Implementing analytics? You need decision modeling and business rules
Dec. 14, 2010•0 likes
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Delivering the promise of data mining and predictive analytics requires an operational platform that is agile, business-friendly and decision-centric - decision modeling with DMN and business rules.
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AGENDA
The power of
analytics
Challenges in
analytics
Introducing
business rules
Integrating
business rules
and analytics
Decision
Management
Wrap Up
Thank you!
James Taylor, CEO
james@decisionmanagementsolutions.com
www.decisionmangementsolutions.com
Editor's Notes
Putting business analytics to work is top of mind for organizations like yours. Business agility and operational responsiveness are more important than ever. There is a real opportunity to use analytics – especially predictive analytics – to seek out increasingly small margins and understand your customers, products, channels, partners and more. But predictive analytics is only part of the solution – you must put these analytic insights to work making better decisions every day. Business rules offer the agile, business-centric platform you need to manage decisions and effectively deploy predictive analytics. Putting them together requires a new conceptual framework – Decision Management.
Applying analytics to acquire, retain and grow 100M customersBusiness challenge:100M customers and 3Bn calls / day200TB of customer information1.3M Retail partnersRural and urban consumers, large and small companiesSolution:Integrated data warehouse across all channels, all productsReal-time analytics for micro-segmentation, offer targetingWeb, retail, call-center and mobile channelsBenefits:Rapid growth with 2-3M new customers/monthGrowing and accelerating Revenue Market Share
Models make predictions but predictions alone will not help much – you must ACT based on those predictions.When you are thinking about smarter systems, taking action means having the system take action in a way that uses the predictions you made. You need to make a decision based on those predictions and this means combining the models with rules about how and when to act.Let’s take our retention example from earlier. Knowing that a customer is a retention risk is interesting, acting appropriately and in time to prevent them leaving is usefulGrovel index story
Remember – decisions are where the business, analytics and IT all come together
Once deployed analytics cannot be a “black box”, we must understand analytic performanceObviously you need a 'hold out sample' or business as usual random group to compare to.You need to understand what's working and what's the next challenge – which segments are being retained, for instanceYou must understand operational negation.You need to track input variables, scores, decisions or actions taken (classic example is in collections where a strategy may dictate a 'do nothing' strategy, but the collections manager overrides the decision and puts the accounts into a calling queue) and operational data that fed the decisionBoth analysts and business users must think about what they can do to improve decision making, which is the foundation of adaptive controlIn our retention example I need to have some customers I don’t attempt to retain or that I don’t spend any money retaining. I have to capture what the call center representative ACTUALLY offered and what was actually accepted (if anything), not just what SHOULD have been offered and I have to be able to show the results to my business users in terms they understand.
Actions not predictions - Business rules add actions to analytic insightTime to impact - Externalized decisions, rapid deploymentBusiness results - Decisions impact KPIs, implement strategyEngage IT, Business - Rules for the business, Decision services for ITMonitoring , compliance - Rules and explicit models expose decision making
Sometimes the ROI is discussed in terms of keeping a company in business, eliminating those company killing risks.This company offered trade credit insurance and a decision service provides trade credit calculations, combining business rules and algorithms developed by using predictive analytic techniques. Business experts interact directly with trade credit rules by using rule templates to ensure that rules match the underlying object model, without business users having to understand the object model’s technicalities.They got some classic BRE ROI:A country can be added in a few weeks rather than months, so the organization went from 2 to 16 covered countries in just 3 months.Ongoing changes can be made in hours rather than weeks.Most importantly though the system allows immediate changes to rules in a crisis, preventing the possibility of liability or other legal exposure for the organization.
So making decisions correctly will be hard unless we can pull all these rules together.Given this is how rules often look to start with, this is clearly going to be hard.But rules also change…Because your business policies doBecause your competitors doBecause the law doesBecause stock levels doBecause your services and products doBecause your customers doBecause your customers’ needs doSo we need something that will let us collect, manage and update the business rules that drive our decisions
The most basic representation is a list of rules or a rule set. These are simple atomic rules grouped into a logical set for execution and storage. Rule sets are often shared between decisions.
A big part of the benefit companies get from managing rules comes from putting the business in charge more directly. Having business users manage business rules reduces costs by eliminating a step – that of having the business tell IT what they want so that IT can do code it – and improves accuracy by eliminating the impedance of this step. It also increases business agility by making it easier for a company to respond to changes – after all the business folks notice the changes firstIn my experience, the use of business rules and a BRMS to manage high-volume, operational decisions have a proven track record in reducing application development costs and application maintenance. It takes fewer developers and less time to specify how a system or service should behave using a BRMS thanks to the increased expressive power of business rules and the improved verification and testing offered by BRMS. Maintenance of these rules is easier, often dramatically easier, than the maintenance of the equivalent code. Not only are can the business rules be changed independently and safely; business users can participate directly in the maintenance process for the first time. Domain expertise is applied more directly and less time and money are spent making changes.
