addd (automated data driven decisions) – how to make it work
TRANSCRIPT
Automated Decision Making with Big Data – How to make it workLars Trieloff | @trieloff
ADDD
ADDDAutomated Data Driven Decisions
— Holger Kisker, Forrester Research
“Even after more than 20 years of using BI, they still base nearly 45% of business decisions on qualitative decision factors instead of quantitative, fact-based evidence. “
If data is not used for decision making, what is used then?
4%Worldwide average profit margin in retail: 4%
4‰German average profit margin in retail: 4‰
Your Customer gives you this
All you got to keep is that
— –Libby Rittenberg
“Economic profits in a system of perfectly competitive markets will, in the long run, be driven to zero in all industries.”
Physiological
Safety
Love/Belonging
Esteem
Self-Actualization
— Abraham Maslov – probably never said this. It’s true anyway.“Data has Human Needs, too”
Collection
Collection
Storage
Collection
Storage
Analysis
Collection
Storage
Analysis
Prediction
Collection
Storage
Analysis
Prediction
Decision
Collection
Storage
Analysis
Prediction
Decision
Physiological
Safety
Love/Belonging
Esteem
Self-Actualization
— W. Edward Deming
“In God we trust, all others bring data”
How Data-Driven Decisions should work
Computer Collects
Computer Stores
Human Analyzes
Human Predicts
Human Decides
— Daniel Kahneman
“Prejudice against algorithms is magnified when the decisions are consequential.”
How Data-Driven Decisions REALLY work
Computer Collects
Computer Stores
Human Analyzes
C O M M U N I C AT I O N
B R E A K D O W NHuman Decides
— Led Zeppelin
Communication Breakdown, It's always the same, I'm having a nervous breakdown, Drive me insane!
• Drill-down analysis … misunderstood or distorted
• Metrics dashboards … contradictory and confusing
• Monthly reports … ignored after two iterations
• In-house analyst teams … overworked and powerless
How Data-Driven Decisions REALLY work
C O M M U N I C AT I O N
B R E A K D O W N
How Data-Driven Decisions REALLY work
http://dilbert.com/strips/comic/2007-05-16/
How Decisions REALLY should work
Computer Collects
Computer Stores
Computer Analyzes
Computer Predicts
C O M P U T E R D E C I D E S
— Everyone at Blue Yonder, all the time
99.9% of all business decisions can be automated
How Decisions are Being Made
90% No Decision is made
— Robin Sharma
“Making no decision is a decision. To do nothing. And nothing always brings you nowhere..”
Business Rules for Beginners
Not doing anything is the simplest business rule in the world – and also the most popular
90% No Decision is made
9% Decision Follows Rule
Advanced Business Rules
Computers are machines following rules. This means business rules are programs.
• Business rules are like programs – written by non-programmers
• Business rules can be contradictory, incomplete, and complex beyond comprehension
• Business rules have no built-in feedback mechanism: “It is the rule, because it is the rule”
Business rules are Programs, just not very good ones.
— Mark Twain
“It ain’t what we don’t know that causes trouble, it’s what we know for sure that just ain’t so”
1% Human Decision making
Human Decision Making has two systems – and only one is rational.
Not quite Almost there That’s it.
Quick: What do you see here?
— Steven Pinker, describing Moravec’s Paradox
“The hard problems are easy and the easy problems are hard.”
Quick: Add all even numbers
65 7 1 0
60 63 18 80
547039100
69 20 26 73
94 39 37 31
92 70 100 67
4956080
69 20 26 73
51 60 23 22
5 48 43 14
9525669
23 67 1 43
Correct Result:
Correct Result: 1.024
— Daniel Kahneman
“All of us would be better investors if we just made fewer decisions.”
How we are making decisions (Like the big apes we are)
Anchoring effectIKEA effect
Confirmation bias
Bandwagon effect
Substitution
Availability heuristic Texas Sharpshooter Fallacy
Rhyme as reason effect
Over-justification effect
Zero-risk bias
Framing effect
Illusory correlationSunk cost fallacy
Overconfidence
Outcome bias
Inattentional Blindness
Benjamin Franklin effect
Hindsight bias
Gambler’s fallacy
Anecdotal evidenceNegativity bias
Loss aversion
Backfire effect
• Abraham Lincoln and John F. Kennedy were both presidents of the United States, elected 100 years apart.
• Both were shot and killed by assassins who were known by three names with 15 letters, John Wilkes Booth and Lee Harvey Oswald, and neither killer would make it to trial.
• Lincoln had a secretary named Kennedy, and Kennedy had a secretary named Lincoln.
• They were both killed on a Friday while sitting next to their wives, Lincoln in the Ford Theater, Kennedy in a Lincoln made by Ford.
• Abraham Lincoln and John F. Kennedy were both presidents of the United States, elected 100 years apart.
• Both were shot and killed by assassins who were known by three names with 15 letters, John Wilkes Booth and Lee Harvey Oswald, and neither killer would make it to trial.
