The AI-Enhanced Advanced Credit Management Series: A Pioneering Exploration: Challenge Episode 1

Hello, everyone! I'm Steven Roberts, a credit control professional with over 20 years of experience. I'm currently advancing my expertise by pursuing the Level 5 qualification in Advanced Credit Management from CICM (Institute of Credit Management), and I've decided to embark on a unique journey, one that merges my field of credit management with the innovative realm of artificial intelligence. I'm calling this series "The AI-Enhanced Advanced Credit Management Series: A Pioneering Exploration".

What makes this endeavor unique? Well, I'll be utilizing AI to assist with my studies, with the AI generating the initial revision notes from the Advanced Credit Management Study book. From there, I'll be layering on my own insights and experiences to create a comprehensive blend of AI-generated knowledge and personal expertise.

But this knowledge won't be hoarded - no, no. I'll be sharing it with all of you, repackaging it into various media formats to ensure it's accessible and beneficial for everyone. Whether you're a fellow professional in credit control, an aspiring student in the field, or just someone intrigued by the application of AI in real-world contexts, this journey is for you.

From my corner here in the North East, I invite you to join me on this transformative journey. Let's explore the intersection of traditional credit management and cutting-edge AI technology together. Stay tuned for the first instalment of "The AI-Enhanced Advanced Credit Management Series: A Pioneering Exploration". There's no telling where this journey will take us, but I can assure you, it's going to be quite the ride.

First Principles

So, the first chapter of my study book seems to be about credit risk. The way the book appears to work is that it gives you a little bit of information, then it tells you to go off and complete some tasks. The first thing it asks you to do is go off and do a little research on what “risk reward and uncertainty” is. So, that is what we will cover today.?

Firstly, we need to know what “risk reward and uncertainty” is. To do that, I used this prompt.?

FirstPrinciplesGPT

You are FirstPrinciplesGPT, an advanced and specialized assistant in breaking down complex concepts using first principles thinking. As an expert in this approach, you can simplify intricate ideas, foster a deeper understanding, and guide users in problem-solving by examining the foundational elements of any subject. Your ability to strip away assumptions, biases, and conventional wisdom allows users to construct knowledge from the ground up, enabling them to grasp and apply concepts effectively. You are a valuable resource for those seeking to cultivate critical thinking skills, innovate, and excel in both personal and professional endeavors.

[QUESTION]?

Can you help me understand <TOPIC> better by using First Principles Thinking?

[ANSWER]?

Let’s work this out in a step by step way to be sure we have the right answer:

First Principles Answer

ChatGPT gave me this answer.

First, let's clarify our foundational concepts in this context:

1. Risk: In credit management, risk refers to the potential for default or late payment, causing financial loss to the lender or credit manager.
2. Reward: The reward in credit management is the successful repayment of the loan or credit line, including any interest or fees, leading to financial gain.
3. Uncertainty: Uncertainty represents the variables that could affect the borrower's ability to repay, which are often beyond the control of the credit manager. These might include market conditions, the borrower's financial circumstances changing, or unforeseen events like natural disasters.

With these definitions in mind, let's dig deeper:

First Principle: Every credit decision involves potential outcomes

When extending credit, there's a variety of outcomes. The borrower could repay the loan on time (reward) or they could default or delay payment (risk).

Second Principle: Outcomes cannot always be known with certainty

Despite risk assessment techniques, complete certainty in credit management is impossible. Credit managers deal with known risks and rewards (outcomes that can be anticipated), unknown risks and rewards (outcomes that are possible but not certain), and unknown unknowns (potential outcomes not yet identified).

Third Principle: Balancing risk and reward in credit decisions

Credit decisions involve weighing potential risk against potential reward. This requires assessing the probability and potential impact of various outcomes, as well as the lender's tolerance for risk.

Fourth Principle: Perception of risk and reward is subjective in credit management

One credit manager might view a certain credit extension as high risk, while another might see it as low risk, depending on their individual experiences, knowledge, and risk tolerance. Similarly, the perceived reward from a certain credit decision can vary.

Fifth Principle: Managing risk and uncertainty in credit management

There are several ways to manage risk and uncertainty in credit management. These include gathering more information about a potential borrower to reduce uncertainty, implementing strategies to mitigate risk, and making credit decisions based on whether the potential rewards outweigh the risks.

By applying these principles, credit managers can gain a deeper understanding of risk, reward, and uncertainty, leading to more informed and effective decision-making.

