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DRIVING BETTER BUSINESS DECISIONS SEPTEMBER/OCTOBER 2012
DRIVING BETTER BUSINESS DECISIONS
SEPTEMBER/OCTOBER 2012

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RETAIL SCIENCE

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DRIVING PROFITABILITY WITH ANALYTICS

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ALSO INSIDE:

1001010101010101010 000100101010010010 ALSO INSIDE: • Analytics predicts presidential election Executive Edge

Analytics predicts presidential election

Executive Edge

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Leveraging Big Data around customers

eBay VP Bob Page

on the future of

Certified Analytics Professional program

data and analytics

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INSIDE STORY

‘Mudders’ uncover treasure

In the July/August issue of Ana- lytics, John Toczek, author of the “Thinking Analytically” column in this publication and the “PuzzlOR” column for OR/MS Today, proposed a contest to, as he described it, “put your ana- lytical skills to the ultimate test.” The contest, “The 2012 Analytics Trea- sure Hunt,” consisted of five puzzles that focused on common problems encountered in the mathematics, sta- tistics and operations research fields. The answers to the puzzles, when properly solved and put together in the right order, revealed the coordi- nates for “hidden treasure.” To make things interesting, Toczek placed $100 of his own money in a small, metal tube at the secret location. Shortly after the issue went on- line, Toczek began hearing from hundreds of analysts/treasure-seek- ers from around the world interest- ed in looking for the hundred bucks (hey, they do it for the ciphering, not the money). On Aug. 18 at about 10 a.m. EST, the team of Seneca Harberger (nom de blog “Shepard Wallace”) and Madineh Sarvestani retrieved the prize in Fairmont Park in Northwest Philadelphia; the coor- dinates: 40.07284,75.21907.

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Harberger, a student at Temple University Medical School in Philadel- phia (which gave him a home-town advantage), and Sarvestani, who lives in State College, Pa., where she’s a graduate student studying neural engineering at Penn State, have a common dominator: Harvey Mudd College in Claremont, Calif. Harberger holds a B.S. in physics from Harvey Mudd, while Sarves- tani earned a B.S. in engineering at Harvey Mudd. Another Harvey Mud- der, Tim Carnes, who completed his Ph.D. in applied operations research at Cornell and is now a research sci- entist at Link Analytics, introduced the two winners to the contest and helped verify their answers. “You had a small crowd of peo- ple from Harvey Mudd looking for the treasure,” Sarvestani tells us. “To our fortune, most (of the Har- vey Mudders) didn’t live in the Philly area and none had my eagle vision.” Toczek, who says his motive was to attract positive attention to the field of O.R. and analytics, plans to devise another contest next year.

– PETER HORNER, EDITOR peter.horner@mail.informs.org

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CONTENTS

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CONTENTS 21 30 36 DRIVING BETTER BUSINESS DECISIONS SEPTEMBER/OCTOBER 2012 FEATURES Brought to you by 9

DRIVING BETTER BUSINESS DECISIONS

CONTENTS 21 30 36 DRIVING BETTER BUSINESS DECISIONS SEPTEMBER/OCTOBER 2012 FEATURES Brought to you by 9

SEPTEMBER/OCTOBER 2012

36 DRIVING BETTER BUSINESS DECISIONS SEPTEMBER/OCTOBER 2012 FEATURES Brought to you by 9 DRIVING PROFITABILITY WITH

FEATURES

Brought to you by
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DECISIONS SEPTEMBER/OCTOBER 2012 FEATURES Brought to you by 9 DRIVING PROFITABILITY WITH RETAIL ANALYTICS By Sally

9

DRIVING PROFITABILITY WITH RETAIL ANALYTICS By Sally Taylor-Shoff and Shalini Raghavan How to make choices and investments that deliver on expectations.

14

LEVERAGING BIG DATA AROUND CUSTOMERS By Rohit Tandon, Arnab Chakraborty and Ganga Ganapathi Opportunity to deliver real-time customer insights by harnessing the power of structured and unstructured data.

21

TAMING THE DATA TIDAL WAVE By Kevin Connor AHP combines business intelligence and data mining technologies with social aspects of human decision-making.

26

CERTIFIED ANALYTICS PROFESSIONAL By Scott Nestler, Jack Levis and Bill Klimack

INFORMS prepares to launch first-of-its-kind program.

30

PREDICTING THE PRESIDENTIAL ELECTION By Doug Samuelson Will quantitative historian and author’s “13 keys” once again open the door to the White House?

36

CORPORATE PROFILE: WALT DISNEY WORLD By Pete Buczkowski and Hai Chu How analytics enhance the guest experience at massive entertainment resort in Orlando.

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40 44 DEPARTMENTS 1 Inside Story 4 Executive Edge 6 Profit Center 7 Analyze This!

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DEPARTMENTS

1

Inside Story

4

Executive Edge

6

Profit Center

7

Analyze This!

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Conference Preview

42

Five-Minute Analyst

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Thinking Analytically

Analytics (ISSN 1938-1697) is published six times a year by the Institute for Operations Research and the Management Sciences (INFORMS). For a free subscription, register at http://analytics.informs.org. Address other correspondence to the editor, Peter Horner, peter.horner@mail.informs.org. The opinions expressed in Analytics are those of the authors, and do not necessarily reflect the opinions of INFORMS, its officers, Lionheart Publishing Inc. or the editorial staff of Analytics. Analytics copyright ©2012 by the Institute for Operations Research and the Management Sciences. All rights reserved.

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INFORMS BOARD OF DIRECTORS

President

Terry P. Harrison, Penn State University

Barrett Thomas, University of Iowa

President-Elect

Anne G. Robinson, Verizon Wireless

Past President

Rina R. Schneur,

Secretary

Verizon Network & Technology Brian Denton,

Treasurer Vice President-Meetings Vice President-Publications Vice President- Sections and Societies

Vice President-Chapters/Fora

University of Michigan Nicholas G. Hall, Ohio State University William “Bill” Klimack, Chevron Linda Argote, Carnegie Mellon University

Vice President- Information Technology Vice President-Practice Activities Vice President-International Activities

Bjarni Kristjansson, Maximal Software Jack Levis, UPS Jionghua “Judy” Jin, Univ. of Michigan

Vice President-Membership and Professional Recognition Vice President-Education

Ozlem Ergun, Georgia Tech Joel Sokol, Georgia Tech

Vice President-Marketing, Communications and Outreach

E. Andrew “Andy” Boyd, University of Houston Olga Raskina, Con-way Freight

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EXECUTIVE EDGE

The future of data and analytics

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Six “futures” of what eBay is working on today, all in various states of evolution.

is working on today, all in various states of evolution. BY BOB PAGE From well-connected computers,

BY BOB PAGE

From well-connected computers, social net- works, mobile shoppers and the digitization of our lives to the ability to put sensors into and onto just about anything, we have a tidal wave of

data. Mobile connectivity itself is driving a signifi- cant change in how we think about data. When

a customer “showrooms” – uses their phone in a

retail store to compare prices online or uses their PC to purchase an item for after-work pickup at

a local retailer – the lines between online and of-

fline start to blur. And therein lie both challenges and opportunities. As we saw in the July/August “Executive Edge” column from Piyanka Jain on predictive analytics, predicting the future relies on understanding the past. But there are times to break from it. Albert Einstein said, “We can’t solve problems by using the same kind of thinking we used when we cre- ated them,” and taming the data deluge requires some creative thinking. For inspiration we turn to computer scientist Alan Kay, who said, “The best way to predict the future is to invent it.” eBay’s Marketplaces team (think eBay.com) has many tens of petabytes under manage- ment, with a constant stream of queries, tools and people that process and derive insights from the data. While job one is to keep up with the vol- ume, variety and velocity (the “3 Vs”) of incom- ing data, treading water doesn’t make for a very competitive business. In order to provide as much

consumable intelligence to as many as possible, we’ve set upon a path to build and operate a data and analytics ecosystem that addresses these futures:

1. The future will happen in parallel. This isn’t

surprising, or even futuristic. Intel stopped mak- ing 80x86 processors in 2006, and even today’s smartphones have multiple processing cores. Yet for too many years, and even in some organiza- tions today, when you ran out of memory, storage, processing or I/O capacity, you bought a bigger machine and moved your workload. Several ad- vances mean we’ll start to scale out instead of always having to scale up. A small amount of ca- pacity is cheap. Tie a lot of small boxes together and you have an enormous amount of capacity. The open source Hadoop environment makes it possible to harness that capacity in

a coordinated way. Rather than move the data

to the processor, we avoid moving data, which avoids the biggest expense. Instead systems like Hadoop move the processing to the data. With hundreds or even thousands of proces- sors working simultaneously, we’re now able to do things we weren’t able to do before.

2. The future will be multi-platform. The En-

terprise Data Warehouse (EDW) is no longer

the canonical source of truth for everything, be- cause we’re analyzing data that doesn’t belong

in a structured, relational system. We have semi-

structured data, like clickstreams, and data that appears to be unstructured, such as text, im- ages or competitor’s Web pages. Different data

sets and different access patterns demand dif- ferent systems. At eBay we have three major data systems:

our EDW for transactional data, an enhanced SQL-like system for transactional + behavioral data, and Hadoop for everything. While this pro- vides us with ultimate flexibility, it’s not without its costs – not only for data replication but gover- nance as well. Now metadata, data lineage and high-speed data transfer between the systems becomes much more important. Is it worth it? Absolutely, because today, no one system can handle the entire set of analytical needs.

3. The future will have machines that learn.

We’re seeing more machine learning lately. This is due in part to the sophistication of the toolkits that are emerging, but it’s also an acknowledgement that we have larger haystacks and smaller nee- dles. We need machines to help sift through the data and help decide what’s actually important. In a widely cited study, Microsoft researchers Michele Banko and Eric Brill (now head of eBay Research Labs) showed how five different natural language algorithms improved dramatically as they were fed more data. The lesson? In some cases, more data can trump new algorithms. That doesn’t spell the end of the researcher, but it does show that im- provements can come from multiple lines of inquiry.

4. The future will be self-serve. As data be-

comes integral to even the most mundane decisions, it’s important to allow the people with the questions to get at the answers them- selves. While this has practical considerations

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EXECUTIVE EDGE

– lower costs, faster time to insights – it has an unexpected benefit: innovation. These new tools allow direct manipula- tion of data without having to translate between the person with he question and an analyst. Anyone at eBay can create his or her own analytics sandbox with one click. These “virtual data marts” allow rapid prototyping outside the main production environment, without requiring copies of data or rogue machines running under

a desk. Another popular tool is Tableau

Desktop, which makes interactive visual- ization within reach of many who would shy away from Microsoft Excel.

5. The future will be collaborative. Good analysis is a terrible thing to waste. What if you could surf the shoulder of a master analyst, or even your own analy- sis from a year ago, and leverage that for a current task? What if you could find others who had worked with similar data or business problems? At eBay we built what we call the DataHub – a one-stop shop for all things data. It is a portal for publishing and finding data and analyt- ics, but also has social-networking fea- tures such as friends/followers, groups and discussions. I can publish my Tab- leau or Microstrategy-based visualiza- tion or dashboard, and others can copy,

modify and comment on it. No more Ex- cel/Powerpoint in e-mail!

