1. © 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Turning Lemons into Lemonade How Optimization Tools Help You Turn Questionable Data into Profitable Actions Oliver Bastert Senior Director FICO

2. © 2014 Fair Isaac Corporation. Confidential. There are no excuses anymore: Optimize your decisions even if the data is uncertain or unknown! 2

3. © 2014 Fair Isaac Corporation. Confidential. ► Optimization allows you to take best business decisions, based on ► Your business constraints ► Your data ► Your KPIs ► Optimization can deal with ► Competing objectives ► Maximize profits and minimize (or constraint) costs ► Scarce resources ► Maximize production with a restricted amount of labor ► Data uncertainty ► Data might be uncertain, erroneous or unknown Optimization 3© 2014 Fair Isaac Corporation. Confidential.

4. Portfolio Optimization 4

5. © 2014 Fair Isaac Corporation. Confidential. Call Center Optimization 5

6. © 2014 Fair Isaac Corporation. Confidential. Cancer Therapy 6

7. © 2014 Fair Isaac Corporation. Confidential. Traffic Routing 7

8. © 2014 Fair Isaac Corporation. Confidential. Hands on Robust Optimization ► Each link has two travel times associated with it ► The first number denotes the time without disruption and the second number adds a slowdown on the link Optimization with limited knowledge (4,4) (3,2) (6,3) (5,5) (3,1) (3,7) (5,3) (3,1) (3,4) A B 8

9. © 2014 Fair Isaac Corporation. Confidential. (3+4)+(3+7)+3 = 20 (4,4) (3,2) (6,3) (5,5) (3,1) (3,7) (5,3) (3,1) (3,4) A B Hands on Robust Optimization Optimization with limited knowledge 9 ► There are two accidents (somewhere) in the network, how do you plan best? 3+3+3 = 9 3+3+3+3 = 12 (3+2)+3+(3+1)+3 = 15

10. © 2014 Fair Isaac Corporation. Confidential. We have to, hence: ► How to make very good and feasible decisions under data uncertainty ► How to decide if some data is completely unknown? ► How can we avoid an incorrectly “over-optimized” (over-fitted) solution? ► Is there a more rigorous method than (Monte-Carlo) simulation? Data Challenges, So What? Since data is missing or available at arguable quality only, you don’t make decisions? 10

11. © 2014 Fair Isaac Corporation. Confidential. ► We usually have good knowledge about the uncertainty, like ► Bounds or estimates on (standard) deviation ► We have the power to take decisions / implement a strategy ► But the uncertainty is not under our control; it is controlled by our opponent ► Nature ► Competitor / Supplier / Customer ► Market Robustness means that we are prepared for (protected against) any realization of the uncertainty (within the given uncertainty model) Robust Optimization is like Playing a Game

12. © 2014 Fair Isaac Corporation. Confidential. ► Evaluate your risks ► What if my predicted inputs would be 10% off? ► Compute the best decision under a pessimistic view of the future ► Compute a very good decision under a likely view of the future ► An always feasible solution ► Measure costs of robustness (protection) ► How much does a robust solution cost me compared to the best/average case scenario ► Measure benefit of robustness ► Compare the robust solution to a worst case scenario ► (Monte-Carlo) simulations are expensive, robust optimization is not What Robust Optimization Gives You 12

13. © 2014 Fair Isaac Corporation. Confidential. ► The predicted orange point is not the truth! ► Robust optimization can optimize decisions over a range of possibilities ► As opposed to simulation, robust optimization can simulate over a set of posbilities Predicting Data with High Uncertainty 13

14. © 2014 Fair Isaac Corporation. Confidential. Scenario Based ► Assume a number of historical observations or future predictions for input data is given ► The robust solution is the best solution which is feasible for all scenarios ► Simulation gives you a solution for each scenario but not a solution for all scenarios Modelling the Uncertainty 14

15. © 2014 Fair Isaac Corporation. Confidential. Ellipsoid Definition and Confidence ► Maximum distance or deviation ► By increasing or decreasing the diameter we can model confidence ► The robust solution is the best solution which is feasible for all points in the ellipsoid Modelling the Uncertainty 15