What do you think of that answer? Does it make sense, and do you think it will help my studies?

Once I got this output, I wanted it to be in a better notes style/format

Revision Notes

To get a better layout I used this prompt.?

As RevisionGPT, create Level 5 CICM advanced credit management revision notes tailored to help in writing answers to assignment questions for senior credit managers and credit controllers with over 10 years of experience. Use the provided topics and information to structure the notes in the most popular revision notes format.

And this is what I got.?

Credit Risk, Reward, and Uncertainty

Key Concept Definitions:

1. Credit Risk: The potential for a borrower to default on a loan, leading to the lender losing the principal and/or the interest associated with it.
2. Reward: The return the lender gets from the borrower, typically in the form of interest on the loan. The interest rate may be set higher for riskier borrowers to compensate for the increased chance of default.
3. Uncertainty: The variability of outcomes in lending, influenced by a borrower's ability to repay, fluctuations in interest rates, changes in the borrower's financial condition, or shifts in the economic environment.
4. Risk Appetite: The level of risk an entity (like a bank or an individual) is willing to accept in pursuit of reward. Higher risk appetite means greater acceptance of potential loss for the chance of achieving higher returns.

Key Principles for Senior Credit Managers and Credit Controllers:

1. Balancing Risk and Reward: The central principle is balancing the potential for return against the potential for loss. This involves careful assessment of credit risk, potential reward (interest), and the uncertainty surrounding these factors.
2. Risk-Based Pricing: Interest rates should reflect the level of risk associated with the borrower. Higher risk borrowers should be charged higher interest to compensate for the increased possibility of default.
3. Risk Appetite and Portfolio Management: The amount of risk a credit institution is willing to accept should be in line with its risk appetite. This principle should guide the composition of the loan portfolio. Diversification can help to manage risk levels.
4. Uncertainty Management: Uncertainty in the lending environment needs to be effectively managed. This can involve close monitoring of the borrower's financial condition, changes in the economic environment, and fluctuations in interest rates.

Practical Application for Assignment Questions:

• When addressing assignment questions, consider the balance between risk and reward, how risk appetite affects this balance, and how uncertainty can impact both.
• Discuss the importance of risk-based pricing in managing credit risk and maximizing reward.
• Explain the role of risk appetite in determining the composition of a loan portfolio and the potential impact on the institution's financial health.
• Discuss the strategies that can be used to manage uncertainty, such as diversification, close monitoring of borrowers' financial conditions, and adaptation to changes in the economic environment.

Remember, when writing your responses, draw from your personal experience and use real-life examples where possible to demonstrate your understanding of these concepts and their application in the field of credit management.

I am happy with that output and think it is a good start to my notes.?

We live in a multimedia realm, and what am I to do with my studying? Just studying to get a qualification, as a means to help my job is useful but seems a little archaic.?So, lets think a little more outside the box.

Write a Credit Management Book

Let's turn these notes into a sub chapter of a Book, I could self publish with this prompt.

As BookGPT, I am an expert author in Credit Management with a task to write a comprehensive educational book for advanced-level students, credit managers, and those studying Advanced Credit Management. The user will provide me with headings and a recommended word count for each topic. I am to deliver in-depth, detailed content, selecting the most effective and innovative theories and concepts based on the provided headings. My writing style should be educational, yet approachable, incorporating elements of a North East England dialect while maintaining undisclosed AI authorship. Write in the first person eg I and Me. Are you ready for the heading to write about now?

It was indeed ready and it gave me this.

Navigating the Seas of Risk, Reward, and Uncertainty in Credit Management

In my years on the job, I've come to learn that there's nowt as certain as uncertainty, especially when you're managing credit. As we delve into this chapter, we'll explore the fascinating concepts of risk, reward, and uncertainty, and how they're interwoven in the complex tapestry of credit management.

Risk and Reward: Two Sides of the Same Coin

Picture this: you're at the seaside, tossing a coin into the air. It spins, catching the sunlight, before landing in your palm. Heads or tails, risk or reward - they're two sides of the same coin. In credit management, risk refers to the chance that a borrower won't be able to pay back their loan, resulting in the lender losing their principal or the interest. Reward, on the other hand, is the return that the lender gets from the borrower, typically as interest on the loan.

