Automated Decision Making with Big DataLars Trieloff | @trieloff

What would you do when every decision counts?

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.”

Who is using Big Data Today?

Where Big Data is Used

Effective Use

Marketing

Finance

Everyone Else

Where Big Data is Used

Effective Use

Marketing

Finance

Everyone Else

Where Big Data is Used

Potential Use

Marketing

Finance

Everyone Else

Three Approaches

Three Approaches

Faster DataMore Data Better Decisions

M O R E D ATAD I G I TA L M A R K E T I N G ’ S A P P R O A C H :

M O R E D ATAD I G I TA L M A R K E T I N G ’ S A P P R O A C H :

Digital Marketing: More Data

Digital Marketing: More Data

Financial Services: Faster Data

But what about better Decisions?

Physiological

Physiological

Safety

Physiological

Safety

Love/Belonging

Physiological

Safety

Love/Belonging

Esteem

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

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 N

Human 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

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

Business Rules in Action

Advanced Business Rules

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.

1% Human Decision making

Human Decision Making has two systems – and only one is rational.

Not quite Almost there That’s it.

— 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)

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.

Computers making decisions (cold, fast, cheap, rational)

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

Why Test?

— Randall Munroe

“Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing ‘look over there’”

Story Time

Story Time(Not safe for vegetarians)

The Ground Beef Dilemma

The Ground Beef Dilemma

The Ground Beef Dilemma

Yesterday Today Tomorrow Next Delivery Next Day

In Stock Demand

• Order too much and you will have to throw meat away when it goes bad. You lose money and cows die in vain

• Order too little and you won’t serve all your potential customers. You lose money and customers stay hungry.

The Ground Beef Dilemma

Challenge #1 Accurately predict demand

1. Estimate Demand (with Probability)

0

22,5

45

67,5

90

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2. Account for Package Sizes

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3. Cost of Write-Offs & Lost Sales

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4. Weigh Costs by Probability

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5. Aggregate Costs

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6. Find Minimum Cost

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Small Changes have Large Effects

Small Changes have Large Effects

022,5

4567,5

90

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20406080

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20406080

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020406080

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020406080

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22,545

67,590

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20406080

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020406080

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22,545

67,590

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— John Maynard Keynes

“When my information changes, I alter my conclusions. What do you do, sir?”

Automate Replenishment

Collect Stock and Sales Predict Demand Trade Off Costs Create Orders

in ERP SystemOptimize &

Repeat

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

One Common Platform for Predictive Applications

Your own and third-party data, easily integrated via API

Link

Build Machine Learning and

application code

Build

Automatically run and scale ML models

and applications

Run

Monitor and inspect resource usage and

model quality

View

Your data stored in high-performance

database as a service

Store

Lars Trieloff @trieloff