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How billions of datapoints became a Business Risk Index

Last week CreditorWatch launched a highly valuable, Australian-first economic indicator—the Business Risk Index. Each month the index reveals which regions in Australia are at the highest and lowest risk of insolvency in the future – critical information for businesses and government as we continue to navigate through the downturn from the coronavirus pandemic toward economic recovery.

Business decisions guided by real-time data

Understanding the level of stress businesses and industries are facing right now—in a particular region or state, and also Australia-wide—is an important and powerful tool to assist decision making. Where to invest, initiatives to support, where to make adjustments to cash flow, where to restructure; these critical decisions can be made in a timelier manner and with greater confidence when underpinned by monthly insights from the Business Risk Index.

Amalgamating data to identify credit risk

To be able to provide a true reading of a region’s credit risk for future insolvency—similar to a credit rating for an individual business but for an entire area instead—a multitude of data sources are needed. It is only by amalgamating these many unique risk indicators—factors such as geographical insolvency risk, the national average probability of default for Australian businesses, and the Australian economy’s national trade receivables growth—that we can truly gauge the economic health of an area and true impact of the COVID-19 pandemic.

Transforming complex data into a simple economic indicator 

The Business Risk Index was created to channel a new, comprehensive data set into a valuable first-time measure of financial distress for businesses. Every month it ranks billions of data points for more than 300 regions across Australia. CreditorWatch’s Chief Economist and data scientists then transform this complex data into valuable insights, helping businesses and policy makers understand commercial credit risk and the economy in an innovative and dynamic way.

A collaborative effort driven by CreditorWatch

CreditorWatch developers worked with the team at Open Analytics to create the Business Risk Index. Open Analytics designed the algorithms the data is channelled through, then CreditWatch managed the implementation through its big data platform. We also integrated the BRI into the website, so the monthly BRI reports automatically funnel through to CreditorWatch.com.au, providing instant access to the latest insights.

Taking the lead on a new economic metric

For me, as the Business Risk Index’s lead engineer, it was an unbelievable journey, managing research and experimental work with machine learning and big technologies. We created an index that provides a very clear and easy indicator, not just for measurement but also comparison. Our index methodology summarises billions of datapoints in a very comprehensive metric, to quickly understand how a region has performed financially, collating a vast amount of data in a timely manner. Now, businesses and legislators can use this metric to stay updated on a region’s economic status, identify vulnerabilities and implement support measures where required.

How the BRI came into being

This model is the aggregation of two other mammoth projects CreditorWatch had completed previously and with great success: CreditScore and Payment Predictor. CreditScore understood, modelled, and measured the risk of default, while our Payment Predictor outlined how companies were paying their bills and how moments of shock such as the COVID-19 pandemic and lockdown affect the Australian economy. After thorough studies of both fields, our engineering team was ready to begin our ambitious endeavour: to create a leading financial index for the Australian business community.

An innovative new index for the credit industry

CreditorWatch decided it was time for its sector to match others—like real estate and financial markets —that have long-benefitted from an industry index. Giving businesses access to this information provides a helpful framework for assessing and determining credit applications, of particular importance to new businesses. The Business Risk Index is now the largest company dataset in the country focused on the Australian economy. There is probably only a handful of companies in Australia dealing with a comparable dataset. So, from a dev perspective, it’s a huge accomplishment that our index can translate such a vast amount of data into real-time insights in under half a second.

A new, informed economic horizon

With the Business Risk Index now live and reported on the CreditorWatch website monthly, the depth of insight you can access is immense. See the top five regions where the probability of default on payments due is highest Sep 2021 to Sep 2022, find out which regions are the best and worst performing, and review all the BRI results and analysis for September 2021.