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LEADING ORGANIZATIONS THROUGH
THE NEW RISKS OF ANALYTICS
Dan Magestro
VP-Research Director, IIA
2
Tom Davenport
CO-FOUNDER
Author of
Competingon
Analytics,
Keeping up withthe
Quants
Jack Phillips
CEO
Editor of
Enterprise
Analytics
Dan Magestro
RESEARCH DIRECTOR
Led analyticsteams
in insurance,
banking, &
healthcare
INTERNATIONALINSTITUTE FOR ANALYTICS
ABOUTUS
• IIAhelpsbuild and sustain 200+
enterpriseanalyticsprogramsby
creatinga competitive advantage
• IIA’sflexibleapproachtosupporting
organizationsensurestime-and cost-
efficient insights and solutions
MATURITY
ASSESSMENT
CONSULTING
SERVICES
PEER--EXPERT
NETWORK
Confidential – Copyright ©2016 IIA All RightsReserved
A MARKETING EXAMPLE
MEASURINGAD EFFECTIVENESS
• Two print ads were placed in 1 of 2 national
magazines with similar circulation
• Each ad ran for three consecutive months,
exclusively in the same magazine
• Detailed point-of-sale data
from all merchants is
provided to manufacturer
• Ad effectiveness might be
measured through
regression analysis of
magazine ad spend and
sales
A B
Confidential – Copyright ©2016 IIA All RightsReserved 3
“Campaign A drove$63.50of
incremental monthlysales,andB
drove$58.20,per $1,000spent.”
“Campaign A seemsto perform
directionallybetter thanB, but it
dependsonassumptions.”
A MARKETING EXAMPLE
WHICH STATEMENTIS MORE ACTIONABLE? ACCURATE?
Confidential – Copyright ©2016 IIA All RightsReserved 4
5
ANALYTICS AND RISK
SHIFTING THE FOCUS
Confidential – Copyright ©2016 IIA All RightsReserved
Measure, quantify, and predict risk
using analytical methods
Analyticsin
Risk Management
6
Risk Management
in Analytics
vs.
Commontheme Improve decision making
Measure, quantify, and predict risk
using analytical methods
Assess and mitigate risks in
analytically driven decisions
Analyticsin
Risk Management
ANALYTICS AND RISK
SHIFTING THE FOCUS
Confidential – Copyright ©2016 IIA All RightsReserved
7
IMPROVINGDECISIONSWITH DATA AND ANALYTICS
IMPLIED ASSUMPTIONS
More data sources
bring more,better
informationto a
business decision
More information
leads to more
knowledge about
factors affecting
the decision
More knowledge
means reduced
uncertainty (i.e.
reduced risk) in
decision
More advanced
algorithms,faster
platforms,and
smarter analysts
improve insights
Improvedinsights
means deeper
understanding of
factors affecting
the decision
Deeper
understanding
reduces uncertainty
and risk in decision
Confidential – Copyright ©2016 IIA All RightsReserved
8
HOWEVER, NEW RISKS ARISE
KEY SOURCESOF RISK IN ANALYTICS
Confidential – Copyright ©2016 IIA All RightsReserved
• Scarcityof skilledtalent
• Analyticsembeddedin analysistools
• Lackof accountabilityfor results
• Missing businesscontextor knowledge
• Lackof sufficient rigor or scrutiny
Errors and biases in
analysis resultsand
recommendations
9
HOWEVER, NEW RISKS ARISE
KEY SOURCESOF RISK IN ANALYTICS
• Scarcityof skilledtalent
• Analyticsembeddedin analysistools
• Lackof accountabilityfor results
• Missing businesscontextor knowledge
• Lackof sufficient rigor or scrutiny
Analytics shiftssome risk from the gut to the analysis.
So what does this meanfor analytics leaders?