6. The future will be live. Can you imag- ine trading stock solely by reading yester- day’s closing price in the morning paper? Many business decisions are based on data even older than next-day, but orga- nizations must be more agile. For a busi- ness like eBay, up-to-date means before the next click. Yes, some important data isn’t updated in real-time, but the busi- ness shouldn’t be held back by the slow- est data feed. Yesterday’s world ran on monthly or weekly sales reports, or even daily flash reports. But these analyses are a lens on the past. Running the business by examining the past is like driving a car by looking in the rear-view mirror. New tools such as memory-based data sys- tems, Complex Event Processing and streaming query systems are getting mature enough to change business.

So that’s a quick half-dozen of the “futures” we’re working on today. All are in various states of evolution, but it’s clear that they will all play critical roles as we evolve the state of data and ana- lytics. It’s an exciting time.

Bob Page is vice president of Analytics Platform & Delivery at eBay.

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PROFIT CENTER

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A perfect example of a management policy focused on blindly following prescribed metrics.

policy focused on blindly following prescribed metrics. BY E. ANDREW BOYD “Management doesn’t understand.” So

BY E. ANDREW BOYD

“Management doesn’t understand.” So began the story of a power line techni- cian I recently spoke with on a trip to California. He’d been at his job for decades and was one of the nicest people I’d ever met. He wasn’t expressing anger at management, just frustra- tion that he wasn’t able to do his job as effi- ciently and painlessly as he believed possible. His particular frustration grew from new metrics that had been put in place. His man- agers, I was told, were compensated based on how well the people who worked for them per- formed against these metrics. As a power line technician, he was measured by the amount of time he spent working in the field. Time in the office was considered wasted. He then shared a recurring problem brought about by the emphasis on time in the field. One of his duties was to disconnect power to homes and apartments when customers were delin- quent in paying their bills. I went on to learn that this takes up a significant amount of his time, and, perhaps less surprisingly, it can be a dangerous activity. Flaring tempers and vi- cious dogs frequently factor into the equation. Over the years, he’d learned it was worth the time to start his morning by personally

calling people he was scheduled to discon- nect. It was thoughtful, but it served good busi- ness purposes as well. Customers wouldn’t be surprised when he showed up, and he could gauge in advance how much trouble he might encounter when he stepped onto the property. But even more, faced with the realization that the power was about to be turned off (which entailed not only time without electricity but re- connection fees), many customers managed to arrange for payment before he showed up. The company’s communications network was set up so that if payment was made even a few minutes before he arrived, he’d know it and wouldn’t turn off the power. His story seemed a perfect example of a management policy focused on blindly follow- ing prescribed metrics. Even if the phone calls led only a few people to clear up what they owed, the effort would pay for itself. Did the company think that showing up on the door- step unannounced was good policy? Actually, no – as I discovered from further discussion. Management had made an invest- ment in an automated phone system that called delinquent customers at intervals leading up to the time of disconnection. Not all of the power line technicians were as diligent as my friend, and the automated phone calling was an effort to put best practices to work. Still, my friend wasn’t convinced. People ig- nore automated calls he told me. When they speak with a live person, a person who’s going to show up later in the day and turn off their power, it makes all the difference in the world.

He was convinced that his time on the phone was worth it. Who was right? I made a suggestion. If previous discussions with management hadn’t achieved anything, why not show up with data? Spend one week making person- al phone calls (on his own time if necessary) and another week not making them. For each week, tabulate the ratio of people who paid their bills before he showed up to the num- ber of people scheduled to have their power turned off. If more people paid during the week he made phone calls, he had a case he could take to management. It’s not certain he’d get a positive response from those he worked for, but my experience is that when faced with numbers, rational people will sit up and take notice. When the argument is simply “I know calling helps” vs. “I know calling doesn’t help,” it’s management’s prerogative to do what it deems best. I was pleased when he took my suggestion seriously and, rather than push back, said he’d think about giving it a try. I hope he does (and if I can track him down I’ll share the results in a future “Profit Center” column). He may make a good case to management, or he may discov- er that the automated phone calls are doing a pretty good job. But either way, analytics will provide an answer. That’s the power of analyt- ics at its best.

Andrew Boyd, senior INFORMS member and INFORMS VP of Marketing, Communications and Outreach, has been an executive and chief scientist at an analytics firm for many years. He can be reached at e.a.boyd@earthlink.net.

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Colleagues, columns and catching up

7

There seemed to be a strong feeling in both industry and academia that an analytics revolution was indeed happening – and I wanted to do my small part to document its progress and help both INFORMS and myself to find its place in it.

and help both INFORMS and myself to find its place in it. BY VIJAY MEHROTRA Back

BY VIJAY MEHROTRA

Back in early 2010, I published the first edi- tion of this column, a manifesto regarding what this series would be about. At that time, there seemed to be a strong feeling in both industry and academia that an analytics revolution was indeed happening – and I wanted to do my small part to document its progress and help both INFORMS and myself to find its place in it. Since then, I have been looking for interesting stories in the world of analytics. This month, we check back in with some of these subjects to see what’s happened since our last visit. When we last encountered my friend Hiram, he had been laid off from his job as director of analytics for a promising Internet advertis- ing startup that seemed to have lost its way). Some of the symptoms: lack of communication between the algorithm developers and those working with customer implementations, ob- session with producing test results to get (or keep) customers, spaghetti code as a result of years of on-the-fly development. Nearly two years later, I am pleased to re- port that Hiram has landed a job as a senior

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director of analytics at another fast-growing platform company, and that he still seeks me out to serve as a sounding board from time to time. I am less pleased to report that he has started to see some of the same things – most notably, skewed experiments designed to make the product’s performance appear better than it actually is – at his new firm. Time will tell. Ben Alamar and Michael Lewis, the two most prominent people in my column on sports analytics, have both been on my mind lately. Alamar has been busy and productive; in addi- tion to teaching his college students and writ- ing a three-part series on the state of sports analytics [1] for this magazine with yours truly, Ben has also been quoted in the Wall Street Journal [2] and has been seen on the MLB Network describing his model for predicting the probability that a team makes the playoffs and/ or wins the World Series given the addition of a second Wild Card team in each league. In addition, he has been actively engaged in his work as director of Basketball Analytics and Research with the Oklahoma City Thunder, who played in the NBA finals this past June, and with working with ESPN to develop and test advanced football metrics. Interesting in- novation on several different fronts. As for Lewis, I just finished reading “The Big Short,” his marvelous book on the world of subprime mortgages and the financial cri- sis that grew out it. From my perspective as an analytics professional, what really struck me about this book was how the quantitative

models were consistently used as fig leaves to rationalize faulty logic and ridiculously risky gambles – and as deeply imperfect vehicles [3] for valuing financial instruments for which mar- kets lacked any semblance of transparency. After visiting Cisco’s Supply Chain Ana- lytics group back in early 2011, I came away with a sense of the extraordinary scale of data management, modeling, analysis and organi- zational challenges that exist in a very large company that had done much of its growth through acquisitions. Since then, the company has restructured its entire supply chain organi- zation, moved some of its analytics initiatives into functional areas such as marketing and operations and experienced some personnel changes – all things that predictably happen in large companies. Most notably, Anne Rob- inson has not only become president-elect of INFORMS, but she has also left Cisco to join Verizon Wireless as director of Supply Chain Strategy and Analytics. A few months into her new role, I suspect that she is probably work- ing her way through a whole new set of chal- lenges given that she’s joined another large and dynamic organization. On my summer vacation in 2011, I wrote a column about my visit to North Carolina State’s Master of Science in Analytics program. At the time, I had high hopes of starting a new in- terdisciplinary graduate program in analytics at the university where I teach. Alas, when we brought together folks from several different departments around campus to develop this new program, the process of starting this new

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initiative turned into a bruising political battle. In the end, I found myself on the outside looking in. A profoundly disap- pointing experience – but a valuable reminder about the challenges of inno- vating in collaboration with others. As the Jayhawks so succinctly put it, “It’s hard to sing with someone who won’t sing with you” [4]. Finally, last winter I had a chance to take a look at the good work being done by the Human Rights Data Anal- ysis Group. Since then, others have also taken note of this organization and its unique capabilities. Most notably, HRDAG founder Dr. Patrick Ball was profiled in a recent article in Foreign Policy in which the author writes that “his methods have changed our under- standing of war.” And by the time you read this, Ball and his colleague Megan Price will have conducted a large-scale sampling ex- periment to study the population found at Burning Man. (Through this project, they hope to learn how to gather accu- rate data in the context of a temporary community such as a sprawling refugee

Subscribe to Analytics

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camp; since 60,000 people will be at Burning Man this year, this is a unique opportunity for this simulation. In addi- tion, the HRDAG folks will help Burning Man’s organizers conduct an analysis of the event’s demographics that takes into account non-response bias found in its sample data. Wait! I’m supposed to be out there helping them with this experiment! I had better wrap it up for now. Perhaps I’ll have more on this next time.

Vijay Mehrotra (vmehrotra@usfca.edu), senior INFORMS member, is an associate professor in the Department of Analytics and Technology at the University of San Francisco’s School of Management. He is also an experienced analytics consultant and entrepreneur, an angel investor in several successful analytics companies and a longtime member of INFORMS.

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CONSUMER INSIGHT

CONSUMER INSIGHT Driving profitability with retail analytics How to make choices and investments that deliver on

Driving profitability with retail analytics

How to make choices and investments that deliver on expectations.

make choices and investments that deliver on expectations. BY SALLY TAYLOR-SHOFF (LEFT) AND SHALINI RAGHAVAN T
make choices and investments that deliver on expectations. BY SALLY TAYLOR-SHOFF (LEFT) AND SHALINI RAGHAVAN T

BY SALLY TAYLOR-SHOFF (LEFT) AND SHALINI RAGHAVAN

BY SALLY TAYLOR-SHOFF (LEFT) AND SHALINI RAGHAVAN T The most successful retail- ers today are increasing
T
T

The most successful retail- ers today are increasing re- sponse rates to their offers and driving profitability by

using Big Data and predictive analytics to make relevant, personalized, and pre- cisely timed offers to customers. Predic- tive analytics provides a concrete means of realizing the long-standing exhortation to “know your customer.” In the era of Big Data, analytic tools have sufficient infor- mation to enable retailers to treat every

customer as an individual based on in- sights into their preferences and future behavior. Retailers who know their customers are making smarter decisions that maxi- mize consumer loyalty without leaving money on the table by offering unneces- sary or excessive rebates, discounts and special offers. These retailers are able to hit the sweet spot where customer be- havior intersects with what the goals of retailers and their suppliers.

WHAT PROBLEM DOES ANALYTICS SOLVE FOR RETAILERS?

