The Intelligent Enterprise

Utilize Decision Management to Move From Business Intelligence to Predictive Analytics
Moving forward, it is no longer enough to look backward at historical performance. Becoming analytic and adaptive will be a source of sustained competitive advantage.
In an era of “Big Data” organizations are looking to use analytic insight to improve their business. Rapidly changing competitive landscapes and the need to evaluate and adopt new business models is pushing organizations to become more adaptive. How can these imperatives be reflected in the way we build systems? In response to these imperatives, organizations are increasingly buying or building a new class of systems - Decision Management Systems. Decision Management Systems leverage the growing power of predictive analytics to create agile, analytic and adaptive processes and systems. This paper introduces the concepts of Decision Management Systems and shows how these systems can be easily integrated into your Enterprise Architecture. Technology enabling platforms like business rules management systems are outlined. The potential for data mining and predictive analytics to drive increased accuracy and profitability by making these systems analytic as well the role of experimentation in making them adaptive is discussed. Agile, analytic and adaptive Decision Management Systems are a critical component in a modern enterprise.

James Taylor CEO

Introducing Decision Management Systems Decision Management Systems and Enterprise Architecture Becoming Analytic Becoming Adaptive Next Steps

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Analytic Good decisions—accurate or precise.The Intelligent Enterprise Introducing Decision Management Systems Key Characteristics Decision Management Systems have three key characteristics – four if you count their unique focus. Decisions Their unique focus. not just for execution. Adaptive Finally Decision Management Systems are designed to improve over time. the data we have. of course. continuing to adapt to new circumstances. test and experiment. profitable decisions—often rely on the analysis of data to see what is likely to work and work well. Nor are they focused on managing data or being a complete enterprise application. is one of the primary reasons for using business rules and a business rules management system as the basis for building a Decision Management System. Not process. Decision Management Systems just make decisions. is that they are designed to manage and automate decisions. A Decision Management System rarely works as well on day 1 as it will later. of course. embedding such analysis into their decision-making. or events. This. The system is built from the very beginning on the basis that it will need to change. Decision Management Systems must be designed for change and for the management of change. They are designed to learn. It is also timeless. © 2013 Decision Management Solutions 2 . Agile Because decision making changes all the time. Decision Management Systems are therefore analytic. Both automated learning and support for the kind of experimentation that helps humans learn how best to change the system are involved. to adapt. They are designed to apply the content of what we know. not just its structure. often in response to external stimuli over which you have little or no control.

The use of a business rules management system. how you decided each time. up to date decisions to a potential wide range of channels. process and events.  Collaboration so everyone (business and IT) can participate in managing decision-making and making changes. Finally data from all the channels and systems is gathered to provide feedback on what works and what does not so that the decision-making of the service can be systematically improved. Most importantly. best practices and know-how. a business rules management system simplifies and streamlines analytics deployment so analytics use can expand rapidly. and why and when to change your approach. This Decision Service delivers consistent. optimization and predictive analytics: Business rules to manage policies and regulations. however. business processes and legacy systems. Using business rules and a business rules management system as the core of your Decision Management System allows you to bring clarity and transparency to your decision-making logic. systems. optimization to manage trade-offs and constraints. These systems and processes need Figure 1:Decision Services many decisions made and they can simply ask for a decision from the Decision Service and get a recommended action returned to them.  Execution transparency so you know what happened. and predictive analytics to predict risk. fraud and opportunity. accurate. The Role of Business Rules in Delivering Agility The purpose of this paper is not to detail the power of business rules.  Impact analysis so those making changes can see the business impact of change. © 2013 Decision Management Solutions 3 . With business rules and a business rules management system you get:  Design transparency so you can see how you plan to make each decision and so know what you can change.The Intelligent Enterprise Decision Management Systems and Enterprise Architecture At the core of a Decision Management System is a Decision Service —a serviceoriented component that makes decisions for other components. is highly useful to Decision Management Systems. These decisions are made by the Decision Service based on the right combination of business rules.

