Any Fool Can Make a Rule...

"...and any fool will mind it." -- Henry David Thoreau.

The EPA was in my neighborhood several weeks ago testing well water -- never a good sign. It was determined that the subdivision just north and upstream of us had once been the site of a farm contaminated by the dumping of fuel, pesticides, and various other chemicals.

It turned out that our water was fine, but as a precaution due to proximity, I am following the EPA's recommendation for the subdivision itself -- the installation of a carbon filter.

For me this is no big deal, as I already have a large, full house filter installed. However, I had recently purchased three of the large, standard filters to last me the next 18 months, and was not happy about the now duplicate costs to replace them.

I had ordered my standard filters from a local, online N.C. distributor that I'd been dealing with for a couple of years,, chosen originally not just because of price, but because it also carried the O-ring and specialized wrench I needed.

So I picked up the phone and called into the customer service number, expecting the worst. Now, I don't know if I simply got a very experienced customer service rep, or if they were employing something like a rules-based adaptive customer experience system (ACE), but I ended up with exactly what I wanted and needed, all with no duplicate costs.

If I'd gotten an inflexible customer relationship system, I'm certain that they'd have simply tried to follow the standard script and upsell me, when in reality what they were dealing with was not a sales growth opportunity, but a retention issue where risk management, and not marginal profit, was paramount.

In the end, I was able to order three of the carbon filters, got full credit for returning the unneeded standard filters even though I was past the 30-day return window, and the rep got authorization to give me free-shipping to compensate for my paying the return shipping. Just try that with a script-driven process run out of an off-shored call center!

The above-mentioned real-time ACE decision system is just one example of a rules-based decision support process, the topic of this past week's DM Radio show, "Rules, Rules, Rules." If you've not heard of DM Radio, Eric Kavanagh hosts a weekly (every Thursday afternoon, 50 weeks a year, at 3:00 p.m. ET) one-hour discussion on current IT and business system issues.

His Ed McMahon-like co-host, Jim Ericson, played the likeable curmudgeon, this time lamenting that he can never get a real human, no matter what number he punches, before we moved into the heart of the issue, covering ground from expert systems, to fuzzy rules, to real-time.

This week's guest analyst was Dean Abbott, founder and president of Abbott Analytics, who introduced the concept of "association rules," an important extension to the more common fixed rules of the somewhat brittle "expert systems."

Designed for a more complex environment, associative rules work like this: You walk into a grocery store in July and purchase, among 25 other things in your basket, hamburger buns and ketchup. The system recognizes the significance of these two items paired together (a backyard cookout) out of all the other possible pairs, triplets, quadruplets, etc.... and automatically creates a coupon at checkout for $1.00 off a bag of charcoal (which it recognized as NOT being in your basket). The bag is conveniently sitting near the exit -- you can pick it up on your way out, and save yourself an extra trip back to the store later. It's a win-win for both you and the retailer.

A hardcoded, binary decision system could never handle this level of complexity, even though it's only 25 items, whereas it's a relatively trivial exercise for high-performance analytics, and associative rules are smart enough to know that without the hamburger, pairing the ketchup with anything else in the basket is insignificant.

Developing an effective rule-based system involves three aspects:

  1. Assess the business process for the appropriate steps to consider automating with rules.
  2. Determine the best class of rules, and their specific parameters, to apply at each step.
  3. Design an effective overall system, people included, to best execute those rules.

When it comes to the first aspect -- assessing the overall business process -- I'll simply suggest these three resources: 1) My previous blog post on The Man Who Saved the World, 2) the book Normal Accidents by Charles Perrow, and 3) Kevin Slavin's TED Talk on Algorithms.

The point of this trio of resources is to educate yourself about the dangers and differences between tightly and loosely coupled systems, and the proper use of human intervention and exception handling to prevent situations like the one described by Slavin, where two computers bid each other up into the millions of dollars on eBay for a $12.95 paperback book. You don't want to be the one responsible for the next version of the Wall Street "flash crash" at your company.