For retailers, one of the greatest values of analytics is providing decision points for determining how to treat each customer. For example, will it be profitable to offer Customer X free delivery? Or, would that offer be wasted because the customer is going to buy the product anyway? Consider what happens when con- sumers visit an online or brick-and-mortar store for the first time. The retailer knows

nothing about these potential custom- ers and thus treats them all the same. At some point, the consumer may click on a product or category, or make a purchase. This consumer behavior is likely to trigger a business rule that initiates an action by the retailer. Coupons might be printed at checkout. An e-mail might be sent offer- ing a discount on a product in an aban- doned online shopping cart. In such instances, consumers are dif- ferentiating themselves by their behavior.

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Because the retailer doesn’t know anything more about these consumers beyond their click stream or the product they purchased, there’s no reliable basis on which to make a more relevant offer.

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The retailer, however, is still treating them all the same – everyone who exhibits the same behavior receives the same offers. Inevitably the offers will be more relevant to some recipients than to others, and re- sponses will vary accordingly. Because the retailer doesn’t know anything more about these consumers beyond their click stream or the product they purchased, there’s no reliable basis on which to make a more relevant offer. However, if analytically targeted offers can be made to consumers on a large scale, there is now a foundation on which to perform rapid test and learn. Both rel- evancy and speed to relevancy are criti- cally important; they enable retailers to differentiate themselves in a crowded market to increase loyalty and margins.

UNDERSTANDING WHEN AND WHY TO USE VARIOUS ANALYTIC APPROACHES

Let’s look at what different types of analytics can tell retailers about their customers, giving them various deci- sion points to consider when determining which actions to take.

Collaborative filtering enables retailers to take a degree of targeted action even with first-time customers. This type of an- alytics is often behind the product recom- mendations offered on e-commerce sites

and the printed coupons generated at in- store checkout. The form of collaborative filtering most often used in retail is sometimes referred to as an “affinity model” or “loo- kalike model.” It identifies relationships between customers and items that have either been purchased or viewed, and in- fers how an individual will behave based on how other individuals who look simi- lar (i.e., share one or more characteristic) have behaved.

Collaborative filtering doesn’t have to be triggered by a current transaction. It can be used to target ongoing campaigns and other kinds of promotions. Still, this analytic technique is fundamentally trans- action-oriented. The algorithms used are best suited to modeling data about items purchased or viewed. They’re not effec- tive for modeling purchases with the wide range of “bigger” data retailers have in their databases (e.g., attitudinal data, seasonal purchase patterns, natural

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product adjacencies, basket builders) or can access from external sources (e.g., demographics, public records, third-party marketing information).

Clustering algorithms enable retail- ers to differentiate between custom- ers in broad ways such as customers who like premium brands or custom- ers who prefer organic food. One of the benefits of painting customers with this kind of broad brush is that it can help direct and justify large-scale ex- penditures on store design, new mer- chandising schemes and promotional programs. This approach to analytics moves closer to the use of Big Data. In fact, this approach can utilize ex- ceptionally large data sets and a wide range of data types. Using analytics in this way (often called behavioral segmentation) en- ables retailers to make far more accu- rate decisions than can be achieved through traditional methods of data- base querying on customer attributes such as recency, frequency and mon- etary value of past purchases. Ana- lytics is more accurate in large part because it can handle greater data complexity. While query-based seg- mentation generally involves no more than three to six customer attributes,

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analytic-based segmentation can en- compass dozens or even hundreds of attributes, greatly expanding the range of possible segmentation schemes down to a nearly individual level. Most clustering methodologies try to make sense of these hundreds of attributes analytically. A select few clustering algorithms use a hybrid ap- proach of balancing the analytic ap- proach with inputs from the business user. This ensures that the algorith- mic approach is one that is more us- able by the retailer. With many more ways to group customers, and the ability to try lots of alternative groupings quickly, retail- ers can make better strategic and re- source-allocation decisions. One large national retailer, for example, has used analytics-driven segmentation to better understand and serve customers who account for the bulk of the company’s revenues. Using their characteristics to define population segments, and us- ing these segments to guide decisions from store layouts to how staff interacts with customers, this retailer increased same-store sales in the first quarter of implementation alone by 8.4 percent –resulting in a 15 percent increase in total revenue.

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Large retailers who serve tens of millions of customers, each of whom has many attributes and preferences, can go as far as to essentially create segments of one.

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Propensity models enable retailers to predict how individual customers are likely to behave. With such spe- cific insights, retailers can differentiate between customers to a much greater degree, further increasing the granular- ity of segmentation and the relevance of offers. This analytic approach is par- ticularly effective in Big Data environ- ments. In fact, large retailers who serve tens of millions of customers, each of whom has many attributes and prefer- ences, can go as far as to essentially create segments of one. Propensity models deliver this level of specificity and accuracy because of the ability to handle enormous amounts of in- ternal and external data. Further, they are able to pinpoint the specific customer at- tributes in the data that are most predic- tive of a future behavior. Relationships between numerous at- tributes and other variables are examined to see how a change in the value of one variable affects the value of another. At- tributes that prove to be highly predictive of a behavioral outcome are incorporated into a predictive model. For example, a propensity model can be built to predict a customer’s propensity to make a specific purchase or to discontinue using a pre- mium service. Because these models can make

predictions for individual customers, they open up the possibility of unique treat- ment. Moreover, by using multiple pro- pensity models, retailers can gain a much clearer picture of the customer. Knowing that Jane is not only likely to buy a 48-inch TV, but that she tends to like the Sony brand, but she doesn’t tend to pay pre- mium prices for cutting-edge technology, enables the retailer to greatly increase the relevance of individualized offers and interactions. Here are examples of how leading re- tailers are applying such insights:

• A large retailer is using this type of analytic approach to increase the ROI from promotional campaigns. When a popular new movie or video game comes out, for example, the retailer sends offers only to those likely to buy the product within the offer redemption period. Response rates are two to three times higher than when the same offer is sent to everyone. And because the retailer is not wasting customer time with irrelevant offers, future promotions are likely to be considered by the customer. • Another large retailer is improving its ability to predict when customers are about to make a big purchase by incorporating customer clickstream data into propensity models. Many

consumers do extensive online research before making a major purchase. By analyzing billions of clicks across millions of customers, along with each customer’s purchase histories and historical behavior patterns, the retailer can pinpoint the right moment to make an offer.

UPLIFT MODELS

If a propensity model predicts when a customer is likely to buy a given prod- uct, why should the retailer go to the ex- pense of sending a promotional offer? Uplift models help retailers determine if an investment is likely to be worth the result. Often used in conjunction with pro- pensity models, uplift models predict the amount of change likely to occur in cus- tomer behavior as a direct result of a par- ticular retailer action. Uplift models can save retailers mil- lions by enabling them to avoid offering discounts to customers who will purchase without them. For example, such a model might predict whether or not a 20 percent discount is likely to increase a particular customer’s propensity to buy a pair of de- signer jeans within the next two weeks. The retailer can then send the coupon only to customers whose behavior it’s likely to change.

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When uplift modeling indicates a customer’s behavior is likely to be af- fected by a promotion, it can also help retailers determine which promotion will have the most impact. Will 20 per- cent off be any more effective than 10 percent off? Will any discount be more effective than free shipping? Is offer- ing 12 months of interest-free credit necessary, or will six months be nearly as enticing? Uplift models provide the analytic insights retailers need to make precise decisions about where to put marketing spend for higher ROI. Uplift models are based on Big Data analytic techniques that can predict individual customer sensitivi- ties to price incentives, redemption terms and even promotional package design. For instance, one company that helps to make markets for new products by spending heavily on pro- motion, is using uplift models. The analytic insights enable the retailer to accelerate the purchasing behavior of so-called “laggers”—customers who historically haven’t been among the first to purchase. By targeting these customers with offers that are likely to change their historical behavior, the retailer is increasing the concen- tration of sales in the first two months of the product lifecycle – its critical

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period before competitors can draft off of their momentum.

CONCLUSION

As retailers add more data to their analytic efforts, they increase the num- ber of decision points for differentiating between customers and making more targeted decisions. But just as having lots of data can be overwhelming and of little value in and of itself, so it is with the analytic predictions drawn from Big Data. Their business value depends on the re- tailer’s ability to operationalize them. Retailers of all sizes are bringing analytics into their operations. The key to making choices and investments that deliver on expectations is to understand what various types of analytics do and how they fit (or don’t fit) what the busi- ness is trying to accomplish. It’s also important to think about an- alytics as an incremental process rath- er than a packaged solution. No one approach serves all purposes. Wher- ever a company is in the spectrum of analytic sophistication and experience, there’s a next step to take to achieve even greater benefits.

Sally Taylor-Shoff is a vice president in FICO’s Marketing Practice. Shalini Raghavan is director, analytic product management, at FICO. Together they have nearly 40 years of experience in retail and marketing analytics.

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MARKETING: DATA IS DIVINE

MARKETING: DATA IS DIVINE Leveraging Big Data around customers Opportunity to deliver real-time customer insights by

Leveraging Big Data around customers

Opportunity to deliver real-time customer insights by harnessing the power of structured and unstructured data.

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harnessing the power of structured and unstructured data. 14 Consumers are exercising freedom of choice regarding
harnessing the power of structured and unstructured data. 14 Consumers are exercising freedom of choice regarding
harnessing the power of structured and unstructured data. 14 Consumers are exercising freedom of choice regarding

Consumers are exercising freedom of choice regarding numerous online services, making them far more empowered.

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BY ROHIT TANDON, ARNAB CHAKRABORTY AND GANGA GANAPATHI (LEFT TO RIGHT)

T
T

The rise of the Internet has created terabytes of data or “Big Data” that is available to consumers and enterpris-

es alike. This digitization is an emerging phenomenon and is pushing the bound- aries of every industry, shifting consumer buying patterns. Marketers are leaving no stone unturned – the products that could once be picked up off the rack are now sold online. To their advantage, the consumer is exercising freedom of choice regarding

numerous such online services, making consumers far more empowered. Con- sumers research a prospective purchase offline as well as online, migrate between channels in the course of a single buying cycle, voice unsolicited opinions safe in the knowledge that these may be heard by organizations and influence buying behavior of others in their network, reiter- ating that “word-of-mouth’ has gone digi- tal. The sophistication of buying behavior is at unprecedented levels, and it will only increase going forward.

Some concepts to keep in mind:

Data is divine: About 80 percent of data is unstructured. Not only does this data open new avenues of analysis, thus al- lowing companies to come closer to its customers in real time, it can also lead to premature death of companies if they are not receptive to the data to under- stand customer needs. By successfully understanding data, companies will be able to identify trends, create new prod- ucts and services, and in the long run,

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make decisions and strategies that are backed by pure data and not sheer in- tuition. Equipped with large amounts of customer data – insurance companies, retailers, transportation companies and communications providers – have a unique opportunity to make this type of information services play to their advantage.