Confidential – Copyright ©2016 IIA All RightsReserved
Errors and biases in
analysis resultsand
recommendations
10
THE CAO AS RISK MANAGER
SHIFTING RESPONSIBILITIESFOR RISK
Driver
Decentralized
analytics teams Chief Analytics Officer
Enterprise risk
management
function (ERM)
Analytics often lacking
representation at risk
leadership level
Represents analytics activities
and needs on risk committee
Ownership of
analytics risk
Risk ownership spread across
teams and individuals; weak
or accountability or junior
Consolidated under CAO;
Potential accountability for
results and reco’s
Model
governance
Either nonexistent or ad hoc,
depending on ERM
Well-positioned to establish
model governance
Data
governance
Often driven by IT or data
leader; difficultto capture
requirements
Brings enterprise perspective
on business needs for data
Confidential – Copyright ©2016 IIA All RightsReserved
11
TYPES OF ERRORS IN ANALYTICS
• Incorrect assumptions, failing to
test
• Lack of alternative scenarios
• Interpreting data incorrectly
• Not asking the right questions
Logic Errors
• Careless mistakes in analysis
• Selectively considering alternatives
• Incorrect or insufficient decision-
making criteria
• Postponing decisions in quest for
perfect analytics
ProcessErrors
BusinessErrors
• Misaligned incentives: Using analytics to justify action, or rigging the result
• Belief that analytics always makes decisions better
Confidential – Copyright ©2016 IIA All RightsReserved
SCARCITY OF ANALYTICAL TALENT
12
McKinsey & Co., Big data: Thenext frontier for innovation, competition, and productivity. June, 2011
Confidential – Copyright ©2016 IIA All RightsReserved
13
HOW CAN ANALYTICS LEADERS
MITIGATE THE RISKS IN ANALYTICS?
Confidential – Copyright ©2016 IIA All RightsReserved
14
Statistical
Analysis
Visualization/
Storytelling
Data
Savvy
Programming
Business
Acumen
Critical
Thinking
Creativity Art
Confidential – Copyright ©2016 IIA All RightsReserved
THE ANALYTICS SKILL SET
1. RECRUIT, RETAIN,AND POSITION THE RIGHT PEOPLE
EVOLVING ROLESOF ANALYTICAL TALENT
2016: Analytics professional
(front office)
2006: Statistician/Modeler/Quant
(back office)
Statistical
Analysis
Visualization/
Storytelling
Data
Savvy
Programming
Business
Acumen
Critical
Thinking
Confidential – Copyright ©2016 IIA All RightsReserved 15
16
1. RECRUIT/RETAINTHE RIGHT PEOPLE
BROAD SKILLS WILL MITIGATE RISK
• Incorrect assumptions, failing
to test
• Lack of alternative scenarios
• Interpreting data incorrectly
• Not asking the right questions
Logic Errors
• Careless mistakes in analysis
• Selectively considering alternatives
• Incorrect or insufficient decision-
making criteria
• Postponing decisions in quest for
perfect analytics
ProcessErrors
BusinessErrors
• Misaligned incentives: Using analytics to justify action, or rigging the result
• Belief that analytics always makes decisions better
Statistical
Analysis
Viz/Story-
telling
Data
Savvy
Program-
ming
Business
Acumen
Critical
Thinking
Art/
Creativity
2. DRIVE ANALYTICAL SKILLS OF BUSINESSLEADERS
2010:Businessleader 2020:Businessleader
Confidential – Copyright ©2016 IIA All RightsReserved
Statistical
Analysis
Visualization/
Storytelling
Data
Savvy
Business
Acumen
Critical
Thinking
18
3. CAO: INSTILLCOMFORT WITH UNCERTAINTY ACROSS
THE ORGANIZATION
Confidential – Copyright ©2016 IIA All RightsReserved
“Campaign A drove$63.50of
incremental monthlysales,andB
drove$58.20,per $1,000spent.”
“Campaign A seemsto perform
directionallybetter thanB, but it
dependsonassumptions.”