16. © 2014 Fair Isaac Corporation. Confidential. Demo 16

17. © 2014 Fair Isaac Corporation. Confidential. ► Evaluate the cost of robustness ► Understand trade-offs and sensitivities ► Adapt data and parameters to create and compare scenarios ► Visualize data and results for analysis ► Collaborate in a multi-user environment ► Customize to your needs ► Combine with predictive analytics and business rules Robust Optimization 16

18. © 2014 Fair Isaac Corporation. Confidential. ► 70% reduction in time to create interactive and collaborative optimization solutions ► Prebuilt solution templates raise business value and reduce time to market ► Delivers optimized decisions quickly; in certain areas more than 5x faster than the competition ► Provides robust decisions even when data is incomplete or inaccurate Results 17

19. © 2014 Fair Isaac Corporation. Confidential. FICO ® Decision Management Platform Optimization Modeler Decision Modeler Analytic Modeler FICO ® Application Studio FICO ® Visual Insights Studio FICO ® Analytic Marketplace FICO ® Optimization Modeler is part of FICO ® Decision Management Studio FICO Decision Management Studio Manage Buy Build 18

20. © 2014 Fair Isaac Corporation. Confidential. ► A well performing portfolio with controlled risk ► A call centre which uses few resources and delivers high quality of service under varying demand ► Reliable on time delivery under varying traffic conditions ► Fewer CT scans and more accurate radiation (angles and intensity) Back to the Goose 20

21. © 2014 Fair Isaac Corporation. Confidential. Air Products and Chemicals 21 Sources: http://inweekly.net/, www.pmgroup-global.com, www.always70wade.com http://melanomainternational.org/2013/08/best-hospitals-some-tips-to-find-one/#.VF0RPvnF_ikwww.always70wade.com

22. © 2014 Fair Isaac Corporation. Confidential. A Case Study Production planning at a liquid oxygen/nitrogen plant, a very energy-intensive operation and critical to health of people (hospital demand has to be met) ► Power company offers an interruptible load contract ► Power company can suspend supply in periods of high demand (summer) ► A number of interruptions each month (8 hours each) ► Cost per kWh is lower than with uninterrupted contract Outcome ► Treat interruptions as uncertain variables ► Plan production so that even with the most evil-placed interruptions customer demand is satisfied Air Products and Chemicals 22

23. © 2014 Fair Isaac Corporation. Confidential. How Can Robust Optimization Help Me? ► Are you taking data driven decisions today? ► How certain are you about the correctness/quality of your data? ► Do you want to know the impact in case your data would not be perfect? ► Do you want to know how a safer/better strategy would look like? ► Do you want to know which data impacts your decisions the most? ► Do you want to know for which data you need to improve quality for improving your KPIs? 23

24. © 2014 Fair Isaac Corporation. Confidential. ► Talk to us at the booth to get more information and see a demo ► Talk to us during a 1-1 session and a high value decision to us with known data issues ► Let’s arrange a workshop with your company ► We will show you a path to improve your decision with unbelievable ROIs Challenge Us! 24

25. © 2014 Fair Isaac Corporation. Confidential. Poor data quality is no excuse; it is an imperative to optimize. 25 If you are not optimizing your decisions today, learn how much you are leaving on the table.

26. © 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Thank You! Oliver Bastert oliverbastert@fico.com

27. © 2014 Fair Isaac Corporation. Confidential. Learn More at FICO World Related Sessions ► Optimizing Credit Policy and Strategy, How Sprint Calls It ► Marketing Mix Mayhem, Optimize Marketing Decisions Products in Solution Center ► FICO ® Optimization Modeler powered by Xpress ► FICO ® Decision Management Suite Experts at FICO World ► Oliver Bastert ► Horia Tipi White Papers Online ► Robust Optimization technical paper available on demand Blogs ► www.fico.com/blog 27

28. © 2014 Fair Isaac Corporation. Confidential. Please rate this session online! Oliver Bastert oliverbastert@fico.com 28