Deloitte Advisory
Risk powers performance

Why artificial intelligence is agame changer for risk management
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 intelligenceconcepts—specifically cognitive computing. These concepts
involve advanced technology platforms that can addresscomplex situations that are characterized by ambiguity anduncertainty. Cognitive computing has begun to augment
business decisions and power performance right alongsidehuman thought process and traditional analytics. In fact, thedomain of risk management lends itself particularly well tocognitive computing capabilities, as typical risk issues often
include unlikely and/or ambiguous events.

Companies and public sector organizations haveprogressed in terms of using massive amounts of internaland external data to take a more preventative risk stance,says Samir Hans, a Deloitte Advisory principal in theForensics & Investigations practice of Deloitte Transactions
and Business Analytics LLP. However, traditional methodsof 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 andbeing applied against these massive data sets to help findindicators of known and unknown risks.

“Given the increases incomputational processing powerand corresponding decreases in
the costs of data storage, artificial
intelligence in the businessworld is fast becoming a reality.
These artificial intelligence or
cognitive-based technologies help
computers interact, reason, andlearn like human beings.”
Samir Hans
Deloitte Advisory principal
Forensics & Investigations
Deloitte Transactions andBusiness Analytics LLPWhy artificial intelligence is a game changer for risk management

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 cansee around corners. Just as smartphones,
online shopping sites, and music apps
learn and adapt based on our preferences,cognitive computing can be used to teachcomputers to recognize and identify risk.
Of course, computers have always beenable to perform mechanical calculations
faster than humans. The difference is thatwith cognitive analytics, computers havethe 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 handlingand evaluating unstructured data—the kindof information that doesn’t fit neatly into
structured rows and columns. Cognitivetechnologies, 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 placebusinesses right on the cutting edge, Hans
notes. Leaders who leverage cognitivetechnologies to anticipate and proactively
manage risk can gain competitive advantage
and use risk to power their organizations’performance.
“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 toanalyze that data is the upside of cognitive.”

Computers get smarter
Look at fraud detection as an example.
The old method of detecting fraud was touse computers to analyze a lot of structured
data against rule sets. For example, fraud
specialists would create a threshold for wiretransfers at $10,000 so any transaction
over that amount would be flagged by thecomputer for additional investigation.
The problem is that this type of structureddata analysis often creates too many false
positives, Hans says, which require hours ofclose scrutiny.
“With cognitive analytics, fraud detection
models can become more robust andaccurate,” Hans explains. “If a cognitive
system kicks out something that it
determines as potential fraud and a humandetermines it’s not fraud because of X, Y,and Z, the computer learns from thosehuman insights, and next time it won’t senda similar detection your way. The computeris getting smarter and smarter. That’s ahuge game changer.”

Leaders who leverage cognitive technologies toanticipate and proactively manage risk can gain
competitive advantage and use risk to power theirorganizations’ performance.

Why artificial intelligence is a game changer for risk management

As these cognitive fraud detection
systems continue to learn, they will beable to detect more complex fraud, anadvantage that may have the biggest
impact on risk management. “Cognitivetechnologies can help unearth emerging
patterns that humans could neverdetect,” Hans says. “Then those emerging
patterns become a new pattern to lookfor. The bottom line is: In fraud detection,
cognitive is expected to make it moreaccurate and offer stronger protection.”

Where to apply cognitive analytics
These new capabilities are not limited todetecting risk. Cognitive analytics allow
businesses to quickly tap unstructured
information, personalize services, andreduce subjectivity in decision making.
Among the arenas where this approachto 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 cognitivetechnologies in 2014 and 2015, according to
the International Data Corporation.

At this stage, Hans advises that cognitivetechnology is still an assistive technology
to help suggest strategies and probabilitiesof outcomes, and that human expertise isstill important.
“Together, humans and computers willbe able to do things that were just notpossible previously,” he says. “Over thepast five years, Deloitte Advisory has
invested a lot of time, capital, and talent on
analytics. We didn’t just jump on this as afad. It’s a natural transition based on what
we’ve seen over the past five years. Theseadvances can help our clients make better
decisions, and it’s only just the beginning.”

To learn more about Deloitte Advisory’s Forensics & Investigations solutions, visit:
http://www2.deloitte.com/us/en/pages/advisory/solutions/forensics-and-investigations-solutions.html

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 otherconsulting 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 www.deloitte.com/us/about 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 Advisory is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. Thispublication 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 mayaffect your business, you should consult a qualified professional advisor. Deloitte Advisory shall not be responsible for any loss sustained by any person who relies on this publication.
Copyright ©2016 Deloitte Development LLC. All rights reserved.