The application of analytics to each of these aspects is ubiquitous, from data mining, to decision trees, to variability and confidence levels, to parameters and triggers. I started this post with the ACE real-time decisioning example, and it would be best to conclude it with additional illustrations of how analytics drives rule-based decision-making:

  • At HSBC, big-data is no longer an obstacle to credit card fraud prevention. In-memory and in-database solutions mean that instead of just sampling their transactions, they can run 100 percent of them through the fraud detection software.

  • The use of data integration on the front end of SAS Financial Management enables the three-day close by avoiding suspended transactions that can be resolved through a rules-based process.

  • Near real-time capital market portfolio risk analysis to assess regulatory and internal policy compliance, such as liquidity or counter-party risk.

  • Text analytics and social media sentiment analysis, where language and grammar are recognized as rule-based systems that can be analyzed for meaning and business intelligence just the same as the contents of a grocery cart. This is an increasingly important capability in managing your corporate or brand reputational risk, where negative news can go viral and spiral out of control before you have a chance to even recognize it as a problem.

As you can see, rules-based decision-making covers a lot of ground. As the now famous line by Warren Bennis goes: "The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment."

Rules-based decision systems are permeating the business environment, and with the analytics available to help make those rules better, you can end up with better business decisions, faster.

This originally appeared on the SAS blog, Value Alley.

Leo Sadovy, Performance Management Marketing, SAS

Leo Sadovy handles marketing for Performance Management at SAS, which includes the areas of budgeting, planning and forecasting, activity-based management, strategy management, and workforce analytics. He advocates for SAS’s best-in-class analytics capability into the offices of finance across all industry sectors. Before joining SAS, he spent seven years as Vice President of Finance for Business Operations for a North American division of Fujitsu, managing a team focused on commercial operations, customer and alliance partnerships, strategic planning, process management, and continuous improvement. During his 13-year tenure at Fujitsu, he developed and implemented the ROI model and processes used in all internal investment decisions, and also held senior management positions in finance and marketing.

Prior to Fujitsu, Sadovy was with Digital Equipment Corp. for eight years in sales and financial management. He started his management career in laser optics fabrication for Spectra-Physics and later moved into a finance position at the General Dynamics F-16 fighter plant in Fort Worth, Texas. He has an MBA in Finance and a Bachelor’s degree in Marketing. He and his wife Ellen live in North Carolina with their three college-age children, and among his unique life experiences he can count a run for US Congress and two singing performances at Carnegie Hall.

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Re: Decision rules=coupon at checkout for $1.00 off a bag of charcoal
  • 3/29/2013 4:13:51 PM

First, thanks for the link on rules discussion. 

Second, most of the people around here use gas grills.  Either the rules also took into account more than ketchup + hamburger rolls - charcoal (such as that this Customer.ID bought charcoal or lighter fluid on another occasion; or demographic data made charcoal a good bet), or they just happen to get it right (I think something grill-method-neutral would be a better choice).

How would you structure the analysis to find out how well their rule worked?

Re: Importance of people...
  • 12/11/2012 7:42:38 AM

I had a similar experience. Wonder how the credit card issuers are able to determine foreign transactions are legit without a call from the consumer!

Re: Importance of people...
  • 12/11/2012 7:25:29 AM

The last time I we t abroad I called Amex in advance to notify the company. Guess what? They said I didn't have to do that anymore. Guess the analytics have gotten really good.