19
OTHER WAYS TO MITIGATE RISKS
ACTIONS FOR A CAO
• Facilitate and prioritize collaborationamong analytics &
data science teams
• Establish/influencedata and model governance programs
• Engage Chief Risk Officer (or enterprise risk leaders)
• Emphasize critical thinking, problem solving, and skepticism
• Seek broad participation in progress- and readout sessions
for analytics projects
• Align incentives and establishaccountability amongbusiness
and analytics teams
Confidential – Copyright ©2016 IIA All RightsReserved
20Confidential – Copyright ©2016 IIA All RightsReserved
For more information:
www.IIAnalytics.com
@IIAnalytics
info@iianalytics.com
@magestro
/magestro
WHAT’S NEEDEDTO MEASURE AD EFFECTIVENESS
Correlated response Sufficient activity Sufficient time
Effective activity Good dataEnough isolation
The activityneeds to drive sales
in a time-correlated way (i.e. not
just drive awareness)
Sales
Marketing
activity
Marketing
activity
The activityneeds to have
sufficient spend to find the
“signal” among sales drivers
Prolonged activity allowsbetter
mapping of s-curve and increased
detection
The campaignmust be effective
at driving sales in the first place
Activities with similar execution
might be difficult to separate
Appropriate and complete data
is criticalfor measurement
Broadcast Week DMA Net Spend TRPs
1/4/2010 214 121,371 7.0
1/11/2010 214 122,799 7.0
1/18/2010 214 111,264 7.0
1/25/2010 214 111,908 3.0
2/1/2010 214 53,924 2.0
2/8/2010 214 40,951 3.0
2/15/2010 214 48,793 3.0
2/22/2010 214 48,077 3.0
3/1/2010 214 50,598 2.0
3/8/2010 214 44,138 2.0
3/15/2010 214 39,914 2.0
Confidential – Copyright ©2016 IIA All RightsReserved 21
Confidential – Copyright ©2016 IIA All RightsReserved 22
NEXTSTEPS
LEARN MORE ABOUT HOW IIA CAN HELP
v
ANALYTICS MATURITY
ASSESSMENT
Independent measurement
for analytics maturity
v
CONSULTING
SERVICES
Custom solutions for
analytics crossroads
Engagements
RESEARCH &
ADVISORY NETWORK
Written Research
Peer Community
Subscription-based service for
insights and expertise
ü Peer-to-Peer Exchanges
ü Community Events
ü Phone Discussions
ü DELTA scores across33
competencies
ü Identification of gapsand
opportunities
Progress Monitoring
ü Multiple reports anddata
updates to trackprogress
ü Latest trends & insights
ü Extensive libraryof
foundationalresearch
ü Actionable Frameworks
Capability Evaluation
ü In depth team interviews,
analysis andrecommendations
by IIA experts
Consultative engagements to navigate
analytics roadblocksleveraging IIA’s
unparalleled communityof analytics
experts and provenmethodologies.
ü Solutions
• OpportunityPortfolio Creation
• ROI Prioritization
• ChangeManagement
• Practitioner Workshops
ü Areas
• Maturity, Organization,
Governance,Technology
Selection, Architecture,
Culture, Training
Baseline Report
Retained Expertise
ü Inquiry Service
ü Industry thought leaders
ü Personalized Advice

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International Institute for Analytics at The Chief Analytics Officer Forum, Europe

  • 1. LEADING ORGANIZATIONS THROUGH THE NEW RISKS OF ANALYTICS Dan Magestro VP-Research Director, IIA
  • 2. 2 Tom Davenport CO-FOUNDER Author of Competingon Analytics, Keeping up withthe Quants Jack Phillips CEO Editor of Enterprise Analytics Dan Magestro RESEARCH DIRECTOR Led analyticsteams in insurance, banking, & healthcare INTERNATIONALINSTITUTE FOR ANALYTICS ABOUTUS • IIAhelpsbuild and sustain 200+ enterpriseanalyticsprogramsby creatinga competitive advantage • IIA’sflexibleapproachtosupporting organizationsensurestime-and cost- efficient insights and solutions MATURITY ASSESSMENT CONSULTING SERVICES PEER--EXPERT NETWORK Confidential – Copyright ©2016 IIA All RightsReserved
  • 3. A MARKETING EXAMPLE MEASURINGAD EFFECTIVENESS • Two print ads were placed in 1 of 2 national magazines with similar circulation • Each ad ran for three consecutive months, exclusively in the same magazine • Detailed point-of-sale data from all merchants is provided to manufacturer • Ad effectiveness might be measured through regression analysis of magazine ad spend and sales A B Confidential – Copyright ©2016 IIA All RightsReserved 3
  • 4. “Campaign A drove$63.50of incremental monthlysales,andB drove$58.20,per $1,000spent.” “Campaign A seemsto perform directionallybetter thanB, but it dependsonassumptions.” A MARKETING EXAMPLE WHICH STATEMENTIS MORE ACTIONABLE? ACCURATE? Confidential – Copyright ©2016 IIA All RightsReserved 4
  • 5. 5 ANALYTICS AND RISK SHIFTING THE FOCUS Confidential – Copyright ©2016 IIA All RightsReserved Measure, quantify, and predict risk using analytical methods Analyticsin Risk Management
