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Roadmap to the Predictive Analytics Promised Land
Managed effectively, predictive analytics programs can generate big business benets. And the key to delivering on that is keeping a laser focus on business goalsnot getting blinded by the technology.

EDITORS NOTE

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BUSINESS BEACON LIGHTS PREDICTIVE ANALYTICS PATH

PREDICTIVE ANALYTICS PUTS BIG SQUEEZE ON IT SYSTEMS

POOR PLANNING, FLAWED MODELS MAR ANALYTICS EFFORTS

EDITORS NOTE

Predictive Analytics Fire Needs Careful Fueling

Predictive analytics and its data mining cousin were already hot technologiesthen along came big data. The large volumes of information that organizations are collecting and looking to analyze have only expanded the business value that can be gained from well-managed predictive analytics programs, according to a report published by Forrester Research in January 2013. But stoking the predictive analytics engine can be a challenge for the illprepared. Building and running predictive models is a complicated process that can lead to nowhere if you arent careful. Creating a systems architecture to support predictive analytics efforts is no slam dunk, either. This three-part guide offers advice on how to plan and manage successful predictive analytics initiatives that deliver real business benets. First, we catalog tips on how to put projects on the right track and keep them there. Next, we look at the technical requirements of predictive analytics deployments. And we close with a heads-up on missteps and pitfalls to be avoided. n
Craig Stedman Executive Editor, SearchBusinessAnalytics.com

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Business Beacon Lights Predictive Analytics Path

Predictive analytics tools make it possible for companies to forecast customer behavior, litigation risks, product demand and other business scenarios. But it isnt as easy as gazing into a crystal ball: To succeed in creating effective predictive analytics models that generate actionable ndings, organizations need to develop a strategy that ties the technology to business operations in a concrete and comprehensive way. Otherwise, consultants warn, deployments are likely to turn into technical exercises with no real connection to business goals and processesand no predictive payoffs in the end. For starters, the goals of a predictive analytics program need to be quantiable and measurable, said Scott Schlesinger, senior vice president and head of the business information management consulting group at New York-based IT services provider Capgemini North America. While improving customer insights is a laudable goal, he said, the predictive analytics target should be something like, Increase, by cross-selling [or] up-selling, the number of customers who own two or more of our products by X percent, thereby increasing protability by Y percent.

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Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

In turn, using such targeted metrics creates a need to effectively measure return on investment (ROI), according to Schlesinger. For example, a retailer looking to use predictive analytics to more accurately forecast demand for products could track stockoutsthe times when inventories are exhausted and products are temporarily unavailable. The existing number of out-of-stock incidents would serve as the basis for ROI measurements once the analytics effort begins, Schlesinger said. After predictive models are developed and put into use, he added, the effect on stockouts needs to be captured and documented to either justify or change the predictive analytics initiative.

LOOK BEFORE YOU LEAP

Organizations should begin by doing a comprehensive assessment of their analytics requirements and capabilities, said Eric King, president of The Modeling Agency LLC, a Pittsburgh-based predictive analytics and data mining consultancy. For example, the assessment process could touch on things such as the size of the data sets to be analyzed, the experience and skill levels of the analytics team and how quickly particular data sets are updated, including whether there is a realtime element that needs to be taken into account. King said a well-executed assessment will help project managers develop a deployment roadmap that incorporates both technical requirements and business

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Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

objectives. It can also pay downstream dividends, he added, citing benets such as more efcient modeling processes and the ability to avoid having to retrot systems to accommodate new models. Once projects are under way, King said, analytics teams should avoid focusing on what he calls articial metricsndings that are accurate statistically but dont correspond to real business needs or objectives. Measuring the success of predictive models based simply on their accuracy is a road to nowhere if the models address the wrong questions to begin with, he said. Analytics teams can also go wrong if they jump directly into the data without fully understanding its business context, King cautioned. For example, outliers in data sets are often downplayed or ignored, he said: What a lot of rookies do is think its an error and censor its value, or that it shouldnt be there or is skewing the results.