Sentiment-al: While companies don’t dispute the importance of data, they face maximum challenges in extracting and comprehending the data. Probing the unconscious mind of the consumer has tremendous value beyond adver- tising. It reveals that what consumers actually believe or think may contra- dict what they say when asked. Global e-commerce sales may soon reach $1 trillion. This trend is directly related to the number of people making transac- tions online, creating an opportunity for companies to use the online infor- mation to assess customers’ buying behavior and clout to make or mar a brand. Marketers can add immense

value by making observations, listen- ing and acting rather than focusing on invasive advertising. This will be the game changer. Imagine, at a simplistic level the launch of a campaign for a new prod- uct or service. Paid advertising per- forms its job of awakening interest and creating desire for a hitherto unarticulated or unrecognized need. This might lead to a couple of search- es, posts on social media platforms, and, if lucky, a visit to the company or brand’s Web site. The propensity to purchase is probably increasing or decreasing with every new byte of information consumed, and all this happens without even one tradition- ally defined “formal” interaction with the company. The evangelists or de- tractors impacting this decision are individuals who want to share their experience as a shopper and help a fellow shopper. Imagine the potential of growth or decline a single custom- er’s experience and comment online can create for a company.

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more information, visit: http://www.informs.org/Membership NORTHWESTERN ANALYTICS As businesses seek to maximize the
NORTHWESTERN ANALYTICS As businesses seek to maximize the value of vast new streams of available

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As businesses seek to maximize the value of vast new streams of available data, Northwestern University offers two master’s degree programs in analytics that prepare students to meet the growing demand for data-driven leadership and problem solving. Graduates develop a robust technical foundation to guide data-driven decision making and innovation, as well as the strategic, communication and management skills that position them for leadership roles in a wide range of industries and disciplines.

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LEVERAGING BIG DATA

LEVERAGING BIG DATA Figure 1: Big Data is within grasp of organizations that can tame the

Figure 1: Big Data is within grasp of organizations that can tame the

data.

Big Data is within our grasp: Therefore, all marketers require is a vision to tame data that millions of such interactions and transactions create. One also has to keep in mind the existing structured data, which together with unstructured data can create a new meaning to marketing. Companies that realize this early will be true pioneers of the Big Data era. Data points from multiple sources – viewership data, search, clickstream, social media metrics & sentiment, e-commerce, offline retail – if stitched together and analyzed

appropriately – will re- veal insights that can separate the market- ing seers from the mere also-rans. Seeing this deluge of data as a fountainhead of insights will help un- derstand the present and foretell the future in a way that can cre-

ate competitive advan- tage like never before. For example, it can improve access to articulated and unar- ticulated customer needs, make revela- tions of need gaps, identify influencers, tell the story behind trends, confirm early warning signals; in short, the power that marketers in turn can wield to create cus- tomer advantage has never been this ob- vious before.

Customer insights for ROI (It’s all about the money): With most transac- tion data, and even some forms of un- structured data being largely understood today, insights that will emerge from inter- actions that haven’t been documented in as much detail yet are next in line, such as shop floor data to discern insights from sales-rep interactions, emotion analysis during all human interactions, and other

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voice and video data for possibly unspo- ken revelations. These, when combined with better understood forms of data, will begin to reveal insights that can be ap- plied across the marketing value chain. Going forward, decisions on product roadmaps, marketing messages, sales levers and service interactions will be- come so steeped in insights that hitting the bull’s eye will cease to be matter of chance. Insights will have a direct impact on ROI. For example:

• by uncovering new markets – demographic or psychographic customer segments for new and existing propositions;

• by helping make sales cycles shorter and more effective, thus optimizing investments; and

• by making service interactions effective, efficient and delightful for the customer, reducing dissonance and increasing loyalty. Driving the CI function to its rightful place under the sun.

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LOOKING?
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Customers want to be recognized for the individuals they are and not treated as one among a hundred others.

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17 | A N A LY T I C S - M AGA Z I N

Figure 2: Listening to the customer.

Product teams can get rich in- sights to plan with: Freeing themselves from the constraints of OEM blueprints and short-term demand plans, product teams can have access to the exciting insights they’ve always dreamed of basing their innovations on. While primary research and ob- servations may continue to be the mainstay for some time to come,

the scalability of listening in to so- cial media platforms has brought the world closer than ever before. Emerging markets will never open up using the previous years’ trends from developed markets, and ex- citing idea for new categories itself may emerge

customers have returned for a second look, understands that desire is driven by an intimate understanding of the cus- tomer psyche and offers a replacement just when customers are contemplating a switch – these are the hotspots that turn customers on and buys their loyalty. In addition, the brand evangelists will be- come the trusted third-party influencer to others contemplating a relationship with the offering. The most compelling argument, of course, is the opportunity to optimize mar- keting spends based on reading social signals correctly. Returns from “bought” and “owned” media begin to plateau or even show negative returns beyond a point, but juxtaposing this impact with

Instances abound for the way Big Data can be applied across the marketing val- ue chain. The utility of social media analytics spanning the functions of insight genera- tion, engagement, health metrics when combined with campaign information, macro-economic data, competitive data, sales insights, customer service inter- actions and much more on an on-going basis, can yield real-time, actionable in- sights that were previously difficult to sustain on an on going basis. For example:

from

programs.

robust

listening

Marketing is as much about the re- lationship as it is about the transac- tion: Customers want to be recognized for the individuals they are and not treated as one among a hundred others. Having a Web page that knows that

among a hundred others. Having a Web page that knows that Figure 3: The insights data

Figure 3: The insights data can provide are unlimited.

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the positive mileage that “earned” me- dia can deliver recognizes the opportu- nity to save precious marketing dollars without compromising impact.

Spray & pray replaced by sure shot targeting: In this era of limited every- thing – investments, sales teams, time – the only things that need not be lim- ited are the insights that data can pro- vide. Combining hitherto disparate data sets – and analyzing them in ways that were previously not possible – to drive insights around sales personalization is possibly the lowest hanging fruit in an enterprise. The work is with largely rec- ognized data sources, the returns are al- most immediate, and the ROI delivered eases the next battle that will be fought to justify Big Data investments.

Real time insights for better customer service: Technology has enabled cus- tomer service at the touch of a button and is no longer dependant on the last mile interaction at a service center. Service in- teractions fit into the Big Data world in two wonderful ways: using insights generated from correctly assembled and analyzed Big Data, interactions can be personalized with a deep understanding of the custom- er and with a high chance of guarantee- ing satisfaction. For instance, concerns

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that begin to trend in the social world soon enter call center interactions. Prepping agents or using the early warning signals to take decisive action are signs of an en- terprise reacting in real time. On the flip side, all interactions, whether on chat or voice, are rich fod- der for enriching the database. For ex- ample, call centers can analyze text, sentiment and emotion combined with trends, demographics and psycho- graphics to paint multi-dimensional pictures of the target audience, the competition and market behavior.

REAL-TIME DEPLOYMENT OF CUSTOMER INSIGHTS

The definition of Big Data is bound to vary between organizations and the quantum and variety of data that they have been used to in the past. For any enterprise CTO, the first implication of Big Data is the need for a strategy for dealing with large quantities of data. The term “Big Data” encompasses com- plex data sets so large and unwieldy that existing database management tools cannot aid in the collection, stor- age, analysis, sharing and visualization of the raw data and insights generated. The large data sets get generated be- cause Big Data is a supposedly large, related data set, as opposed to the

is a supposedly large, related data set, as opposed to the WHAT’S AN ANALYTICS MAGAZINE READER

WHAT’S AN ANALYTICS MAGAZINE READER TO DO AT THE 2012 INFORMS ANNUAL MEETING?

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Analytics for a Networked World

Edelman Finalist Presentations

The Role of Decision Professionals in the Analytics Movement

Predictive Analytics Applications

Developing a Healthcare Cost Index Using Advanced Analytics

Tutorial: Analytics in Consumer Credit

Challenges for Public Sector Analytics

Business Analytics Curriculum in Higher Education

Predictive Analytics for Solid Organ Transplant Operations

Big Data Analytics for Condition Based Maintenance

Business Case studies in the Petrochemical and Petroleum industries

Innovation Analytics: Using Complexity Science and Big Data for Sequencing of Products

Service Delivery Modeling and Optimization

Managing Immigration and Customs Enforcement's Program Operations with Innovative Analytics

Robust Routing for Battery Electric Vehicles

BracketOdds: Examining the NCAA Men’s Basketball Tournament with Advanced Analytics

Machine Learning for Power Grid Reliability:

Predicting Manhole Events in New York

Analytics for OR Access at a Large Teaching Hospital

Roundtable on Analytics and Intermodal

MEET ANALYTICS SECTION MEMBERS

The Analytics Section Business Meeting will be held Monday, October 15, 6:15- 7:15p.m. in Phoenix Convention Center.

RECEIVE INDIVIDUAL CONSULTING

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LEVERAGING BIG DATA

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LEVERAGING BIG DATA 19 Figure 4: The technology stack. smaller component data sets that exist in

Figure 4: The technology stack.

smaller component data sets that exist in isolation. This allows for co-relations to be found between data sets that could not previously talk to each other. The technology stack has to be such that it allows for the collection and stor- age of data along the three dimensions of challenges and opportunities that it pres- ents: the increasing and ever-growing volume of data, the velocity of data (in and out) and the variety across the types and sources of data.

Customer-related data for an enter- prise may come from many sources:

Web logs, social data, Internet search in- dexing, call center call and chat records, video archives, e-commerce, sales transac- tions, macro-economic data, related catego- ry market, competitive data, etc. By present standards, the volume of business data worldwide across all companies doubles every 1.2 years, so the CTO needs to have a vision that takes into account the growth of data that the enterprise will need to be prepared for. The key features that typically form the basis of a Big Data analytics plat- form may include; • real-time query and loading enables immediate access for rich analytics;

• in-database analytics eliminates the need to extract;

• database designer tools with the ability to work with structured and unstructured data, and enabling continual improvements while the system remains online;

• data compression and columnar storage and execution for faster and efficient querying;

• ability to scale out on demand without adding expensive infrastructure;

• high availability;

• optimized workload management so the users focus on execution; and

• seamless integration with the growing ecosystem of analytics solutions such as Hadoop, MapReduce, ETL and Native BI.

Deployment on the cloud is also gain- ing acceptance, and this may help small- er companies with limitations on scalable infrastructure. The techniques and technologies that need to be enabled to actually process Big Data are a combination of traditional and new-age methods: A/B testing, asso- ciation rule learning, classification, cluster analysis, natural language processing, neural networks, pattern recognition, pre- dictive modeling, regression, sentiment analysis, time series, etc.

The last mile, and often the most criti-

cal one, is possibly visualization. This is

a challenge for Big Data analytics, and

we’re seeing continued evolution in this space. Better visualization tools are criti- cal because many cases of Big Data ana- lytics deployment demand instant time to reaction, making the case for increased efficiency. Also, those who finally execute based on the insights may not necessar- ily be data scientists, and this makes it all the more important for findings and rec- ommendations to be presented as clearly as possible. Needless to say, Web and mobile platforms are equally important to the final consumption of analytics.