• Lincoln had a secretary named Kennedy, and Kennedy had a secretary named Lincoln.
• They were both killed on a Friday while sitting next to their wives, Lincoln in the Ford Theater, Kennedy in a Lincoln made by Ford.
K-Means Clustering
Naive BayesSupport Vector Machines
Affinity Propagation
Least Angle Regression
Nearest Neighbors
Decision Trees
Markov Chain Monte Carlo
Spectral clustering
Restricted Bolzmann Machines
Logistic Regression
Computers making decisions (cold, fast, cheap, rational)
• A machine learning algorithm is a system that derives a set of rules based on a set of data
• It is based on systematic observation, double-checking and cross-validation
• There is no magic, just data – and without data there is no magic either
Machine Learning means Programs that write Programs
Better Decisions through Predictive Applications
How Predictive Applications Work
Collect & Store Analyze Correlations
Build Decision Model
Decide & Test Optimize
— Warren Buffett
“I checked the actuarial tables, and the lowest death rate is among six-year-olds, so I decided to eat like a six-year-old.”
More than half of the apps on a typical iPhone home screen are predictive applications.
Building Predictive Applications
Machine Learning ModelPredictive Application
Enterprise Integration
Story Time(Not safe for vegetarians)
The Ground Beef Dilemma
How much ground beef are we going to
sell on Friday?
How much ground beef are we going to sell on Friday?
And how much on Saturday?
Challenge #1 Accurately predict demand
Great. But how much do we need to order
each day?
Great. But how much do we need to order
each day?
Let’s reduce the risk of running out of
stock to 20%
Sales Forecasts for FridaySa
les P
roba
bilit
y
0
0,01
0,02
0,03
0,04
0 4 8 12 16
Friday Sales Amount
Sales Forecasts for SaturdaySa
les P
roba
bilit
y
0
0,01
0,02
0,03
0,04
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Saturday Sales Amount
Great. But how much do we need to order
each day?
Let’s reduce the risk of running out
of stock to 20%
So it’s 3 on Friday and 5,5 on Saturday.
Sales Forecasts for Both DaysSa
les P
roba
bilit
y
0
0,01
0,02
0,03
0,04
0 4 8 12 16
Friday Sales Amount Saturday Sales Amount
Bad news…
Bad news…
We need to skip the Saturday delivery.
Bad news…
We need to skip the Saturday delivery.
How big should we make the Friday delivery
instead?
If you need 3 on Friday and 5,5 on Saturday to fulfill 80% of the demand, how much do you need to fulfill 80% of the combined demand?
3 + 5,5 = 8,5 Common Sense isn’t it?
— Albert Einstein
Common sense is what tells us the world is flat.
Combined Sales ForecastsSa
les P
roba
bilit
y
0
0,01
0,02
0,03
0,04
0 4 8 12 16
Combined Sales Amount
If you ordered 8,5 cases, you would waste a lot of meat, the ideal order amount is 8 cases.
Predictive Apps in a NutshellBatch and streaming data ingestion, batch
and streaming delivery (with real-time option)
Reduce risk and cost » increase revenue and profit
Trend Estimation Classification Event Prediction
Optimize Returns
Collect Data Predict Results Drive Decisions
— John Maynard Keynes
“When my information changes, I alter my conclusions. What do you do, sir?”
One Common Platform for Predictive Applications
Multi-Tenant Runtime Environment
Link Store Build Run View
Link your own and third-party data, easily
integrated via API
Store your data in high-performance
database as a service
Build machine learning and
application code
Automatically runand scale ML models
and applications
Monitor and inspectresource usage and
model quality
Secure Micro Cloud Infrastructure
Domain Model Predictive Model Application Code
— Kevin Kelly
“The business plans of the next 10,000 startups are easy to forecast: Take X and add AI”
How Enterprises adopt Predictive Applications
Learn about ADDD
Define Target Process
Build Predictive App Go Live Make Lots of
Money
— Daniel Kahneman
“Prejudice against algorithms is magnified when the decisions are consequential.”
How Enterprises REALLY adopt Predictive Applications
Learn about ADDD
Define Target Process
Build Predictive App
Make Lots of Money
D O U B T S C O N C E R N S
O B J E C T I O N S
Decision Quality
Status Quo Predictive Prescriptive Automation Automation+
Decision Quality
Status Quo Predictive Prescriptive Automation Automation+
Decision Quality
Status Quo Predictive Prescriptive Automation Automation+
Decision Quality
Status Quo Predictive Prescriptive Automation Automation+
Decision Quality
Status Quo Predictive Prescriptive Automation Automation+
Ready, set, go for ADDD?
Not so fast
Data Availability
Data Availability
Predictability
Data Availability
Predictability
Understandability
Data Availability
Predictability
Understandability
Executability
Lars Trieloff @trieloff (this guy is hiring)