GOING TO EXTREMES PAYS OFF

But such extreme data points sometimes can be the most useful from a business standpoint, according to King. Rare events may have the greatest value, he said. Predictive analytics is more about low-incidence, high-impact occurrences. It comes back to understanding the business objectives. Another mistake is resting on your laurels. Just because predictive models are

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Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

effective doesnt mean the work on a project is overdata sets and models need to be reviewed periodically and revised when necessary as business conditions and strategies change. No model is a one-shot deal, said Rick Sherman, founder of consultancy Athena IT Solutions in Maynard, Mass. And while business connections are crucial, once theyre in place IT and business managers should get out of the way of the data scientists, statisticians and other analytics professionals tasked with building and running the predictive models, Sherman said. Set up an environment where they can be creative, he said. In order for them to come up with models that are truly of value, they have to have the freedom to explore and experiment with the available data. Christine Parizo

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Predictive Analytics Puts Big Squeeze on IT Systems

Predictive analytics projects are no light breeze on IT infrastructures. Building and testing predictive models and then running them against large volumes of data can kick up a processing gale strong enough to overcome systems that lack the required power and capacity. Its a big mistake on the part of IT managers to view predictive analytics initiatives and related data mining programs the same way they look at conventional business intelligence projects, according to analysts such as Rick Sherman, founder of consulting company Athena IT Solutions. But thats often the case, he said, leaving many analytics professionals with processing environments that arent sufcient for running predictive applications effectively. To avoid that situation, companies should be aware of the possible need to add more hardware. In addition, the amount of data involved and the nature of predictive analytics efforts typically require dedicated storage space for data sets along with the ability to manipulate the information as needed, Sherman said. An IT team has several options for providing that space, he addedfor example, creating standalone data marts, setting up walled-off data sandboxes inside a data warehouse and even letting users download data into Excel spreadsheets.

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Those approaches remove analytics data from a controlled data warehousing environment and let analytics pros explore and work with the information more freely than they could otherwise.

DIFFERENT DEGREES OF CONTROL

Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

Using Excel is generally the least appealing option for organizations because it takes data completely outside of the purview of IT managers, Sherman said. Data marts and sandboxes also require IT to give up control of data, he added, but theyre managed setups with security and backup protections. Sandboxes in particular create segSandboxes in particuregated islands where analytics professionals can lar create seg regated play with data with autonomyand without afislands where analytfecting regular data warehouse operations. If they ics professionals can need more infrastructure, CPU power or memory, play with data with theyre isolated and it has less impact on other autonomy. [processing jobs], Sherman said. If analytics applications are being run directly against information in a data warehouse, the architecture of the warehouse can largely impact the potential satisfaction or dissatisfaction of users, said John Lucker, head of the advanced analytics and modeling

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Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

practice at New York-based Deloitte Consulting LLP. As a result, he endorsed the idea of moving data to external data marts for use by data scientists and other data analysts. No matter how the IT department sets up the infrastructure for predictive analytics, Lucker said, effective data stewardship and governance processes need to be at the forefront of initiatives to help ensure that incoming data is accurate and consistent. Scott Schlesinger, senior vice president and head of business information management consulting at Capgemini North America, agreed that a well-planned data management strategy is a must for a successful predictive analytics program. That includes assessing data availability and data quality and cleaning up information as needed, he said, adding that organizations must be willing to push through tough process changes if doing so is required to get their data in shape for accurate analysis.

NICE VIEWS MAKE DATA UNDERSTANDABLE

Lucker thinks the use of data visualization tools also needs to be considered because business managers might better absorb predictive analytics findings if the data is presented in graph or chart form. Sometimes analytics [professionals] err on the side of being overly quantitative, he said.

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Spreadsheets and tables are OK for some, but those methods might be awful for people who would prefer to see the data in a more visual, graphic way. And then, of course, theres the predictive analytics software itself. A variety of tools are available, including credible open source options, Lucker said. He recommends that in evaluating and selecting predictive software, companies examine not only features, functionality and the long-term viability of vendors but also usability and the level  Its not that they of user training that will be required. Theres a cant use the cloud, tremendous leaning at many companies to underbut generally there think the amount of investment required to beisnt enough procome an expert in these tools, he said. People buy cessing power. things and then tend to wonder why theyre sitting RICK SHERMAN, on the bench. founder, Athena IT Solutions One approach that has yet to be widely adopted is doing predictive analytics in the cloud, according to Sherman. Most companies are still using on-premises systems for their deployments, he said: Its not that they cant use the cloud, but generally there isnt enough processing power. Christine Parizo

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CHALLENGES

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Poor Planning, Flawed Models Mar Analytics Efforts

Youve won approval for a predictive analytics program and away you go on the implementation, fully expecting it to generate valuable business insights that lead to increased revenue and competitive advantages. But a year later, corporate management doesnt think the investment has panned out in the form of tangible business benets. What went wrong? In many cases, a rush to deploy predictive anaA rush to deploy prelytics tools without proper planning sets the stage dictive analytics tools for unmet expectations, according to technology without proper plananalysts. They warn that not setting specic goals ning sets the stage for and fully measuring the business pulse of a predicunmet expectations. tive analytics project up front can crimp its potential before the deployment even begins. Thus, the initial challenge for an analytics team is establishing a set of strategies and processes that will logically advance a project toward a successful outcome. That means diligently thrashing out and dening both short- and long-term objectives with corporate and business executives to make sure the analytics efforts arent headed down the wrong path.

