service customer support websites will emerge and customers will love them. Expert answers; instant gratification.”

It all sounds well and good, but does it fly in the real world? Marty Colburn, CTO and EVP for the National Association of Securities Dealers (NASD) cannot speak with firsthand knowledge of AI-based systems, but he can attest to the success traditional rules engines have brought the companies he’s worked for.

“We have billing streams that enter our system through PeopleSoft,” Colburn explains. “We needed to change them, so we purchased a rules engine. It took us one month to develop the new rules and one month to implement them. It cost us $200 thousand. Without the rules engine, it would have been a seven-figure project that took a year to complete. There are clearly advantages of scale and economy when you use business rules engines. Your time to market is much faster, and your cost and schedule improve immensely.”

Colburn worked for Fannie Mae in the early 1990s, where he also used business rules technology. “We built an underwriting and origination system,” he recalls. “We were ahead of the times then because rules engines were still not in widespread use. But the results were similar to what NASD has experienced. A huge improvement.”

“The primary goal today is agility,” Ross explains. “Rules need to change as quickly as your business changes. Your business analysts want to be able to get their hands on rules without digging through mountains of code to do it. They need to evaluate the impact of rule changes quickly so you can quickly determine the route you want to take. It’s literally impossible to operate a business at scale, across the globe, without automation.”

Hernandez sees global clients reap immense benefits from rules engines. “One of our Fortune 10 clients is using rules engines for global statutory compliance, including SOX,” he explains. “How do you manage global tax compliance across multiple tax jurisdictions, multiple ERPs and multiple P&Ls? How do you manage risk across hundreds of legal entities and P&Ls over 200 countries, and a variety of products, services and IP? How do you manage a tax return consisting of over 20,000 pages across many countries in every region of the world? How else can you close the books on time, every time? A $3 million investment in business rules engines, rules harvesting and knowledge engineering has helped this client greatly increase its chances of across-the-board compliance. This change done via the traditional hard-coding programming route would have cost $30 million.”

Compliance with Sarbanes-Oxley regulations is a natural fit for business rules engines, according to our experts. “SOX maps very well to this solution,” says Hernandez. “If you go to all that time and expense to document, assess, test and certify your processes and controls (i.e. business rules) anyway, then it’s relatively easy to get to the next level of compliance by using a rule engine to simulate and automate them.”

With business rules automation, says Haley, “You gain precision and control. What you say is what runs in your systems. And you know what is running in your systems. Put simply, it gives your executives more power, speed, agility and precision. The IRS, Wells Fargo, GE, GM, Cigna and a host of other companies are doing this. I’ve seen analyst estimates that 80 percent of companies will be using business rules by the end of 2007. In 2005, I think it was something like 20 percent of companies. Business rules are here.”

Sarbanes-Oxley panel discussion at the iCoast Tech Show 2006

Below is an excerpt of my opening remarks during the panel discussion on Sarbanes-Oxley Regulation at the iCoast Technology Show in Ft. Lauderdale on August 17th.

Success in the world of business depends on understanding the rules.
You need to know the internal rules and policies of your business. You have to comply with the external rules and regulations that govern your business, industry, and function. Your company must ensure that rules are followed. Your company must enforce the rules. Your company must give staff tools to help them follow the rules, make legal decisions, and prevent them from making illegal decisions.

Business rule management systems (BRMS) and business rule engines (BRE) help companies comply with rules and regulations like SOX.

How many of your companies have implemented a business rules management system or business rules engine?

Well, it’s very difficult to comply with SOX, especially 404, without rules technology.

Somebody somewhere is always changing a rule and redefining what it means to comply, and your business must continually adjust.

There is nothing usual about business as usual… because rules are always changing. SOX rules will keep changing. Companies are going from regulated to heavily regulated. The change is constant. And the rate of change is increasing faster and faster.

The problem is that software code is very difficult and time-consuming to change.

If SOX business rules are hard-wired in code, it takes IT programmers weeks and months to change rules in code.

