CCM Data Analysis & Decision Making 2 — Questions and Answers
Question 1: A credit manager notices that a customer's Days Sales Outstanding (DSO) has increased from 35 to 62 days over six months. What is the most appropriate initial action?
- Immediately suspend the customer's credit line
- Investigate whether the increase reflects an industry-wide trend or is customer-specific (Correct answer)
- Reduce the customer's credit limit by 50%
- Refer the account to collections
Correct answer: Investigate whether the increase reflects an industry-wide trend or is customer-specific
Benchmarking the DSO change against industry peers determines whether the risk is systemic or isolated before taking action.
Question 2: Which statistical measure best describes the spread of credit scores across a customer portfolio?
- Mean
- Median
- Standard deviation (Correct answer)
- Mode
Correct answer: Standard deviation
Standard deviation quantifies how widely individual credit scores deviate from the portfolio average.
Question 3: A regression analysis of payment behavior shows an R² of 0.85. What does this indicate?
- 85% of payment behavior variance is explained by the model's independent variables (Correct answer)
- The model has an 85% accuracy rate in predicting defaults
- 85% of customers will pay on time
- The correlation between two variables is 0.85
Correct answer: 85% of payment behavior variance is explained by the model's independent variables
R² (coefficient of determination) measures the proportion of variance in the dependent variable explained by the independent variables.
Question 4: When building a credit scorecard, which technique is used to assign weights to predictor variables based on their predictive power?
- Chi-square testing
- Weight of Evidence (WoE) analysis (Correct answer)
- Moving average smoothing
- Cohort analysis
Correct answer: Weight of Evidence (WoE) analysis
Weight of Evidence quantifies the predictive power of each variable bin and is the foundation for scorecard development.
Question 5: A credit analyst is evaluating two suppliers. Supplier A has a Gini coefficient of 0.72 and Supplier B has 0.45. Which supplier's payment model discriminates better between good and bad payers?
- Supplier B, because a lower Gini means less risk
- Supplier A, because a higher Gini coefficient indicates better model discrimination (Correct answer)
- They are equivalent since both exceed 0.40
- Supplier B, because its model is more conservative
Correct answer: Supplier A, because a higher Gini coefficient indicates better model discrimination
A higher Gini coefficient (closer to 1) indicates superior discriminatory power in separating good from bad credit risks.
Question 6: Which data visualization type is most effective for identifying outliers in accounts receivable aging data?
- Pie chart
- Box plot (Correct answer)
- Stacked bar chart
- Line graph
Correct answer: Box plot
Box plots display the interquartile range and flag outliers as points beyond the whiskers, making them ideal for detecting anomalies.
Question 7: A company's bad debt expense as a percentage of credit sales has risen from 1.2% to 2.8% over two quarters. What type of analysis should the credit manager perform first?
- Profitability analysis of the credit department
- Vintage analysis to identify which credit approval cohorts are underperforming (Correct answer)
- Sensitivity analysis of interest rate changes
- Monte Carlo simulation of future defaults
Correct answer: Vintage analysis to identify which credit approval cohorts are underperforming
Vintage analysis groups accounts by origination period to pinpoint which cohorts of approvals are driving the increase in bad debt.
CCM Data Analysis & Decision Making 2
A credit manager notices that a customer's Days Sales Outstanding (DSO) has increased from 35 to 62 days over six months.
What is the most appropriate initial action?