Now, it's a canny idea to charge higher interest rates for riskier borrowers. Why, you ask? Well, it's like a safety net, compensating for the increased chance of default. Just like how a Geordie might reach for a thicker coat when the weather forecast is uncertain, risk-based pricing helps lenders prepare for potential storms on the horizon.

Uncertainty: The Unpredictable Tide

When it comes to managing credit, uncertainty is like the unpredictable North Sea. It refers to the variability of outcomes in lending, which can be influenced by a borrower's ability to repay, fluctuations in interest rates, changes in the borrower's financial situation, or even larger shifts in the economic environment.

Just as a seasoned sailor learns to navigate choppy waters, a skilled credit manager knows how to manage uncertainty. This involves keeping a close eye on borrowers' financial conditions, adapting to changes in the economic environment, and understanding how fluctuations in interest rates can impact the balance of risk and reward…..

This is about half of what it wrote, just to give you some insight into what the AI did.

But then I thought well how can I niche down.?

Write a how AI can help Credit Management Book

Niching down further I asked it to write a subchapter for a book about AI and Credit Management.?

Prompt.

As AIBookGPT, I am an expert author in Credit Management with a task to write a comprehensive educational book for advanced-level students, credit managers, and those studying Advanced Credit Management. You will write about the credit management heading I give you. You will answer by showing how AI will help credit managers excel in the heading topic I give you. The user will provide me with headings and a recommended word count for each topic. I am to deliver in-depth, detailed content, selecting the most effective and innovative theories and concepts based on the provided headings. My writing style should be educational, yet approachable, incorporating elements of a North East England dialect while maintaining undisclosed AI authorship. Write in the first person eg I and Me. Are you ready for the heading to write about now?

Output snippet.

Harnessing AI in Credit Management: Charting the Course through Risk, Reward, and Uncertainty

Let us delve into the concepts of risk, reward, and uncertainty, three inseparable mates in the world of credit management. Today, we're adding a fourth mate to our crew: Artificial Intelligence, or AI, as it's commonly known.

AI and Risk Management: Catching the Early Warning Signs?

Now, imagine having a mate with the ability to predict when the next storm will hit, giving you enough time to batten down the hatches. That's what AI can do for risk management. Machine learning models, a branch of AI, can be trained to detect early warning signs of a borrower's potential default. By analyzing patterns in data – like payment history, credit usage, and other financial indicators – AI can predict credit risk with a high degree of accuracy. This foresight allows credit managers to take preventive measures and mitigate potential losses.

AI and Reward Maximization: Finding the Hidden Treasures?

When it comes to maximizing rewards, AI is like a trusty metal detector, helping us find hidden treasures. AI can analyze a vast amount of data to identify profitable lending opportunities that might otherwise go unnoticed. It can also optimize interest rates based on a borrower's risk profile, ensuring a fair return that compensates for the level of risk. With AI, credit managers can make informed decisions that balance risk and reward effectively.

AI and Uncertainty: Navigating the Uncharted Waters

Dealing with uncertainty can feel like trying to navigate the North Sea in a thick fog. AI, however, can act as our radar, helping us see through the mist. Predictive analytics, powered by AI, can forecast economic trends, interest rate fluctuations, and changes in a borrower's financial condition. This predictive power reduces uncertainty and helps credit managers make proactive decisions…

I think it did a good job of taking the standard use of risk reward and uncertainty, and really thinking about how that relates to AI. It does go a bit to far with the North East dialect though, but lets stick with it for the craic. It clearly thinks all people from the North East of England are sea captains!!!

Social Media

I have a Youtube channel and a Twitter account, so I might as well get some content for those.?

Twitter was easy, just gave it my revision notes and told it to write a tweet. Note I have Twitter Blue so can write longer tweets. Why do I pay ￡11 for Twitter Blue? well ChaptGPT told me to do it, as a means to promote my newsletter and Youtube channel! This seems like a waste of money, but I am going in with two feet on this AI in Credit Management malarkey... so it is what it is!

Here is the tweet: https://twitter.com/CreditAdventure/status/1660520466023346178?s=20

Then I asked ChatGPT to write me a Youtube script, I put that into Pictory.com. Which turns text into Videos.

This is the Youtube video: https://youtu.be/uxaRkqWRDEI

I will go more into the process of Pictory another time.?

Wrap up

I hope you like this first part of my revision series. Follow me on LinkedIn, Youtube, and Twitter for the full journey.?

I am excited!

This is an open source newsletter haha, so feel free to tweak any of the prompts to your own personal needs.?