THE FUTURE OF BIG DATA

The future of customer insights has never been brighter, and it will only scale

greater heights from where it is right now. In this era of limited everything – investments, sales teams and time – the only things that need not be limited are the insights that data can provide. Combining hitherto disparate data sets and analyzing them in ways that were previously not possible will drive in- sights around sales personalization, and it represents possibly the lowest hanging fruit

in an enterprise. The returns are almost im-

mediate and the ROI delivered eases the next battle that will be fought to justify Big Data investments.

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In this era of limited everything – investments, sales teams and time – the only things that need not be limited are the insights that data can provide.

While primary research and observations may continue to be the mainstay for some time to come, the scalability of listening in to social me- dia platforms has brought the world closer than ever before. The utility of social media analytics spanning the functions of insight generation, en- gagement and health metrics, when combined with campaign information, macro-economic data, competitive data, sales insights, customer service interactions and much more on an on-go- ing basis, can yield real-time, actionable insights that were previously difficult to sustain on an on- going basis. The digitization of life that we see around us provides millions of data points that can be stitched together to provide 360-degree views of the cus- tomer. Thinking ahead and being prepared to sat- isfy unarticulated needs through real-time insights and customized recommendations will help create customer delight like never before, as well as com- petitive advantage that can be quickly monetized. The overall story is a win-win situation for the both sides of the table, leaving us with the obvious an- swer to one last question: Has there ever been a better time to be a marketer?

Rohit Tandon, senior INFORMS member, is the vice president and worldwide head of Global Analytics at Hewlett-Packard Company, where he helps drive the analytics ecosystem to support HP’s vision and priorities through delivery of cutting edge analytical capabilities across sales, marketing, supply chain, finance and HR domains. Arnab Chakraborty (arnab.chakraborty@hp.com), senior INFORMS member, is director of Global Analytics at H-P, where he is responsible for partnering with senior executive leadership teams within HP and drives the deployment of analytics solutions across the Americas, EMEA and APJ regions. Ganga Ganapathi (ganga.ganapathi@hp.com) is manager of Global Analytics at HP, focusing on marketing analytics. She partners with business teams to drive deployment of analytics solutions across the Americas, EMEA and APJ regions.

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Decision Sciences Institute advancing the science and practice of decision making The Decision Sciences Institute
Decision Sciences Institute
advancing the science and practice of decision making
The Decision Sciences Institute is a nonprofit
professional organization of researchers, managers,
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making techniques and processes in private and
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Benefits Members Receive:
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DECISION -MAKING

DECISION -MAKING Taming the data tidal wave AHP combines business intelligence and data mining technologies with

Taming the data tidal wave

AHP combines business intelligence and data mining technologies with social aspects of human decision-making.

technologies with social aspects of human decision-making. BY KEVIN CONNOR N Nothing changes the course of

BY KEVIN CONNOR

N
N

Nothing changes the course of world history, public poli- cy and business results like decision-making. Good de-

cisions are based on an in-depth under- standing of the benefits, opportunities, costs and risks inherent in our choices. To make the best choices, decision-mak - ers need information. Those decisions are hampered by the growing tidal wave of undifferentiated information that is the sign of our times.

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By some estimates, the amount of dig- ital information is increasing tenfold every five years. We have reached an amazing point in human history: We are collecting so much information that it is impossible to know what we know. Hidden among the bits and bytes, encoded as zeros and ones, are trends, connections and insights that both define and shape our world. How can businesses and government institutions find meaningful and actionable

and government institutions find meaningful and actionable W W W. I N FO R M S

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ANALYTIC HIERARCHY PROCESS

insights to inform decisions and improve performance? This article looks at one way to un- cover those trends, connections and in- sights: a mathematical principle called the Analytic Hierarchy Process (AHP). Developed in the 1970s, AHP is now be- ing integrated into complicated decision- making processes by both public sector and private industry.

THE INFORMATION TIDAL WAVE: SCOPE CREATES UNCERTAINTY

Some recent studies estimate that the average knowledge worker now spends two hours a day searching for informa- tion later deemed useless, while an esti- mated 80 percent of this wealth of digital information is unstructured. Couple these ideas with studies that suggest one-third of our decisions aren’t implemented and that half of those that are don’t meet their objectives.

that half of those that are don’t meet their objectives. We’re capturing more information than ever

We’re capturing more information than ever before, but we’re not really using it to

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our advantage. All of this leads to choices that seem more uncertain, increasingly complex and risky. With all this informa- tion at our disposal, we feel we should “know,” yet we don’t. Group decision-making is difficult. Ad- vances in technology to improve our use of data are evolving rapidly, but integra- tion of data with the human and social elements of decision-making have con- tinued to prove challenging. How can organizations bring together people, es- tablish processes with the appropriate tools and technologies to facilitate effi- cient and effective decision-making in the world of voluminous data – all while hon- oring the intuition and judgment of their best minds? Dealing with the cresting wave of in- formation requires that we take a broader view of decision-making that brings to- gether both the best information, subject to the best minds, through a process that integrates them. By blending the most relevant information with the wisdom and intuition of experts, our ability to tip the scales of uncertainty and risks toward benefit and opportunity can be greatly increased. So, how might we find such a process that allows us to utilize the appropriate content we have and give context from our expertise and knowledge? Some of

the best minds in the public sector and private industry depend on the AHP for surprising insights.

BEFORE THE ANALYTIC HIERARCHY PROCESS: THE VOLATILITY OF GROUP DECISIONS

Dr. Thomas Saaty developed the AHP at the Wharton School at the University of Pennsylvania in the 1970s, while work- ing on nuclear non-proliferation negotia- tion strategies for the State Department. In aligning the perspectives of some of the world’s brightest economists, utility theorists, game theorists, scientists and lawyers, Dr. Saaty came to a realization:

Although this group of brilliant people had tremendous intellectual gifts and knowl- edge, their challenge finding a coherent and aligned point of view was a social one. The fear of not being heard or under- standing how our contribution influences

a choice can bring out the worst sides of

our nature when interacting collaborative-

ly to choose a course of action. Battling it

out in decision-making often reduces col- lective discourse in organizations and so- cieties from a fair, rational, respectful and transparent debate about what is best for “us” to an advocacy based, power driven, contemptuous and in the worst cases dis- honest grab for what is best for “me.”

Whether we are buying a home or a car with our spouse and family, attempt- ing to understand the most probable risks to national security, or choosing the next blockbuster drug to improve the health and well being of society, subtle and po- tentially corrosive threads can infect any decision. Our inability to see what others see and why, or that others’ perspectives may be valid, tends to more deeply en- trench our own biases, and forces us to vehemently defend our position. Along the way, this approach destroys value and compromises our ability to achieve our goals. How can any group, with its disparate and diverse views of the world, express what was important to each member in addressing the challenge at hand, and be able to see their collective and desired course of action? AHP is a collaborative decision-mak- ing methodology that is used to struc- ture and analyze complex and potentially volatile decisions. Based in fundamental principles of mathematics and psychol- ogy, it was developed for the purpose of synthesizing the judgments of a group of decision-makers and providing them a ra- tional, transparent and collaborative way to express themselves and understand the totality of their interests, preferences and priorities.

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ANALYTIC HIERARCHY PROCESS

THE INNER WORKINGS OF AHP:

MERGING DATA AND EXPERT JUDGMENT

The application of AHP follows a struc- tured format. Let’s outline the key steps in the process:

Define relevant criteria: Decision-mak- ers develop a hierarchy or tree of the relevant criteria, objectives or goals for their decision. The criteria are grouped in clusters from high-level categories at the top level to more specific sub-crite- ria that define those categories at the bottom.

- ria that define those categories at the bottom. Figure 1: Defining relevant criteria, objectives or

Figure 1: Defining relevant criteria, objectives or goals.

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These lowest level criteria are then described with ratings and measures that will be used to differentiate the value of options against these criteria. This step creates the scorecard that captures data and evaluations. These criteria can range from the purely quantitative factors such as net present value or miles per hour, to more subjective and qualitative factors such as strategic fit or risk.

Establish the weight of each criterion:

It is important to establish the relative pri-

orities of the criteria to be used for assess- ing the options. Having been identified by the group of decision-makers, the criteria are all at least relevant and of interest but clearly not equally important. A group of decision-makers must deter- mine which factors more strongly predict

a valuable outcome in their decision given

the context of their choices. By comparing each the criteria against each other using a pairwise comparison approach, decision- makers are forced to value the decision

criteria head-to-head to deal only with the difference in each paired combination:

• Which is more important?

• By how much?

• Why?

• A or B?, B or C?

And so on.

• By how much? • Why? • A or B?, B or C? And so on.

Figure 2: Sensitivity analysis clarifies decision alternatives.

 

Mathematics can then determine how

results in a relative prioritization or score for

all the criteria relate amongst each oth- er. By stating their preference openly, decision-makers can identify points of agreement and disagreement and have

the various options that now includes the blended priorities of the decision-makers and reflects the impact of the known mea- sures or metrics – as well as the judgment

a

framework for expressing information

of

the experts that are party to the decision.

that only they may have that is influenc- ing their position on some matter.

Consider alternatives: The group may

for example, “what if criterion A was twice

Evaluate options based on these rat- ings: Decision-makers (or the subject mat-

ter experts that they entrust) must rate or evaluate the options using the quantitative

perform “sensitivity analysis” on the pri- oritization of the decision alternatives –

as important?” or “what if we didn’t con- sider criterion B?” This allows decision-

or

qualitative rating scales that were derived

makers to determine the robustness of

to

measure how well the options reflect the

a

given course of action and understand

priorities expressed in the criteria. This

the key drivers of the decision. Once this

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ANALYTIC H I E R A R C H Y

P R O C E S S

has been accomplished, the cost (dol- lars, time or even people) of each op- tion can be added and any constraint in resources. The result is an optimized allocation of resources among the op- tions using a cost/benefit analysis. By bringing together the available data along with the judgments of deci- sion-makers in a structured way, AHP helps decision-makers see an other- wise elusive, holistic picture of how their goals and understanding of the problem fit their choices. Using the principles of comparative judgment, AHP allows each decision- maker to express his or her individual priorities amongst the key criteria that form the mental model for their deci- sion and combines each decision mak- er’s judgments with those of others. AHP facilitates a greater understand- ing, within a sense of fair process and participation with greater transparency and traceability of the preferences of groups faced with complex decisions.