Traditionally we have used reports and dashboards. transactional decisions that can be automated using Decision Management Systems. In general there are three kinds of decisions that can be improved with analytics—risk decisions. visualizations and graphics to enable human decision-makers to make better decisions. Uses of Analytics Analysis of data improves the precision or accuracy of decisions. This does not. delivering analytic decisions to our operational systems. and of analytics. fraud decisions and opportunity or marketing decisions. the kind of high volume. The value of this data. We extract data from our operational systems and load it into our analytic systems but that's it. Figure 2:Closing The Loop This is particularly important as we live in an era of Big Data. they apply their experience and best practices. however. Often they also conduct some analysis of data. By evaluating the effectiveness of alternatives in the historical record and by consider the data available. looking at transactions and historical records and changing their decision based on what they find. There is more data available that is arriving more rapidly in more formats all the time. regulations. We have largely separate operational and analytic systems. close the loop because it is too hard to drive these better decisions back into our operational environment. Analytics have the most history in risk and fraud decision making but there is tremendous energy behind using analytics in marketing and other opportunity-centric decisions more recently. the effectiveness of decisions is improved. best practices and expertise. lies in the power to improve decision-making. These are all kinds of operational decisions. we close the loop. What we lack is a way to automate this analysis. When we make our Decision Management Systems analytic. This data offers tremendous potential – but only if it can be put to work. When we automate a decision we can use business rules to do a great job of representing policies. However our approach to enterprise applications makes this difficult. © 2013 Decision Management Solutions 4 .The Intelligent Enterprise Becoming Analytic Why Be Analytic? When people make decisions they consider policies and regulations.

In general no-one really cares how this is determined as long as few fraudulent transactions are missed and few legitimate transactions are mislabeled as fraud. Opportunity Decisions Opportunity decisions are focused on how to maximize loyalty and revenue. person or network is fraudulent. Good fraud decisions require an accurate assessment of how likely it is that this transaction. These kinds of analytics must change rapidly to take advantage of competitive and market circumstances and generally involve many scenarios that must be modeled. one transaction at a time: Credit risk is acquired by making bad loans to consumers. an accurate decision is made about credit risk then a bank stands to make some money from fees. for instance. In general there is a big gap between the value of a good risk decision and the value of a bad one. Classic fraud decisions are those around accepting credit cards. If an inaccurate decision is made then the bank could lose significantly more money in unrecoverable debt. © 2013 Decision Management Solutions 5 . If. Many operational decisions can therefore be improved if the decision is made based on an accurate assessment of risk. schedule risk by picking the wrong route. to predict how likely there is to be an opportunity to provoke a response or to estimate the potential available. Fraud Decisions Fraud decisions are closely related to risk decisions except that there is generally no upside in a fraud decision—a bad fraud decision will result in a loss but a good decision does not automatically make money. These very customercentric decisions include cross-sell and up-sell decisions for example. typically when interacting with customers or prospects.” Organizations often want to know why someone or something is risky and the use of analytics in these circumstances is often regulated. identifying someone for security purposes. There is generally no downside at all—even a very bad opportunity decision will not undermine the core transaction. To assess risk in these decisions requires analytics that can predict the risk — analytics that can answer the question “how risky is this person or transaction. supply chain risk by selecting the wrong supplier.The Intelligent Enterprise Risk Decisions Risk is acquired one customer. limiting the kinds of analytics that can be used. There is generally little difference between good and bad decisions as these decisions are operating at the margins. Analytics can be used to predict which offers or actions will provoke a positive response. it simply makes it possible to make money from the transaction. it will simply mean no additional value can be created. and detecting tax or insurance claims fraud.

As business users develop business rules. or work with business analysts to do so.The Intelligent Enterprise Types of Analytics To improve our risk. many thresholds and conditions must be specified. Success will require going beyond Business Intelligence tools to data mining and predictive analytics. Moving from Thresholds to Data Mining to Predictive Analytics is a clear path to becoming an Intelligent Enterprise. used this approach to validate the rules their experts wrote for detecting fraudulent tax returns. Data mining and predictive analytics approaches in particular let you take the increasing volume of data available to you and apply it to your Decision Management Systems. we must move up the analytic spectrum. Simple analytic tools such as query and visualization tools can be used to evaluate these thresholds. Traditional analytic tools such as reporting and query tools are not embeddable in Decision Management Systems and offer only limited potential. Thresholds The first step is to use analytics to improve the thresholds used in your rules. Similarly rules that intended to detect or flag something can be compared with historical results to see if they actually do so. Reports © 2013 Decision Management Solutions 6 . Figure 3: The Analytics Spectrum The Intelligent Enterprise Decision Management is a time tested and proven approach across multiple industries for rapid deployment of predictive analytics. To drive analytics into our Decision Management Systems. One tax authority. These may be specified by regulations but are often either based on best practices and experience or company policy. The impact of a threshold can be assessed. for instance the number of existing customers or transactions that would pass a rule can be measured and this can be compared with the business’ expectations. for instance. fraud and opportunity decisions we need to develop more analytic Decision Management Systems.