Faster, easier, independent changes to decision logic Coordination of decisions across channels and products Higher employee productivity and resource utilization a leading French retailer of cosmetics, faced the challenge of multiple channels and overlapping marketing and loyalty offers. A customer might be eligible for a loyalty offer, have downloaded a web coupon and heard a “discount word” on the radio. This made it hard for retail staff to ensure the price was handled correctly at the point of sale. In addition, they needed a better way to get loyalty offers to the customer. Yves Rocher replaced their POS devices with Linux-based terminals and developed a rules-based system that allowed all the pricing rules to be defined by the marketing department and then downloaded into the terminals. All relevant offers are correctly combined at the point of sale. This system also takes the customer’s loyalty card and applies loyalty offers. Using purchases and loyalty history, it prints an incentive offer designed to bring the customer back to the store on the card itself—the cards are re-printable so the customer sees the offer that will be made when they return.
the classic sources of rules – policies, regulations, best practices, expertise. Many, most, of your rules will come from these sources. But your data is also rich source of rulesYou can analyze the data you have to find exactly which thresholds you should use in your rules – is it really customers above 21 years old or would 20 or 19 be a more meaningful cut off?You can use data mining techniques to actually find the rules – association rules such as if someone is buying this product try and sell them that product or segmentation rules – using your historical data to find out what were the most successful rules in the pastYou can use this historical data to create new insights into customers – predicting things about them that extend the data you can work with and against which you can write rules.
Descriptive analytics can be used to categorize customers into different categories – to find the relationships between customers - which can be useful in setting strategies and targeting treatment. But this analysis must be delivered not just to your analysts, also to your systems. Analysis is generally done offline, but the results can be used in automated decisions – such as offering a given product to a specific customer – often by developing rules that embody the analytics.For instance a decision tree can be created where each branch, each end node, identifies the segment for a particular member.Data mining can also create rules with less effort and with a quicker time to market in certain circumstances
Predictive analytics often rank-order individuals. For example, rank-order members by their likelihood of renewing – the higher the score, the more “completers” for every “non-completer”. The risk or opportunity is assessed in the context of a single customer or transaction and these models are not an overall pattern, even if they are predictive. Models are called by a business rules engine to “score” an individual or transaction, often in real time, though the analysis is done offline.These models are often represented by a scorecard where each characteristic of a member adds to the score and where the total score can then be returned.
All these pieces contribute to ever-more sophisticated decision services that support your business processes.Decision Services externalize and manage the decisions production processes and systems needBusiness rules allow business users to collaborate in the declarative definition of decisionsAnalytics can create better more data-driven business rulesAnd ultimately additional predictive analyticsAdaptive control allows test and learn to become part of a continuous improvement loop
Here’s another example, this time of an insurance company with about 750,000 policies that implemented a risk-based underwriting decision service for use across its systems. In the first year an eight-point reduction in combined ratio – a big deal for an insurance companyThey got this improvement from all the areas I see when clients apply decision managementThey reduced costs by eliminating many manual reviews and by putting underwriters and actuaries in charge of the rules behind the decision – they eliminated or reduced many of their IT costs.They boosted revenue, the second major area, by improving risk management (far more tiers and more fine grained decisioning) and by focusing their staff on the book of business and helping agents improve it rather than on transactional approvalsThe third area does not show up in the specifics but when I talked to them it was clearly the most powerful aspect of the whole thing. They gained true strategic control over their underwriting decisions.
Actions not predictions - Business rules add actions to analytic insightTime to impact - Externalized decisions, rapid deploymentBusiness results - Decisions impact KPIs, implement strategyEngage IT, Business - Rules for the business, Decision services for ITMonitoring , compliance - Rules and explicit models expose decision making
Little decisions add up so focus on operational or front-line decision makingThe purpose of information is to decide so put your data and analytics to workYou cannot afford to lock up your logic so externalize it as business rulesNo answer, no matter how good, is static so experiment, challenge, simulate, learnDecision Making is a process to be managed
Begin!Identify your decisionsHidden decisions, transactional decisions, customer decisionsDecisions buried in complex processesDecisions that are the difference between two processesConsiderWho takes them nowWhat drives changes in themAssess Change ReadinessConsider Organizational changeAdopt decisioning technologyAdopt business rules approach and technologyInvestigate data mining and predictive analyticsThink about adaptive control
Decision Management Solutions can help youFind the right decisions to apply business rules, analyticsImplement a decision management blueprintDefine a strategy for business rule or analytic adoptionYou are welcome to email me directly, james at decision management solutions.com or you can go to decision management solutions.com / learn more. There you’ll find links to contact me, check out the blog and find more resources for learning about Decision Management.