CASE STUDY: A COMPARISON OF FINANCIAL BASED CAPITAL ALLOCATION DECISIONS WITH AHP

No matter how diligently organiza- tions attempt to risk adjust the value of their potential projects or programs, the social dynamics of decision-making

can make estimates optimistic. In one study of 1,800 organizations, 80 per- cent couldn’t reach 5.5 percent annual revenue growth, falling far short of their strategic plan goals. While financial forecasting methods attempt to compensate for these ef- fects with risk adjustments, the inputs to financial models are often limited to optimistic estimates provided by project champions or sponsors influenced by the optimistic biases. Often, the need or desire for projects may cause a sys- temic bias that inflates the estimates of champions and sponsors. These blind spots are seemingly in- evitable. Yet, if we are to believe what research tells us, some of this systemic bias can be offset by crowd-sourcing the evaluations of experts across an or- ganization using AHP as a framework for synthesizing their insights. A surprising insight came to light in work done by a company in the phar- maceutical and life sciences industry. While this organization was regularly relying upon risk-adjusted revenues for their product lines, these risk ad- justments were provided to the finance department by sponsor and champion organizations proposing their projects. The organization was able to clas- sify projects using a risk scorecard that

organization was able to clas- sify projects using a risk scorecard that 24 | A N

ANALYTIC HIERARCHY PROCESS

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looked at how new elements of both the supply chain and technology competen- cies of the organization fit the project. They found strong correlations between the newness of the project offerings and how likely they were to be completed. They also found correlations between these new, dif- ferent projects and how likely they would be to meet risk adjusted revenue forecasts. It turned out that a secondary risk adjustment would be needed to further adjust expectations based on these “probability of success” assessments. However, getting these into the financial analysis proved challenging. AHP was used to blend together both the quantitative strength of the risk adjust- ed revenue forecast with the qualitative probability of success criteria. The orga- nization was able to compare expected

revenues using the purely financial ap- proach vs. the AHP approach. One hundred thousand simulations comparing the largest forecasted revenue portfolio against the AHP recommended prioritization showed that organizations can consistently expect a greater return on sales using a crowd-sourced, collab- orative decision-making approach over purely financial methods, which have hid- den assumptions and biases. Using the same set of assumptions for the likelihood of completion and revenue generation for projects, two portfolios were selected. One portfolio was chosen from a list of largest-to-smallest revenue forecast projects, from the top down, until available resources to complete them ran out. The second portfolio was chosen using the cost/ benefit approach of AHP, which included

using the cost/ benefit approach of AHP, which included Figure 3: Lower risk, greater percentage of

Figure 3: Lower risk, greater percentage of return.

included Figure 3: Lower risk, greater percentage of return. Figure 4: Forecasted revenue portfolio vs. AHP

Figure 4: Forecasted revenue portfolio vs. AHP recommended prioritization.

weighted criteria that combined financial metrics with qualitative probability of suc- cess estimates. The AHP-selected portfolio consistently returned as valuable a portfolio as the revenue forecasted approach – and 80 percent of the time outperformed it. When the AHP method did outperform the purely financial method, it did so by 20 percent.

CONCLUSION

The Analytic Hierarchy Process meets the challenge of bringing together business intelligence and data mining technologies with the social aspects of human decision- making. AHP creates a true picture of the landscape of a decision. It is a means to help decision-makers articulate important decision data points, and combines them with intangible factors that may be difficult

to measure but can be expressed and cat- egorized. By narrowing in on the measures of interest, decision-makers can eliminate the sense of data overload from today’s information tidal wave and acquire those pieces of information that are believed to be most relevant. Group decision-making is difficult. Cre- ating a framework and process to deal with it can make the process less error-prone. AHP assists decision-makers in creating a real context for their choices that adequately weights the dimensions they trust or believe influence their path to success. It is the only chance organizations have to safely navi- gate the rising tide of information.

Kevin Connor is vice president of Decision LensSolutions Group. He can be reached at kconnor@ decisionlens.com.

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CAREER BUILDER

CAREER BUILDER Certified Analytics Professional INFORMS prepares to launch first-of-its-kind program. T The Institute for

Certified

Analytics

Professional

INFORMS prepares to launch first-of-its-kind program.

INFORMS prepares to launch first-of-its-kind program. T The Institute for Operations Research and the Manage- ment
INFORMS prepares to launch first-of-its-kind program. T The Institute for Operations Research and the Manage- ment
INFORMS prepares to launch first-of-its-kind program. T The Institute for Operations Research and the Manage- ment
T
T

The Institute for Operations Research and the Manage- ment Sciences (INFORMS), publishers of Analytics mag-

azine, is launching an analytics cer- tification program (Certified Analytics Professional or CAP) designed to “en- able analytics professionals (and their employers) to have confidence that a per- son will bring a core set of analytics skills to a project team.” Open to all qualified

BY SCOTT NESTLER, JACK LEVIS AND BILL KLIMACK (LEFT TO RIGHT)

analysts, the first-of-its-kind certification will consist of a standardized test, as well as a review of the candidate’s resume or work portfolio. The program was outlined earlier this year in the March/April issue of Analytics . Following is an update on the program, with the first exams sched- uled for the 2013 INFORMS Conference on Business Analytics & Operations Re- search in San Antonio, Texas, April 7-9, 2013, followed by a second opportunity at

the 2013 INFORMS Annual Meeting, Oct. 6-9, 2013 in Minneapolis. INFORMS has published the eligibil-

ity criteria for the CAP certification at IN- FORMS Online including the following:

• BA/BS (or higher) degree, and

• at least five years of analytics work- related experience for BA/BS holder in related area, or

• at least three years of analytics work- related experience for MA/MS (or

higher) holder in related area, or

• at least seven years of experience for those with BA/BS in unrelated area, and

• verification of soft skills/provision of business value by employer.

JOB TASK ANALYSIS

In general, a Job Task Analysis (JTA) is a comprehensive description of the duties and responsibilities of

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a profession, occupation or specialty area; our approach consists of four ele- ments: 1) domains of practice, 2) tasks performed, 3) knowledge required for effective performance on the job, and 4) domain weights that account for the importance of and frequency with which the tasks are performed. More specifi- cally, the JTA for the CAP program can be viewed as an outline of a partial body of knowledge, as it represents a delineation of common or typical tasks performed and knowledge applied by analytics professionals, grouped

INFORMS Analytics Credentialing Job Task Analysis Working Group

Jeff Camm (Univ. of Cincinnati) Arnie Greenland (IBM Global Bus. Serv.) Bill Klimack (Chevron) * # Jack Levis (UPS) * # Daymond Ling (Canadian Imperial Bank of Commerce) N Freeman Marvin (Innovative Decisions Inc.) Scott Nestler (Naval Postgraduate School) # Jerry Oglesby (SAS) Michael Rappa (NC State / Inst. Adv. Analytics) # Tim Rey (Dow Chemical) Rita Salam (Gartner) N Sam Savage (Stanford / Vector Economics) * - INFORMS Board Member

#

- Credentialing Task Force Member

N

– Non-Member of INFORMS

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together in a hierarchical domain struc- ture. In the course of analytics work, these tasks may be performed multiple times with modifications based on data, findings and results, as part of ongo- ing feedback loops that are routinely a part of practice. The JTA serves as the test blue print for exam development and links what is done on the job with what is measured by the certification examination. This linkage is necessary to establish a valid, practice-related ex- amination. It is important to realize that the JTA is a dynamic document that will change in the future to reflect best practices and changes in the analytics profession. The JTA outlined in this article was developed by the INFORMS Analytics Credentialing Job Task Analysis Working Group, comprised of 12 subject matter experts (SMEs) (see box) who are: highly regarded in their field; diverse in geog- raphy, sector (public-private), organiza- tion type (e.g., large companies-smaller consulting firms, practice-academia, etc.) and application area (e.g., finance, lo- gistics, software, consumer goods, etc.); and representative of the descriptive, predictive and prescriptive segments of analytics. Additionally, the working group contains four members in common with the task force and two INFORMS

directors, helping to ensure continuity with existing governance structures. Additionally, since CAP is designed to attract analytics professionals who are not currently members of INFORMS, the working group contains some non- members. In developing the JTA, mem- bers of the working group relied upon:

their knowledge of practice gained from years of experience, academic program content, corporate job descriptions in an- alytics and articles from professional and

scholarly publications. As outlined in the earlier update, the JTA Working Group proposed, and the Credentialing Task Force and Board of Directors approved, that the CAP assess to some level of depth across the breadth of knowledge needed in analytics. The evaluation of more detailed knowledge in specific ar- eas or applications will be done later in “add-on” certifications, pending the suc- cessful development and deployment of CAP.

BOSTON | SEP 30 - OCT 4, 2012 Keynote Speakers: Scott Nicholson Predictive Analytics World
BOSTON | SEP 30 - OCT 4, 2012
Keynote Speakers:
Scott Nicholson
Predictive Analytics World is the business-focused event for
predictive analytics professionals, managers and commercial
practitioners. This conference delivers case studies, expertise and
resources to achieve:
Chief Data Scientist
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CERTIFIED ANALYTICS PROFESSIONAL

The JTA can be viewed as an outline of a partial body of knowledge, as it represents a delineation of common or typical tasks performed and knowledge applied by analytics professionals, grouped together in a hierarchical domain structure.

Subscribe to Analytics

It’s fast, it’s easy and it’s FREE! Just visit: http://analytics.informs.org/

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DOMAINS PROVIDE TOP-LEVEL STRUCTURE

The 36 typical tasks and 16 knowl- edge statements (not provided here) in the analytics JTA are organized in sev- en domains, as listed in Figure 1. Tasks are specific goal-directed work activities or groups of closely related work activi- ties that describe identifiable behaviors, while knowledge is an organized body of information that, when applied, makes possible the competent and effective per- formance of the work activities described by a task.

Domain

Description

Weight

I Business Problem (Question) Framing

15%

II Analytics Problem Framing

17%

III Data

22%

IV Methodology (Approach) Selection

15%

V Model Building

16%

VI Deployment

9%

VII Life Cycle Management

6%

100%

Figure 1: Domains, descriptions and weights in the JTA.

Figure 1 also shows domain weights, which are based on the SMEs’ assess- ments of the importance of tasks and the frequency of their performance. Mean weights of the working group mem- bers were used as starting points for

discussion and debate that continued un- til consensus was reached. The weights will be used in the exam construction pro- cess to ensure content mixture validity. Within each of these seven domains, the JTA Working Group identified a number of tasks that must be performed by prac- titioners of analytics. Successful performance of the tasks requires specific knowledge, which is what will be tested. At this time, the supporting knowledge statements are being used to develop items (questions) for the first exam and, as such, are not publicly available. We anticipate releas- ing them as part of the CAP Candidate Handbook and at INFORMS Online in October 2012.

JTA VALIDATION

In order to ensure that the JTA Working Group had not missed anything important in the practice of analytics, the JTA and an associated questionnaire were sent out to a random sample of INFORMS members and non-members. More than 200 analytics professionals from various regions of the United States, Europe and Asia/Pacific responded to the survey; ap- proximately three-quarters of these were not INFORMS members. Non-member respondents included previous respon- dents of the 2011 certification feasibility

study and registered subscribers of Ana-

lytics magazine. Survey participants were asked to perform three tasks in their re- view of the draft JTA document:

1. Identify those domains, tasks, or knowledge statements they would like to remove, reword, or revise.

2. Suggest new domains, tasks,

knowledge or skill statements that they would like to add. 3. Confirm or suggest changes to the weights based on their ranking of importance and frequency.

After reviewing the results of the sur- vey, including a thorough report prepared by the certification consultant, the JTA Working Group met again by telephone in February 2012 to clarify and improve the JTA. The agreed upon changes pri- marily included the addition of examples of concepts and definitions to most of the knowledge statement in order to ensure understandability.