  • 6. 6 Risk Management in Analytics vs. Commontheme Improve decision making Measure, quantify, and predict risk using analytical methods Assess and mitigate risks in analytically driven decisions Analyticsin Risk Management ANALYTICS AND RISK SHIFTING THE FOCUS Confidential – Copyright ©2016 IIA All RightsReserved
  • 7. 7 IMPROVINGDECISIONSWITH DATA AND ANALYTICS IMPLIED ASSUMPTIONS More data sources bring more,better informationto a business decision More information leads to more knowledge about factors affecting the decision More knowledge means reduced uncertainty (i.e. reduced risk) in decision More advanced algorithms,faster platforms,and smarter analysts improve insights Improvedinsights means deeper understanding of factors affecting the decision Deeper understanding reduces uncertainty and risk in decision Confidential – Copyright ©2016 IIA All RightsReserved
  • 8. 8 HOWEVER, NEW RISKS ARISE KEY SOURCESOF RISK IN ANALYTICS Confidential – Copyright ©2016 IIA All RightsReserved • Scarcityof skilledtalent • Analyticsembeddedin analysistools • Lackof accountabilityfor results • Missing businesscontextor knowledge • Lackof sufficient rigor or scrutiny Errors and biases in analysis resultsand recommendations
  • 9. 9 HOWEVER, NEW RISKS ARISE KEY SOURCESOF RISK IN ANALYTICS • Scarcityof skilledtalent • Analyticsembeddedin analysistools • Lackof accountabilityfor results • Missing businesscontextor knowledge • Lackof sufficient rigor or scrutiny Analytics shiftssome risk from the gut to the analysis. So what does this meanfor analytics leaders? Confidential – Copyright ©2016 IIA All RightsReserved Errors and biases in analysis resultsand recommendations
  • 10. 10 THE CAO AS RISK MANAGER SHIFTING RESPONSIBILITIESFOR RISK Driver Decentralized analytics teams Chief Analytics Officer Enterprise risk management function (ERM) Analytics often lacking representation at risk leadership level Represents analytics activities and needs on risk committee Ownership of analytics risk Risk ownership spread across teams and individuals; weak or accountability or junior Consolidated under CAO; Potential accountability for results and reco’s Model governance Either nonexistent or ad hoc, depending on ERM Well-positioned to establish model governance Data governance Often driven by IT or data leader; difficultto capture requirements Brings enterprise perspective on business needs for data Confidential – Copyright ©2016 IIA All RightsReserved
  • 11. 11 TYPES OF ERRORS IN ANALYTICS • Incorrect assumptions, failing to test • Lack of alternative scenarios • Interpreting data incorrectly • Not asking the right questions Logic Errors • Careless mistakes in analysis • Selectively considering alternatives • Incorrect or insufficient decision- making criteria • Postponing decisions in quest for perfect analytics ProcessErrors BusinessErrors • Misaligned incentives: Using analytics to justify action, or rigging the result • Belief that analytics always makes decisions better Confidential – Copyright ©2016 IIA All RightsReserved
  • 12. SCARCITY OF ANALYTICAL TALENT 12 McKinsey & Co., Big data: Thenext frontier for innovation, competition, and productivity. June, 2011 Confidential – Copyright ©2016 IIA All RightsReserved
  • 13. 13 HOW CAN ANALYTICS LEADERS MITIGATE THE RISKS IN ANALYTICS? Confidential – Copyright ©2016 IIA All RightsReserved
  • 15. 1. RECRUIT, RETAIN,AND POSITION THE RIGHT PEOPLE EVOLVING ROLESOF ANALYTICAL TALENT 2016: Analytics professional (front office) 2006: Statistician/Modeler/Quant (back office) Statistical Analysis Visualization/ Storytelling Data Savvy Programming Business Acumen Critical Thinking Confidential – Copyright ©2016 IIA All RightsReserved 15
  • 16. 16 1. RECRUIT/RETAINTHE RIGHT PEOPLE BROAD SKILLS WILL MITIGATE RISK • Incorrect assumptions, failing to test • Lack of alternative scenarios • Interpreting data incorrectly • Not asking the right questions Logic Errors • Careless mistakes in analysis • Selectively considering alternatives • Incorrect or insufficient decision- making criteria • Postponing decisions in quest for perfect analytics ProcessErrors BusinessErrors • Misaligned incentives: Using analytics to justify action, or rigging the result • Belief that analytics always makes decisions better Statistical Analysis Viz/Story- telling Data Savvy Program- ming Business Acumen Critical Thinking Art/ Creativity
  • 17. 2. DRIVE ANALYTICAL SKILLS OF BUSINESSLEADERS 2010:Businessleader 2020:Businessleader Confidential – Copyright ©2016 IIA All RightsReserved Statistical Analysis Visualization/ Storytelling Data Savvy Business Acumen Critical Thinking
  • 18. 18 3. CAO: INSTILLCOMFORT WITH UNCERTAINTY ACROSS THE ORGANIZATION Confidential – Copyright ©2016 IIA All RightsReserved “Campaign A drove$63.50of incremental monthlysales,andB drove$58.20,per $1,000spent.” “Campaign A seemsto perform directionallybetter thanB, but it dependsonassumptions.”