If business rules are stored in a rulebase, however, instead of hard-wired in code, it takes business people minutes and hours to change the rules in the rulebase, with minimal or no IT involvement

So what? What does that mean to you?

Well, here's your take-away - Here's what your CEO needs to know about rules and SOX compliance:

If your competitor uses rule engines, that means they can change their business rules on-the-fly without having to recode and recompile. They can change their rules instantly, with zero time-to-market, as the business changes, as the world changes, as customers change, as regulations change.

If they can keep up with change, they can stay in the game.

If your company doesn't use rule engines that means you have to go through IT to change your business rules. You have to get a programmer to change the code, test it, debug it, recompile it, test it, debug it, recompile it, etc. It's going to take you a while to change the rules. It might take a few weeks or more likely a few months to change the business rules in the systems, as the business changes, as the market changes, as customers change, as regulations change.

If you can't keep up with change, you're out of the game.

You lose - - They win.

If you don’t have a rule engine that automatically prevents employees from breaking the rules, SOX rules, and instantly detects and prevents fraud, you’re out of the game. You’ll end up watching your stock go from $30 to $3 during lunch. You lose. You’re out of business.

The solution is business rules management.

Smart companies all around the world are using business rules to ensure compliance with the rules, and to enforce the rules, to increase agility so they can change faster, to prevent business mistakes, and to reduce IT system development costs by changing rules in days not months.

One of our clients, a fortune 10 company, is implementing business rule management systems and business rule engines for global statutory compliance, including Sarbanes-Oxley. A $3 million investment in business rule engines, rules harvesting, and knowledge engineering has helped this company greatly increase its chances of across-the-board compliance. This change done via the traditional hard-coding programming approach would have cost $30 million.

So… business rules technology helps business comply with rules and regulations like SOX, helps employees follow the rules, prevents employees from breaking the rules (either accidentally or on purpose), helps government educate people and business about what rules are, and helps government enforce the rules.

If government is using rule engines to catch honest mistakes and detect outright fraud, then the smart business will use rule engines to prevent mistakes and prevent fraud in the first place.

Rolando Hernandez


Saturday, August 5, 2006

What is the difference between data-based, rule-based, and knowledge-based systems? (FAQ #15)

The chart below summarizes the key differences between data-based, rule-based, and knowledge-based systems:

Click to enlarge

The problem with legacy data-based systems is that they are hard-coded and limited to processing data and outputting information. It's still up to the human being to analyze all the information to make decisions and recommendations. The result is often information-overload and costly mistakes.

Rule-based systems process data and output information, but they also process rules and make decisions. They are good at processing lots of simple business rules with broad logic. They are commonly used for real-time decisioning systems, straight-thru processing (STP) systems, and compliance systems.

Knowledge-based systems also process data and rules to output information and make decisions. In addition, they also process expert knowledge to output answers, recommendations, and expert advice. They are good at processing deep logic and very complex business rules. They are commonly used for advising systems, expert systems, and knowledge automation.

Database vs. Rulebase vs. Knowledgebase

Deciding between a Rule-Based or Knowledge-Based solution

List of Applications where Rule-Based and Knowledge-Based solutions are Most Effective

Business Rules Knowledge Base - Articles


What's the big deal with the business rules approach? (FAQ #17)

FAQ #17

  • What's the big deal with the business rules approach?
  • What's wrong with the traditional hard-coding approach?
  • How do business rules compare to hard-coded rules?

Click to enlarge

The problems with traditional hard-coded or hard-wired rules include:

  • Duplicate rules must be coded & maintained in many systems
  • It's hard to isolate rules from code during maintenance
  • It's even harder to change and test applications
  • It takes months to change ‘hard-coded’ business logic
  • Redundant development & maintenance costs

The benefits of the business rules approach include:

  • Shared rules (Reuse)
  • Rules coded once
  • Rules are isolated from code
  • Externalizing rules results in smaller applications
  • Smaller applications make it easier to change and test applications
  • It takes days to change business rules --> Faster Time to Market
  • Lower Development & Maintenance costs

Business Rules Knowledge Base - Strategies