Re: Henry David
  • 12/9/2012 5:12:39 PM

@Leo   That's it 'On Walden's Pond' !    Well I am all for the environment, I can see why I never finished it though, a little slow for a 12 yr old.  Don't know what my Dad was thinking, I guess I will have to finish the book to find out.  I also look for the other as well (since I will still probably never finished the first one ), the title 'Civil Disobedience and other Essays' sounds like a great read.  That way I will have closed the loop in some way. : ) 

Oh and thanks for the tip on scheduling flights ...etc.  I will remember to stay focused and get it done quickly !  : )

Re: Decision rules
  • 12/6/2012 11:18:11 PM

@Leo It's nice to avoid price increases for bad tasting water. We live outside city limits for similar reasons. A nearby small town (5 minutes away) had elevated lead levels in the water over the summer. We were glad to be outside the contaminated area. City water in the other direction tastes terrible even after treatment.

Re: Importance of people...
  • 12/6/2012 1:03:14 PM

@ MNORTH:  As a related personal anecdote, I have noticed how over the years there have been fewer false positives with regards to using our personal credit card when either my wife or I are traveling.  I used to make sure I carried at least $100 in cash with me, because you could almost always count on having the credit card frozen if I used it in New York right after my wife used it for gas at home.  I think the analytics, and therefore the rules, have gotten better, now being able to account for the fact that I travel, what cities I'm likely to hit, and so forth.  My college-age son, however, with less history / less data to work with, got hit with the death sentence recently when he travelled abroad to study in Indonesia for a year – locked down his credit card, debit card and the bank account.  Fortunately my wife had signed on as a co-owner of his accounts, in anticipation of exactly something like this, and she was able to clear things up in a couple of days, which would have been tough for him to do with the 12-hour time difference.

Re: Henry David
  • 12/6/2012 1:02:05 PM

@Louis:  The rules are everywhere now.  Several times now, I have been on-line booking an airline flight, taking my good ol' time about it, getting distracted, finally getting back to the task, only to find that the flight I'd selected 15 minutes ago is no longer available at that fare – the computer / rules system has updated the passenger loading and pricing so as to encourage me to take a different, less full flight or route.  As for Thoreau, if the book is 'Civil Disobedience and other Essays', that's a must read, like Locke or the Federalist Papers.  If it's 'On Walden Pond', while it has important messages for us about taking care of our environment, I find myself less drawn to it now – I don't want to live a life that disengaged from society, and I don't think that option is realistically open to very many.

Re: Decision rules
  • 12/6/2012 1:01:09 PM

@TinyM:  It was one of the reasons I moved where I did – get off city water, off the monthly bills and the chlorine treatment, so I'm very glad too.  And glad not to have the problems that MNorth mentions regarding fracking, although that's getting closer as well. 

Importance of people...
  • 12/6/2012 11:37:44 AM

Leo, in the introduction to your piece, I thought maybe you live where I do -- Marcellus Shale country where fracking has us lighting out tap water on fire:

I'm glad to hear your issues is more easily addressed.

Your HSBC example took me back to my days doing Risk Analytics at eBay.  My team and I built a number of SAS programs, both in memory and in database, to do real-time fraud detection and prediction.  I was always concered with the human element though.  Despite a 95% true positive rate on our models, we were essentially labeling people as thieves.  Thus, I pushed for (and was successful) in setting up a rating system and team of personnel to respond to the analytics results.  The models ranked each flagged auction or user on a scale of 0-100, a confidence rating for how sure the model was that the sale or person was fraudulent.  Then a team of 16 full-time staff were hired to go through the reports, all day, every day, starting with the 100's and working down, double checking the risk before confronting the sellers and labeling them fraudsters.  It was an expensive endeavor, but cheaper than letting fraud run rampant, and the right thing to do in terms of treating people like, well, people.

Henry David
  • 12/4/2012 11:09:19 PM

Hi Leo,   Not many quote Thoreau anymore and it reminds me that I still need to read that book of Thoreau that my dad gave me so many years ago.    Mr.Thoreau had a lot of insights and I think he must have been a forerunner of rule-based decision making is some loosely connected way.

I really am not surprised to see the grow in rules-based decision making, but of course the rules make or break the system.  

Thanks for a trip down memory to find that book.

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