Reblog: Why Artificial Intelligence is a Game Changer for Risk Management

This article reinforces our belief that social media information coupled with artificial intelligence helps predict the stock market behaviour. And this is the very premise on which StockArchitect came into being.

The original post is written by Stacy O’Neil Jackson, Market Leader, Regulatory, Forensics & Compliance at Deloitte Services LP and is available here.


The idea of computers outsmarting and replacing humans has existed in movies and books for decades. Fortunately, that hasn’t happened on a wide scale yet. But what has happened is the recent emergence of artificial intelligence concepts – specifically cognitive computing – which involve advanced technology platforms that can address complex situations that are characterized by ambiguity and uncertainty.  Cognitive computing has begun to augment and empower business decisions right alongside human thought process and traditional analytics. In fact, the domain of risk management, lends itself particularly well to cognitive computing capabilities, as typical risk issues often include unlikely and / or ambiguous events.

Companies and public sector organizations have progressed in terms of using massive amounts of internal and external data to take a more preventative risk stance, says Samir Hans, a Deloitte Advisory principal in the Regulatory, Forensics & Advisory Market Segment at Deloitte Transactions and Business Analytics LLP. However, traditional methods of analysis have become increasingly incapable of handling this data volume. Instead, cognitive capabilities — including data mining, machine learning and natural language processing — are supplanting traditional analytics and being applied against these massive data sets to help find indicators of known and unknown risks.

“Given the increases in computational processing power and corresponding decreases in the costs of data storage, artificial intelligence in the business world is fast becoming a reality,” Hans explains. “These artificial intelligence or cognitive-based technologies help computers interact, reason and learn like human beings.”

Data that doesn’t fit in a spreadsheet

Artificial intelligence is increasingly becoming a routine part of our daily lives with the introduction of digital personal assistants, music and movie recommendation services, and cars that can see around corners. Just as smartphones, online shopping sites and music apps learn and adapt based on our preferences, cognitive computing can be used to teach computers to recognize and identify risk.

Of course, computers have always been able to perform mechanical calculations faster than humans. The difference is that with cognitive analytics, computers have the ability to learn as well. “That was missing before,” Hans says. “Computers haven’t always been great at what humans would call gray areas of thought and reasoning, but they are getting better.”

The use of artificial intelligence to manage risk is particularly helpful when handling and evaluating unstructured data—the kind of information that doesn’t fit neatly into structured rows and columns. Cognitive technologies, such as natural language processing (NLP), use advanced algorithms to analyze text in order to derive insights and sentiment from unstructured data. Given that a 2015 International Data Group study estimates that roughly 90 percent of data generated today is unstructured, implementing cognitive analytics can place businesses right on the cutting edge, Hans notes.

“Many organizations have done a pretty good job of analyzing and interrogating structured data,” Hans says, “but if you dump some contracts and medical literature and relevant law material together, that’s unstructured, and the ability to analyze that data is the upside of cognitive.”

Computers Get Smarter 

Look at fraud detection as an example. The old method of detecting fraud was to use computers to analyze a lot of structured data against rule sets. For example, fraud specialists would create a threshold for wire transfers at $10,000 so that any transaction over that amount would be flagged by the computer for additional investigation. The problem is that this type of structured data analysis often creates too many false positives, Hans says, which require hours of close scrutiny.

“With cognitive analytics, fraud detection models can become more robust and accurate,” Hans explains. “If a cognitive system kicks out something that it determines as potential fraud and a human determines it’s not fraud because of X, Y, and Z, the computer learns from those human insights, and next time it won’t send a similar detection your way. The computer is getting smarter and smarter. That’s a huge game changer.”

As these cognitive fraud detection systems continue to learn, they will be able to detect more complex fraud, an advantage that may have the biggest impact on risk management. “Cognitive technologies can help unearth emerging patterns that humans could never detect,” Hans says. “Then those emerging patterns become a new pattern to look for. The bottom line is: in fraud detection, cognitive is expected to make it more accurate and offer stronger protection.”

Where to Apply Cognitive Analytics 

These new capabilities are not limited to detecting risk. Cognitive analytics allow businesses to quickly tap unstructured information, personalize services and reduce subjectivity in decision-making. Among the arenas where this approach to data is useful are healthcare, retail and even litigation, where computers are “trained” to discover specific information in millions of legal documents and perform any necessary global language translation.

Analysts project that overall market revenue for cognitive solutions will exceed $60 billion by 2025, compared to the $1 billion in venture capital funding for cognitive technologies in 2014 and 2015, according to the International Data Corporation.

At this stage, Hans advises that cognitive technology is still an assistive technology to help suggest strategies and probabilities of outcomes and that human expertise is still important.

“Together, humans and computers will be able to do things that were just not possible previously,” he says. “Over the past five years, Deloitte Advisory has invested a lot of time, capital and talent on analytics. We didn’t just jump on this as a fad. It’s a natural transition based on what we’ve seen over the past five years. These advances should help our clients make better decisions, and it’s only just the beginning.”

As used in this document, “Deloitte Advisory” means Deloitte & Touche LLP, which provides audit and enterprise risk services; Deloitte Financial Advisory Services LLP, which provides forensic, dispute, and other consulting services; and its affiliate, Deloitte Transactions and Business Analytics LLP, which provides a wide range of advisory and analytics services. Deloitte Transactions and Business Analytics LLP is not a certified public accounting firm. These entities are separate subsidiaries of Deloitte LLP.  Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright ©2016 Deloitte Development LLC. All rights reserved.

Nifty closes above the psychological 8800! Telecom rebounds.
Repost: We are at the start of a bull market, it is going to make us forget 2003: Rakesh Jhunjhunwala

Leave a Reply

Your email address will not be published / Required fields are marked *