allowing business users to exert some control over the results. Data Mining The next step is to use mathematical techniques to find candidate business rules. Predictive Analytics The final step is to use mathematical techniques to build analytic models that predict risk. make this combination of analytic and judgmental development more explicit. Some tools. The end result of this step is a set of new business rules that have been analytically derived from your data. These models typically involve expertise in analytics as well as specialized tools for developing the models. Many data mining and analytic techniques generate rules or decision trees for segmentation and association. being uncomfortable with having their actions determined by an algorithm. For instance data mining tools can be used to find statistically similar clusters of customers or to find products that are often sold together. By allowing business users to selectively implement these decision trees in a business rules management system the organization overcame opposition to the approach. and often require a different tool that is more focused on an analytic user. The end result of this step is the analytic confirmation of judgmental business rules. For instance. The models don’t generally make © 2013 Decision Management Solutions 7 .The Intelligent Enterprise and queries identified the tax returns that the rules identified and these were assessed to see how many were actually fraudulent. fraud or opportunity. dividing customers by gender say. the end result is very explicable to someone familiar with business rules and with the use of decision trees to represent business rules. this shared representation can be very useful. including some business rules management systems. using mathematics to find the correct branches in the tree. the analytically derived business rules or decision tree can be loaded into a business rules management system and then edited. Because business users sometimes resist the use of analytics. One organization for instance used data mining techniques to identify parts that an engineer should take with them to an onsite visit because they were likely to be required. Analytic techniques that support building decision trees. For instance the user might begin by using an algorithm to find the segmentation approach that most clearly divides profitable and unprofitable customers but then apply their own judgment or policy at the next level of the tree. are combined with human judgment while editing a decision tree. This will tend to degrade the value of the analytics—the non-intuitive results of data mining are often the most useful—but it might make the difference between implementation of some analytic results and none. While these techniques are mathematical in nature.

neural networks that automatically detect fraud by seeing how different a transaction or network is from regular patterns. This might be stored in the database along with other data. Building these models is generally a specialist task performed by people known as data miners. and regression models used to predict the propensity of a consumer to accept a particular offer if it is made to them. often taking advantage of machine learning techniques. available to the business rules as an attribute. amount etc to determine the best action to take. They will use workbenches that allow them to pull in large amounts of data. © 2013 Decision Management Solutions 8 . In general predictive analytics are mixed with business rules in Decision Management Systems by making the result of the predictive analytic model. and develop and deploy a predictive analytic model based on these characteristics. Business rules would then use this result or score along with the value of the customer. clean. running the model. the score. Some automated tools aimed at less technical users exist. find predictive characteristics in this data. integrate and analyze this data. Examples of these models include credit risk scorecards that use various factors about a consumer to score their credit risk. created dynamically in the database when required using an in-database analytic engine. For instance a model might predict the likelihood that a particular transaction is fraudulent. data scientists or statisticians. The trend is towards scoring.The Intelligent Enterprise decisions but predictions that can be used in decision-making rules. or calculated using code or business rules. in real-time so that the predictive analytic result being used in the decision is as up to date as possible but many scenarios only require that the scores are available in the database as fields that the business rules management system can access. the right decision to make. location.

