DATA DRIVEN DECISION MAKING

SUBMITTED BY –

ANISHA GADIA (45169)

HRISHIKESH SAHASRABUDHE (45274)

 THE DOWNSIDE OF DATA DRIVEN DECSION MAKING

OVERVIEW

The entire article talks about data and how data as well as its analysis has become so important
in the day-to-day functioning of the organizations. Due to the recent growth as well as
advancements in modern technology, data-driven decision making is starting to be employed
across various industries. The author of the article believes that due to DDDM the decisions
made within a company are not made simply on personal observations or an instinct but are
backed by hard data from multiple sources.

Moving on, the author has highlighted the importance of DDDM by giving an example. He
explains how to gather the information and analyse the churn rate of the customers to get
meaningful interpretations from the same. Lastly, the author believes that this ‘Data-Driven
approach’ starts with finding the right question and then interpretating appropriate solutions to
answer this question. He concludes that Data-Driven Decision Making is all about finding the
purpose for the data rather than fitting the data to the purpose.

FACTS ABOUT THE PROBLEM

In this case, the author believes that ‘acquiring a new customer is 6-7 times more expensive
than retaining an old customer’. So, the author wants to analyse how can we reduce the
customer churn rate of an organization. This is the main problem statement. The author wants
to analyse if we can build a machine learning model that says for any person in the future, what
is the probability that the person will churn? He further analyses and states that if we study the
data and understand which customer is going to end the subscription soon, which customer do
we need to send the ‘Gift Card’ to, in order to reduce the churn rate.

CRITICAL REVIEW OF THE PROBLEM

For every company, their chur rate/ churn analytics play a very important role. A churn model
looks at the user activity from the past and based on customer features and preferences analyses the
probability if the customer is ending your service or product. The author then uses the DDDM
approach to solve the problem of the customer churn rate and suggests measures to reduce the same.
To being with, the author develops a machine learning (ML) model that gives us the probability that
the customer will leave the subscription, in our case, known as churn probability. The entire data
gathered for the Machine Learning model is through in-house sources. After identifying the customers
who may end the subscription (churn the service), this ML model will then be used to ‘Decide’ for
which customer a ‘Gift card’ should be sent so that the customer renews the subscription, in turn,
reducing the churn rate.

The data which is collected in the case is organized systematically as seen in the above figure.
This table highlights the customer’s name, the number of days they have not purchased, number
of times they have logged into their accounts to keep a track, the age of the customers as well
as the churn rate. (where 1=Churn, 0= did not churn).

However, the author believes that the above approach has some ‘flaws’. The author believes
that this approach gives us a ‘suboptimal’ decision. The author highlights that to get the best
quality decision, the data should be of the highest quality too. Only when the data is of utmost
quality, the organizations are in a position to make both well-informed as well as accurate
decisions. That is why finding the appropriate set of data is the most important step in the Data-
Driven Decision Approach.

Finally, the author draws the ‘Decision Tree’ highlighting the decision, uncertain outcomes as
well as the probabilities. The expected value of every customer (in our case – James,
Mohammad, Helen) is calculated. Whichever customer gives the highest expected value, the
gift card should be sent to that customer in order to convert the customer and reduce the churn
rate. In our case, the highest Expected Value (EV) was of Helen (54) and the gift card should
be sent to her as compared to the other two.
 VIEWS ABOUT THE CASE

The author wanted to identify the churn rate of an organization and which customer should be
given a gift card in order to reduce the churn rate. He used the Data-Driven Approach to identify
the relevant customer. The author believes that the quality as well as the quantity of the data
collected is the most important process in data analysis. Any organization collecting data
should take care of three major factors for accurate calculations and interpretations, namely-
Alternatives to choose from, Objective for the organization as well as the information needed
to assign the necessary probabilities.

After this information is collected, the author goes ahead and decides the problem statement
clearly. The problem statement for the case study was – ‘What is the customer’s probability of
ending the subscription, given she is offered the 10$ Gift card?’. The calculations are performed taking
into consideration the probabilities of either ending or continuing the subscriptions. Finally, the
expected value is calculated and the individual with the highest expected value is given the gift card.

REAL LIFE APPLICATION

Companies use the DDDM model approach to solve various problems of an organization. One
of the examples is to find and analyse which employee, among the ones leaving, should be
given a salary hike?

Say we gather all the internal data of the organization related to the employee, their personal
characteristics, their work performance, the company their shifting to, the reason for leaving
the organization and many more.

Hypothetically, let us assume that the below mentioned table has the employees leaving the
company and all of them have the same reason for switching the company-

SR. NAME EXPERIENCE REASON IMPACT ON

NO. IN THE FOR THE
COMPANY LEAVING COMPANY
1. Ayesha 2 Years Getting a better Positive
salary offer
 2. Raj 3 Years Getting a better Positive
salary offer
3. Rahul 1.5 Years Getting a better Positive
salary offer

The decision to make is-

Among the three employees (Ayesha, Raj and Rahul) exiting the company soon, which one do we need
to give a ‘salary hike’, to retain them back in the company?

➢ Alternative 1) Increment in salary for Ayesha-

EV= (0.7) (80) + (0.3)(-20)

=56 -6

EV=50

➢ Alternative 2) Increment in Salary for Raj-

EV= (0.6)(80) + (0.4)(-20)

= 48 – 8
EV= 40

➢ Alternative 3) Increment in Salary for Rahul-

EV= (0.8)(80) + (0.2)(-20)

= 64 – 4

EV= 60

From the above calculations, it is clearly seen that the expected value (EV) for Rahul is the best. Hence,
Rahul should be given a salary hike and the company should retain him for future benefits.

CONCLUSION

This case scenario analysis study initially highlights the importance of Data Driven Decision
Making. Data-driven decision making, along with clear and concrete goals, improves
transparency in companies, especially when all data is considered without bias and overall
results are measured accordingly. By performing the DDDM analysis, the company can
analyse the information and draw relevant conclusions as well as interpretations effectively
and efficiently.

This case discusses a problem given by the author. The author wants to know the customer’s
probability of ending the subscription, given she/he is offered the 10$ Gift card? This helps the
organization understand the churn rate of their customers. Another real-life example discussed
by us was to identify which exiting employee do we need to give a ‘salary hike’, to retain them
back in the company? There are multiple problems where the DDDM approach can be
successfully applied, and meaningful conclusions can be drawn from the same.

Lastly, the author feels that the main goal of the decision-maker in the enterprise, employees
or organizations who make operational decisions are to create value, and this value is created
only through “High-Quality” decisions. Such high-quality decisions can be made only if
optimum information is available for the same and the data gathered is complete. Thus, DDDM
provides a framework of making high quality decisions and provide results which prove to be
the best for the organization as well.