TEST DEVELOPMENT

In May 2012, a call for question writers went out via the INFORMS subdivision (section and society) officers and also to those who responded to the feasibility study in 2011 saying they wanted to help with development of an analytics certifi- cation program. Nearly 50 volunteers, a

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CERTIFIED ANALYTICS PROFESSIONAL

The goal of this training was several-fold: to maximize the quality of the test; to ensure the accuracy, fairness and validity of the test; to minimize the measurement error of the test; and most importantly, to minimize errors in the classification of candidates as certified or not.

mix of academics and practitioners, ini-

tially responded; most, but not all, are INFORMS members. In early June 2012, a consulting psychometrician provided training to about 30 volunteers on how to write multiple-choice questions for the exam. The goal of this training was several-fold: to maximize the quality of

the test; to ensure the accuracy, fairness

and validity of the test; to minimize the

measurement error of the test; and most

importantly, to minimize errors in the clas- sification of candidates as certified or not. Item writers were asked to keep the fol- lowing general guidelines in mind:

1. Does the question test something

relevant and non-trivial? 2. Does the question reflect current

best-practice?

3. Is the question stated clearly enough so that the knowledgeable candidate will be able to select the correct choice without undue hesitation?

4. Is the context, setting and content of the question equally appropriate and familiar to all segments of the candidate population, including minority groups?

Questions about Analytics Certification?

Contact INFORMS at certification@mail.informs.org

Contact INFORMS at certification@mail.informs.org 5. Is the question free of language and/or descriptions that

5. Is the question free of language and/or descriptions that might be offensive to any segment of the candidate population?

6. Is the content of the question free of language, descriptions or terminology that could reinforce common stereotypes concerning any segment of the candidate population?

Over a six-week period, this group worked individually to develop multi- ple-choice questions for the certifica- tion exam. In addition to the question, each writer provided a correct answer, three incorrect but plausible answers, a reference or citation, and a suggestion of which domain, task and knowledge statements the question was useful to assess. In the first round, this group pro- vided more than 200 questions, which were reviewed by 12 volunteers in late June 2012. The question writer and re- viewer group included four members of the JTA Working Group, who helped to guide the review effort. In conjunction with a certification consultant, the INFORMS Certification Task Force prepared a draft Policies and Procedures (P&P) manual for the CAP program. Further work on an inde- pendent governance board for the pro- gram continues as well. Additionally, the

INFORMS staff is working on a brand- ing and marketing plan for CAP. The marketing department developed a logo that was recently approved by the Cer- tification Task Force.

FUTURE STEPS

Test development efforts, to include additional question writing, creation and review of two exam forms, and a cut score study, are ongoing. Development of a detailed marketing and communica- tions plan, a candidate handbook, mar- keting materials and a Website, as well as the back-end accounting and IT sys- tems, are also underway. The INFORMS Certification Task Force recognizes the importance of making additional details available as soon as possible given the proposed administration date of the first certification exam. To find out more, check the CAP page at the INFORMS Website from time to time. Similarly, keep reading OR/MS Today and Analytics magazine, as further updates will be shared there as well.

Scott Nestler is a colonel in the U.S. Army, currently attending the Army War College. Jack Levis is the director of Process Management at UPS and the INFORMS VP for Practice Activities. Bill Klimack is a decision analysis consultant at Chevron and the INFORMS VP for Meetings. All three are members of both the INFORMS Certification Task Force and also the INFORMS Analytics Certification Job Task Analysis Working Group.

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QUANTITATIVE HISTORIAN’S PERSPECTIVE

QUANTITATIVE HISTORIAN’S PERSPECTIVE Predicting the presidential election Will the “13 keys” once again open the

Predicting the presidential election

Will the “13 keys” once again open the door to the White House?

“13 keys” once again open the door to the White House? BY DOUG SAMUELSON A As

BY DOUG SAMUELSON

A
A

As most U.S. readers of Ana- lytics are no doubt painfully aware, we are in the middle of the most expensive presi-

dential election campaign in history, by far. The Obama and Romney campaigns seem likely to raise and spend, combined, more than $3 billion, with much of the money going to an overwhelming “blitz” of TV ads. What TV time isn’t consumed by these ads seems to be filled with com- mentary and punditry. As a friend of this

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reporter’s remarked, “By October, there won’t be 15 seconds available on TV for someone to sell soap.” But to what effect? According to at least one source, not much. Last summer, with the presi- dential election a year and a half away, campaigning and punditry were already intense, with many commentators not- ing Obama’s low approval numbers in the polls and pronouncing him highly vulner- able. The most reliable model of presi- dential elections, however, indicated a

model of presi- dential elections, however, indicated a Mitt Romney (left) and Barack Obama: a tight
model of presi- dential elections, however, indicated a Mitt Romney (left) and Barack Obama: a tight

Mitt Romney (left) and Barack Obama: a tight battle for the White House.

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ELECTION ANALYTICS

The 13 keys to the presidency

Professor Allan Lichtman’s 13 keys and his assessment of how they turn:

1. After the midterm election, the incumbent party holds more seats in the U. S. House of Representatives than it did after the preceding midterm election. (FALSE)

2. The incumbent-party nominee gets at least two-thirds of the vote on the first ballot at the nominating convention. (TRUE)

3. The incumbent-party candidate is the sitting president. (TRUE)

4. There is no third-party or independent candidacy that wins at least five percent of the vote. (TRUE)

5. The economy is not in recession during the campaign. (TRUE)

6. Real (constant-dollar) per capita economic growth during the term equals or exceeds mean growth for the preceding two terms. (FALSE)

7. The administration achieves a major policy change during the term, on the order of the New Deal or the first-term Reagan “revolution.” (TRUE)

8. There has been no major social unrest during the term, sufficient to cause deep concerns about the unraveling of society. (TRUE)

9. There is no broad recognition of a scandal that directly touches the president. (TRUE)

10. There has been no military or foreign policy failure during the term, substantial enough that it appears to undermine America’s national interests significantly or threaten its standing in the world. (TRUE)

11. There has been a military or foreign policy success during the term substantial enough to advance America’s national interests or improve its standing in the world. (TRUE)

12. The incumbent-party candidate is charismatic or is a national hero. (FALSE)

13. The challenger is not charismatic and is not a national hero. (TRUE)

If six or more of these statements are false, the incumbent party loses.

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different answer. Based on his “13 Keys” model, quantitative historian Allan Licht- man called the 2012 election for Obama nearly a year ago, with some caveats about how some keys might change. His forecast hasn’t changed, but the amount of money being raised and poured into TV ads, among other factors, is much dif- ferent from the past. How might the elec- tion go this time? How can we tell? Professor Lichtman’s assessment:

“The 13 keys model has been remarkably stable through all kinds of variations that led people to say, ‘This election is differ- ent.’ This record of reliability and the im- plications of which variables made it into the model still indicate that presidential elections are about governance, not cam- paigning. The punch line is that most of that money will be wasted. The one thing it will do, especially with all these attack ads, is get people so fed up with all of the political process that it will be hard for whoever wins to govern.” OR/MS Today [the membership maga- zine of INFORMS, www.orms-today.org] may remember Allan Lichtman, professor of history at The American University in Washington, D.C. He was the subject of feature articles in OR/MS Today in 1996, 2000, 2004, 2008 and 2011. More signifi- cantly, he has attracted quite a bit of cover- age in the news media, his books continue

to sell well, and it is evident that campaign strategists take his model into consider- ation in their planning. His model deserves to be taken seriously, as it has correctly predicted the popular vote outcome of ev- ery U. S. presidential election since 1984, including George H. W. Bush’s comeback from nearly 20 percent behind in the polls in 1988, and Al Gore’s narrow win in 2000. His predictions are based on 13 ques- tions (see box), each with a “yes” or “no” answer. “Yes” answers favor the incumbent

party. If five or fewer answers are “no,” the incumbent party retains the presidency; if six or more are “no,” the challenger wins. For this election, Lichtman said the Democrats have lost Key 1 (the 2010 mid-term election was a huge setback), Key 6 (long-term economic growth) and Key 12 (the incumbent-party candidate is not very charismatic or a national hero.) This leaves the Republicans three keys short of what they need, with the Democrats holding 10 keys.

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When Professor Lichtman made his forecast in 2010, some keys were still

subject to change, and the current call on some of them deserves comment:

• If enough elements of governance had gone wrong, a serious challenge either within the party or from a third party could have emerged. Neither did.

• The economy could have slid back into recession. As of August, however, even the Republicans’ ads were criticizing the Obama administrations for “the slowest recovery since the Depression,” a gloomy situation but not a recession.

• The administration’s big policy change, the Affordable Care Act, could have been struck down by the Supreme Court and may still be widely unpopular, but past instances, such as FDR’s New Deal or Lyndon Johnson’s “Great Society,” suggest that the ability to enact change, not the way that change plays out, is what turns this key.

• Major social unrest could have erupted – either the “Occupy” demonstrations or some right-wing activities, such as the private- sector border patrols in Arizona or the controversial protests by the Westboro Baptist Church, could

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have escalated into widespread turmoil. 1968 was the last time this key turned, after things were fairly calm in the summer of 1967, so the key can turn quickly. But it didn’t.

• There are always plenty of opportunities for major military or foreign policy failures. So far (as of mid-August), none have occurred. (The key doesn’t turn because of strongly critical opinions by a few people, even very knowledgeable people, about certain polices and actions. Broad public perception is what counts.)

• It was not yet clear a year ago that the killing of Osama bin Laden and the consequent disruption of Al Qaida would be perceived as a major success; now, along with the toppling of Qaddafi in Libya, it does seem to be bringing President Obama substantial credit.

Some commentators have also noted that losing control of the House in 2010 may actually help Obama in 2012 because it spreads the blame and gives him someone else’s record to run against. Choosing Paul Ryan, chairman of the House Budget Committee, as the Republican vice-presidential nominee intensifies this effect. Losing control of

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ELECTION ANALYTICS

“The 13 keys model has been remarkably stable through all kinds of variations that led people to say, ‘This election is different.’ This record of reliability and the implications of which variables made it into the model still indicate that presidential elections are about governance, not campaigning. The punch line is that most of that money will be wasted.” — Allan Lichtman

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For more information, visit:

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both houses of Congress in 1994 did not badly damage Bill Clinton’s re-election prospects in 1996.