 You can’t control many of the factors that affect a decision. This gives you the opportunity to manage them in the long run by learning what might work better in the future by analyzing the decisions you have already made. One of the challenges with decisions is that they take time to play out —the results may not become obvious for some time. At the point you make an operation decision you cannot know what the long-term outcome of that decision will be. However this is not enough: by the time the results are clear it is way too late to gather any new data about what might have worked better. A process for continual review and improvement of how you take a decision allows you to detect and respond to changes in the behavior of your customers without having to start a special project and helps you show an ROI for the data you collect and analyze. New insights and market trends come from you. So. So experiment! Why Experiment? You experiment to continuously improve the way you make decisions. Experimentation might allow you to see how to respond to changing business conditions or it might help you make a decision better and better over time to boost profits. It is important to track your results and tie that back to your decisions to know what kind of impact you are looking for. “best” is not a static concept but a dynamic one. This matters because decisions are difficult to manage over time as:  Decisions can take time to play out. reduce losses. changes in policy or regulation for instance. your competitors and from third parties.The Intelligent Enterprise Becoming Adaptive If agility is about being able to respond to known change. You constantly learn more about your customers and gather more information about their behavior. If you use a single decision-making approach (a single set of business rules and predictive analytic © 2013 Decision Management Solutions 9 . if you take a population and take a decision about how to treat them. or improve retention. you will only see the results if you wait for some period of time—perhaps until they are next due for a check-up or a renewal. The outcome of a decision is not always immediately apparent so it may not be clear what the best decision is when you have to make it. Thanks to constant change in the environment. being adaptive is about responding to unknown changes. However. operational and repeatable tactical decisions are repeated over and over again in your organization. perhaps sooner.  Decisions are a moving target.

These differences can be significant but it is more common for them to be fairly modest. with additional rules to determine which subset the transaction is in. Once the test is complete one of the approaches will be selected as the preferred approach. In these circumstances an approach can be developed that combines the two. During the test transactions are generally allocated to one of the approaches randomly with an even distribution between the approaches. because it generates better results. This is what makes experimentation so important. Champion/Challenger Testing Champion / Challenger testing is designed to handle a situation where you have a preferred or established approach and wish to see if there is some alternative that might be better. A/B Testing is common in marketing where multiple offers or offer selection rules are compared and in pricing where multiple pricing or discounting approaches are considered. What Kind Of Experiments Are There Two main kinds of experimentation are worth implementing in Decision Management Systems—A/B Testing and Champion/Challenger Testing. Which approach was used is recorded so that results can be compared across approaches. Sometimes one approach will work best for one subset of the transactions and another approach for a different subset. This is common in risk-based decisions where there is a significant © 2013 Decision Management Solutions 10 . products purchased immediately) and often only run for a short period. By experimenting you create data about multiple decision-making approaches. Each approach is different in some known ways from the others. and that will then be used for the rest of the campaign.The Intelligent Enterprise models) for every decision you make then you will have no data about how other actions might have resulted in better (or worse) results. These different approaches can then be compared to see what the best approach is and this best approach can then be applied to future decisions. A/B Tests tend to work well when there is quick feedback on how well something works (offers are accepted. It is also common for the same kind of change to be made in each approach so that they all vary along the same dimension as it were./X) testing compares multiple approaches where there is no particular bias to one approach or another. A/B Testing A/B or A/B/C (or A/B….

in a live environment. Each Challenger will therefore deliver different results from the Champion. You also create a number of challengers or alternatives and apply them to a small percentage of the population. You can extrapolate from their effectiveness of these challengers on these subsets and determine if they work better or worse than the champion. © 2013 Decision Management Solutions 11 . However. perhaps it is more aggressive about retaining customers. Perhaps it has different business rules. you can create or promote a new champion and develop new challengers to keep repeating the process. As noted above you might find that a challenger is only better in certain subsets and so merge the challenger into the champion. you are also collecting information about how these alternatives work. can really show. as time passes. If one works better. This approach means that most customers or transactions are still handled using your preferred or approved approach. you can make that the new champion and then apply it to all subsequent decisions. Ensuring that you always have challengers running allows you to constantly verify your approach and continuously improve it. You take your main Figure 1:The Champion/Challenger Process approach—the champion—and apply it to most of your population. perhaps it uses a different risk model.The Intelligent Enterprise investment in the current approach and where it may be some time before the results can be determined. Each Challenger differs from the Champion in some measurable and defined way. These results may be better or worse but only testing the approaches with real transactions. To ensure ongoing improvement. This is important in decisions with a long time to value as it ensures some stability for the majority of transactions.