  • 19. 19 OTHER WAYS TO MITIGATE RISKS ACTIONS FOR A CAO • Facilitate and prioritize collaborationamong analytics & data science teams • Establish/influencedata and model governance programs • Engage Chief Risk Officer (or enterprise risk leaders) • Emphasize critical thinking, problem solving, and skepticism • Seek broad participation in progress- and readout sessions for analytics projects • Align incentives and establishaccountability amongbusiness and analytics teams Confidential – Copyright ©2016 IIA All RightsReserved
  • 20. 20Confidential – Copyright ©2016 IIA All RightsReserved For more information: www.IIAnalytics.com @IIAnalytics info@iianalytics.com @magestro /magestro
  • 21. WHAT’S NEEDEDTO MEASURE AD EFFECTIVENESS Correlated response Sufficient activity Sufficient time Effective activity Good dataEnough isolation The activityneeds to drive sales in a time-correlated way (i.e. not just drive awareness) Sales Marketing activity Marketing activity The activityneeds to have sufficient spend to find the “signal” among sales drivers Prolonged activity allowsbetter mapping of s-curve and increased detection The campaignmust be effective at driving sales in the first place Activities with similar execution might be difficult to separate Appropriate and complete data is criticalfor measurement Broadcast Week DMA Net Spend TRPs 1/4/2010 214 121,371 7.0 1/11/2010 214 122,799 7.0 1/18/2010 214 111,264 7.0 1/25/2010 214 111,908 3.0 2/1/2010 214 53,924 2.0 2/8/2010 214 40,951 3.0 2/15/2010 214 48,793 3.0 2/22/2010 214 48,077 3.0 3/1/2010 214 50,598 2.0 3/8/2010 214 44,138 2.0 3/15/2010 214 39,914 2.0 Confidential – Copyright ©2016 IIA All RightsReserved 21
  • 22. Confidential – Copyright ©2016 IIA All RightsReserved 22 NEXTSTEPS LEARN MORE ABOUT HOW IIA CAN HELP v ANALYTICS MATURITY ASSESSMENT Independent measurement for analytics maturity v CONSULTING SERVICES Custom solutions for analytics crossroads Engagements RESEARCH & ADVISORY NETWORK Written Research Peer Community Subscription-based service for insights and expertise ü Peer-to-Peer Exchanges ü Community Events ü Phone Discussions ü DELTA scores across33 competencies ü Identification of gapsand opportunities Progress Monitoring ü Multiple reports anddata updates to trackprogress ü Latest trends & insights ü Extensive libraryof foundationalresearch ü Actionable Frameworks Capability Evaluation ü In depth team interviews, analysis andrecommendations by IIA experts Consultative engagements to navigate analytics roadblocksleveraging IIA’s unparalleled communityof analytics experts and provenmethodologies. ü Solutions • OpportunityPortfolio Creation • ROI Prioritization • ChangeManagement • Practitioner Workshops ü Areas • Maturity, Organization, Governance,Technology Selection, Architecture, Culture, Training Baseline Report Retained Expertise ü Inquiry Service ü Industry thought leaders ü Personalized Advice