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SUCCESS MUST BE EARNED

Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

Theres also the need for a sustained effort to develop, test and rene predictive models to ensure they generate ndings in line with a companys business goals and requirements. Organizations run into trouble when they expect to [automatically] get amazing results, said Doug Laney, an analyst at Gartner Inc. in Stamford, Conn. Predictive analytics projects are iterative and involve processes that need the regular testing of models. Typically, there is an assortment of business  Predictive analytmetrics and variables to take into account. Unics projects are derstanding the value and signicance of the potiterative and involve pourri of available elements is no easy task, said processes that need Eric King, president of consultancy The Modeling the regular testing Agency LLC. In fact, he added, its tricky enough of models. that a common problem is developing predictive DOUG LANEY, models that answer the wrong questions. analyst, Gartner Inc. For example, a model might tell a car maker that males younger than 23 years old prefer red interiors over turquoise ones. That might be an accurate result, but it wont be useful from a business standpoint if a substantial majority of prospective car buyers arent predisposed to surrounding themselves with either of those colors. King said obtaining irrelevant information of that sort from

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predictive models is a waste of time, effort and resources that can be avoided only through close interactions between an analytics team and business managers.

TAKE IT FROM THE TOP

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Because the process of implementing and sustaining a predictive analytics program is inherently complex, a lack of executive support and leadership can hamstring efforts. Whats also needed from the top ranks is the endorsement of a corporate culture that values creative thinking, fresh ideas and data-based decision making, said An unwillingness on John Lucker, head of the advanced analytics and the part of business modeling practice at Deloitte Consulting LLP. In executives to trust such a culture predictive analytics projects, and a or credit predictive lot of other positive things, ourish. analytics ndings can On the other hand, an unwillingness on the part have a big impact on of business executives to trust or credit predicthe bottom line. tive analytics ndings can have a big impact on the bottom line. Lucker recalls facing resistance from a supermarket chain to a study he produced showing that customers would pay more for chocolate ice cream than vanilla. Executives at the company contended that varied pricing would add to its labor costs and

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Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

be viewed with disfavor by shoppers. In the end, Luckers recommendation was rejectedleaving a few million dollars in potential revenue sitting on the table, he said. Overcoming such resistanceto change and to taking action based on where the data leadsis a must for organizations determined to maximize the business value of their predictive analytics programs, according to Lucker. As a result, that needs to be a top priority of program managers. Were imperfect human beings with our egos and so forth, he said. But signicant progress, in terms of better efciency and smarter decisions, will come to fruition if we simply insist on making decisions based on facts. Roger du Mars

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ABOUT THE AUTHORS

CHRISTINE PARIZO is a freelance writer who

Home Editors Note Business Beacon Lights Predictive Analytics Path Predictive Analytics Puts Big Squeeze on IT Systems Poor Planning, Flawed Models Mar Analytics Efforts

specializes in covering business and technology issues.Parizo writes for a variety of publications, including several TechTarget websites; she also works as a copy editor for Copyediting, a newsletter for editing professionals. Email her at christine @christineparizo.com. is a freelance writer based in Redmond, Wash. He has written for publications such as Time, USA Today and The Boston Globe, and he previously was the Seoul, South Korea, bureau chief of Asiaweek and the South China Morning Post. Email him at rogerdeandumars @yahoo.com.
ROGER DU MARS

Roadmap to the Predictive Analytics Promised Land is a SearchBusinessAnalytics.com e-publication. Scot Petersen | Editorial Director Jason Sparapani | Managing Editor, E-Publications Melanie Luna | Managing Editor Craig Stedman | Executive Editor Linda Koury | Director of Online Design Neva Maniscalco | Graphic Designer Mike Bolduc | Publisher mbolduc@techtarget.com Ed Laplante | Director of Sales elaplante@techtarget.com TechTarget 275 Grove Street, Newton, MA 02466 www.techtarget.com
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