and the results returned to the system or process that requested the decision. Because the various approaches will be managed as separate rulesets or subdecisions. If a Challenger does better than the Champion. © 2013 Decision Management Solutions 12 . It also allows the experimental approach and the amount of experimentation to be varied over time. it can be made the new Champion and the process of identifying and testing new Challengers repeated to continually improve the decision. Some business rules management systems explicitly support this approach with configurable elements while others use standard elements like ruleflow and business rules to manage the allocation. This allows experimentation to be added without disrupting systems and requiring lots of coding. they can be mixed and matched as required by the experimental approach being taken. a decision is made. Each transaction is passed to the Decision Service. The key advantage of this approach is that it does not require the calling processes or systems to be aware of the experiment—as far as they are concerned it is just a call to a Decision Service.The Intelligent Enterprise Using Business Rules to Manage Experiments Using business rules and a business rules management system to build a Decision Service is a classic use case for business rules. This enables you to encapsulate experimentation within this Decision Service. it will be possible to tie outcomes back to the approach used and so measure the result of the experiment. As far as the calling process or system is concerned the Decision Service is a black box. To support experimentation. Results from the different approaches can be compared and measured over time. As long as the rules necessary to log which transaction took which approach are included. in Figure 2:Decision Service Experimentation this case Champion/Challenger experiments. a Decision Service is configured to push a small percentage of the transactions through each of the Challenger approaches while pushing the majority through the Champion.

© 2013 Decision Management Solutions 13 .  The easier it is for business users to make changes to the deployed approaches.  You need to capture the overall business results that are the consequence of the decisions in a way that allows you to know which decisions were taken using which approach when you come to analyze results.  Business users must be able to analyze the results both of production experiments and of simulations. the overall technology environment for managing experimentation includes a few additional features:  As noted.  Analytic models need to be updated regularly and this needs to be factored in to the way analytic models are developed and deployed into the experimentation environment. There is a growing array of automated analytic technology that runs A/B and Champion/Challenger testing “under the covers” and constantly updates predictive analytic models based on the results of these experiments.  A simulation/testing environment is really valuable. to edit the business rules. the production business rules environment must allow a Decision Service to have not just a single approach but several approaches to which transactions can be allocated. you need to be able to do some testing of how different rules and analytics might affect results in various "what-if" scenarios.  It must be possible to randomly assign transactions and run them through alternative business rules and analytics within the Decision Service. the tighter and more effective your iterations will be. Within this simulation environment.  Support for designing appropriate experiments requires a flexible analysis platform for business users to explore their data.The Intelligent Enterprise An Overall Technology Environment Finally. Generally you want to do some off line simulation before you commit to an experiment. which means a business-friendly interface for analysis. These adaptive analytic technologies are particularly powerful in marketing and other un-regulated environments and are becoming more widespread and established.

Adaptive systems stay relevant and continue to improve over time. competitive landscape and more mean that static applications. Contact Us If you have any questions about Decision Management Solutions or would like to discuss engaging us we would love to hear from you. J. J. Palo Alto CA: Decision Management Solutions. Works Cited Taylor. Decision Management Systems: A Practical Guide to Using Business Rules and Predictive Analytics. improve marketing response rates. will fall behind.The Intelligent Enterprise Next Steps Organizations have implemented decision management systems to improve fraud detection. no matter how agile. NY: IBM Press. automate and streamline underwriting. More use cases can be found in free our report on Decision Management Systems Platform Technologies. Decision Management Systems Platform Technologies Report. Email Fax : : info@decisionmanagementsolutions. (2012). Analytic systems can no longer be kept separate from operational systems. and analytic Decision Management Systems is a well proven approach that enables you to close the loop by putting analytics to work improving day to day decisions. Building adaptive Decision Management Systems allows organizations to constantly experiment and learn what works and what does not. Increasing rates of change in business models. As organizations move forward into the era of Big +1 650 400-3029 +1 650 352-9247 Phone : © 2013 Decision Management Solutions 14 . improve process efficiency and more. New York. increase customer loyalty and satisfaction measures. Email works best but feel free to use any of the methods below. Taylor. effective systems will become increasingly analytic. (2012). ensure GRC compliance.