THE SCIENCE BEHIND IT

It is worth re-emphasizing that the 13 keys model is based on a statistical pat- tern recognition algorithm implemented by Russian seismologist Volodia Keilis- Borok. In English-language terminology, the technique most closely resembles kernel discriminant function analysis. The idea is to choose the variable that pro- duces the biggest improvement in predic- tion, then the variable that adds the most improvement, and so on. Lichtman and Keilis-Borok consid- ered many other variables that didn’t have much effect: the challenging party’s nomination contest, adverse reports on candidates’ health, running mates, en- dorsements and massive ad campaigns, among others. The emergence of these 13 variables implies that governance is more important than campaign charac- teristics. “Political consultants hate the Keys,” Lichtman says. “They keep telling me, ‘Give us something we can influence!’ But that’s not what the model indicates.” Of course, he adds, this does not mean that a candidate favored by the keys could simply go home and await the results. Clearly the model assumes the

usual sorts of campaign activities by both sides. Given that, however, the model also implies that much more of the same won’t change the outcome. It is also important to note that while massive spending on media blitzes and local organizations may not affect the na- tional popular vote much, it certainly can tip the result in a few closely contested swing states and in Senate and House races, and has substantially affected the nomination primaries and caucuses. The keys model does not address these effects. This model’s success also under- scores the unimportance of poll results this far ahead of the election. Lichtman declares bluntly, “polls more than two months before the election are meaning- less.” Indeed, as he points out, George H. W. Bush trailed Michael Dukakis by 17 points three months before the 1988 elec- tion, and Gore trailed George W. Bush in every poll up to the weekend before the 2000 election, and then only edged ahead in one, the Zogby poll. But Gore won the popular vote, as the model predicted.

OTHER THINGS TO WATCH

Even if the popular vote is in little doubt, as the keys model implies, the electoral vote is still in play, and many Senate and House races are hotly contested, as well.

So here are some things that do matter:

Voter access, encouragement and dis- couragement. In several key states, no- tably Ohio, Pennsylvania and Virginia, the Republicans are making concerted efforts to tighten requirements, especially with regard to identification documents, for both registration and voting. These restrictions are likely to reduce numbers of votes mostly from poor people, who have problems with transportation to the registrars and to the polls, and from old- er senior citizens, who more often have expired but not current driver’s licenses. Democrats, in turn, typically organize registration drives and offer rides to the polls in areas they expect to have large numbers of Democratic supporters who are less likely than most to vote unless assisted and encouraged. There are several active court cases about how to achieve the appropriate balance between preventing fraud and facilitating access.

Differences in access to voting. In Ohio in 2004 and 2006, allocations of vot- ing machines to precincts and provisions for replacing malfunctioning machines contributed to long waiting times, mostly in poor and minority-heavy urban areas. Readers of OR/MS Today a few years ago read about operations research-based

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efforts to improve the process; the con- cern continues, however, in Ohio and elsewhere.

Vote counting rules. In addition to his work on the keys model, Allan Licht- man has testified as an expert witness in more than 75 cases of alleged wrongdo- ing in counting votes. In Florida in 2000, he found the way the rules for counting ballots were applied was a critical factor:

Ballots with a hole punched for a candi- date and the same candidate’s name writ- ten in were disqualified as double votes, even though the voter’s intent was clear. This rule resulted in the disqualification of more than 120,000 ballots, dispropor- tionately from black voters. “If black vot- ers’ ballots had been rejected at the same rate as white voters’ ballots,” he conclud- ed, “there would have been 50,000 more black votes statewide.” Assuming the dis- qualified votes would have split similarly to the black votes that did get counted, this would have tipped the election to Gore handily. Clearly, counting rules are a con- tinuing issue that will command attention. Controversy over the fairness and ac- curacy of vote counting can also produce lasting discontent with the whole political process, as, for example, with the dis- pute over the 2004 presidential election in Ohio.

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Ethnic blocs. In particular, Latino vot- ers look like the swing bloc in several key states where the races look close: Florida, Ohio, Colorado, New Mexico and Nevada are most frequently mentioned by com- mentators on this topic. Targeting appeals to selected groups is a well-known and long-standing (more than 50 years old) campaign method that has had consider- able effect, particularly in more localized elections, such as those for House dis- tricts. In some cases, however, targeting also raises questions of propriety and of possible undermining of the integrity of the political process. Negative messages, ei- ther localized or on a large scale, risk a phenomenon known in sales as market saturation: people simply get disgusted with both sides. There is a stronger, more specific backlash against negative mes- sages subsequently proven to be false.

Base vs. center. Conventional wisdom among political pros is “run to the base for the nomination and to the center for the general election.” This means that in Oc- tober, the leading candidate spends more and more time in swing states, while the trailing candidate has to keep shoring up his base. Seen in this context, Governor Romney’s choice of a running mate more conservative than he is, and from a geo- graphic region where he would expect to

be strong already (his father was a popu- lar governor of Michigan), suggests that he and his senior advisors may already be worried about his prospects.

The effects of massive spending. Big money spent on media blitzes and on organizational activity may not affect the national popular vote by much, but it can and does influence primaries, Senate and House races and the outcomes in a few closely contested swing states. Beyond

a certain point, however, big spending could also create a backlash from people over-saturated with the ads, phone calls and house-to-house canvassers. Tracking “how much is enough and how much is too much” will be an interesting challenge.

The self-serving professional class. One reason candidates keep raising and spending more and more money, for what the keys model indicates is little ben- efit, is that all the fund-raisers, political

Computing Society Interested in computer science, artificial intelligence, and their relationship to O.R.? Join the
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• Keeps members abreast of useful developments in computer science, artificial intelligence, and O.R.

• Provides valuable contacts and visibility through conferences, committees, and social media

• Contributes to the rigor of research and practice by providing professional development opportunities

JOIN COMPUTING SOCIETY

Joining Computing Society (or any subdivision) is easy, and can be done through your profile on the INFORMS website:

• Go to the INFORMS website (http://www.informs.org) and click on the Member Login link at top right.

• Log in. If you don't have login information, click on the link "Please send me my login info."

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consultants and pundits keep telling them they have to. This does generate considerable benefits for the fund-rais- ers, political consultants and pundits. Eugene Burdick, a political scientist and novelist, pointed out most of the applicable ethical issues in his 1956 and 1964 novels. Naturally, these peo- ple are also among the first and most committed to argue against any legis- lation limiting the money or its uses in advertising, just as the major manufac- turers of voting machines are among the first and most committed to raise all kinds of creative objections to any strict standards on the reliability and tamper- resistance of voting machines.

CONCLUSIONS

While political methods and tactics continue to change, some factors seem fairly reliable over the long term in en- abling us to predict who will win. Barring major new adverse events, these factors favor President Obama’s re-election, at least in the popular vote, with the mas- sive infusions of cash into TV advertising having little practical effect other than to annoy most voters. Issues of voter ac- cess and bloc voting could substantially affect the electoral vote, however, and potentially cast doubt on the fairness of the election. OR/MS analysts, regardless

of political preferences, would do well to learn about the analytical methods and issues that contribute to improving elec- tions and keeping them credible.

Doug Samuelson (samuelsondoug@yahoo.com), senior INFORMS member and Treasurer, CPMS, is a frequent contributor to Analytics and OR/MS Today, is president of InfoLogix, Inc., a consulting company in Annandale, Va. He worked as a paid campaign staffer in a U. S. Senate campaign in Nevada in 1970, as a county coordinator in a gubernatorial campaign and targeting analyst for a local campaign in California in 1974 and as a Federal Civil Service policy analyst from 1975 to 1982.

Not to Wait: Forecasting and Simulation Reduce Waiting Times to Vote,” OR/MS Today. 35 | ANALYTICS-MAGAZINE.ORG

CORPORATE PROFILE

How analytics enhance the guest experience at Walt Disney World

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Forecasting serves as the analytical foundation for operations planning at the resort. It all starts with the park attendance forecast, which lays out the expected attendance at each park.

which lays out the expected attendance at each park. BY PETE BUCZKOWSKI (LEFT) AND HAI CHU
which lays out the expected attendance at each park. BY PETE BUCZKOWSKI (LEFT) AND HAI CHU

BY PETE BUCZKOWSKI (LEFT) AND HAI CHU

In the mid-1960s, Walt Disney’s dream was to build a family resort destination like no other. The dream became a reality when Walt Disney World Resort opened in 1971, featur- ing Magic Kingdom as the centerpiece. Today, millions of guests visit the Walt Disney World Resort each year to experience the world- class theme parks and hotels. In addition to the four theme parks, there is a never-ending list of activities to enjoy, such as shopping at Downtown Disney, playing golf at one of five challenging courses or plunging down a slide at one of our two water parks. When guests get hungry, more than 300 places to dine await them across the resort, ranging from fast ca- sual to fine dining. Guests are often surprised (and delighted) to discover that the resort has more sommeliers than any other company in the world! In all, more than 60,000 cast mem- bers guide guests through these experienc- es, delivering legendary service and creating memories that last a lifetime. Guests vacationing usually focus on the entertainment and attractions the resort has

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to offer. What most guests don’t see is the careful planning taking place “behind the scenes” to run the operation smoothly. In this article, we’ll give you a peek at the role analytics plays in ensuring the guest experience is maximized.

plays in ensuring the guest experience is maximized. A unique side view of the iconic Cinderella

A unique side view of the iconic Cinderella Castle, centerpiece of the Magic Kingdom theme park.

The resort’s costuming operation is the

largest in the world, with more than a million costumes in inventory at Walt Disney World alone. Not only does total garment demand vary by season, but the distribution of indi- vidual garment sizes also changes as the cast

mix evolves over time. Unlike a traditional in-

ventory system, garments are laundered and placed back on the shelf after cast members

return the garments. The recycling nature of

the garment inventory is further complicated

by occasional garment retires. This dynamic environment requires sophisticated forecast- ing models to have enough garments to meet cast member demand while not overspending on garments that sit on a shelf.

IMPROVING GUEST EXPERIENCE THROUGH FORECASTING

Forecasting serves as the analytical foun- dation for operations planning at the Resort. It all starts with the park attendance forecast, which lays out the expected attendance at each park. These predictions are strongly considered when setting park hours and performing other strategic planning. More granular forecasts are required for each individual area, such as guest arrivals at the hotel front desks. The company recently launched a new labor demand planning system, which generates transaction forecasts for every 15-minute period at many locations through- out the property, including park entry turnstiles, quick-service restaurants and merchandise lo- cations. These forecasts help the resort plan la- bor effectively to ensure guest service standards are met.

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CORPORATE PROFILE 37 Guests enjoy playing in the new Haunted Mansion interactive queue. From a central

Guests enjoy playing in the new Haunted Mansion interactive queue.

From a central command center underneath the Magic Kingdom, forecasting models are executed every 5-10 minutes to project the return patterns of our FASTPASS guests based on a variety of factors, including entertainment schedules and the number of FASTPASS tickets that have been distributed.

Another innovative way the resort uses forecasting is for attraction wait times. The most popular attractions utilize Disney’s FASTPASS system – a unique virtual queueing system that allows guests to receive a ticket with a designated one-hour window of time when they can return and skip the reg- ular line. The virtual queue poses an extra challenge to forecasting the standby wait

time since many FASTPASS guests will return before the guest en- tering the standby queue reaches the front of the line. From a central command center un- derneath the Magic Kingdom, forecast- ing models are executed every 5-10 minutes to project the return patterns of our FASTPASS guests based on a va- riety of factors, including entertainment schedules and the number of FASTPASS tickets that have been distributed. These forecasts are posted at the front of the at- tractions to help guests choose whether to enter the line, take a FASTPASS tick- et or return to the attraction later in the day. As an added bonus, these projected wait times are also available on Disney’s Mobile Magic smart phone app, which

shares real-time information about the parks throughout the day.