After Knight Capital’s catastrophic glitch in its electronic trading platform last week, there is no shortage of pundits talking about what the company should have done to prevent it.
But no one is talking about the higher-level problem. That is the fact that financial services companies are investing billions of dollars into IT and these glitches (a word that doesn’t seem to reflect just how big a disaster this $440 million pre-tax loss was) are happening all the time.
According to Celent, global IT spending by financial services institutions is expected to reach about $394 billion by 2013, up from an estimated $364 billion in 2011. Despite all this, firms still don’t have adequate means to predict or anticipate this type of volatility.
This is where case-based reasoning (CBR) shows its strength. Based on the principle that similar problems have similar solutions, CBR analyzes data patterns in real time, using past events to proactively predict future problems and the system learns as it grows. Optimizing and working in conjunction with existing tools, CBR provides lessons learned, best practices and solutions from past experiences so firms are more likely to see signs of problems before they happen – and take steps to mitigate them.
By providing a realistic assessment of whether a similar scenario is likely to occur in the future, CBR empowers users with a new level of transparency to help make better, smarter, faster business decisions – and prevent these types of volatile events from occurring or at least spot them ahead of catastrophe.