Sunday, 22 May 2011

Analytics and Operations Research; a practitioner’s view

The topic whether the O.R. society should embrace (business) analytics is one that will probably go on for a while. It’s THE theme that keeps O.R societies occupied at this moment; all are busy with the question whether they should hook on to analytics since it could boost awareness and interest for O.R. Although the term “Business Analytics” is quite old, it dates back to Frederick Taylor’s time management practice in the late 19th century, it is presented as the latest trend in management and every CEO should start using it. Amazon lists over 1,500 books on the subject, nearly every one of these books has the theme “Start using Analytics in decision making, otherwise you will be doomed to the lower end of the performance ladder and go bust”. In promoting the use of analytics different terms are used which makes it hard to understand what people are really talking about. Terms like business intelligence, business analytics, descriptive analytics, predictive analytics, prescriptive analytics, and so on. From a practitioner’s point of view the discussion on the subject is rather academic, my clients don’t really care whether I use the term Analytics or O.R. in improving their operations or decision making. They just want me to help them solve their problem.

If have been working in O.R. consulting for over 20 years now and have learned something that Plato already knew over 2300 year ago, a good decision is based on knowledge not on numbers. It isn’t the analyses of data (=Analytics?) or building and solving a math models (=O.R.?) that leads to better decisions, it’s the knowledge gained in the process. It starts with understanding the problem and framing it right. This can best be achieved by gathering and analysing relevant data, measuring performance and identifying the applicable business rules. Analytics if you will. This analysis will increase the knowledge about the problem at hand and the environment in which it needs to be solved. Based on the data analysis and the identified business rules, directions for improvement (scenarios) can be identified. By analyzing the scenarios, the impact (consequences) of each of these can be identified, again increasing the knowledge about the problem, but also on how to solve it. The “do’s and dont’s” have come forward at this point. Next step is to use the knowledge about the challenge, the data and the business rules to build and use/solve a math model to find the best possible and achievable solution to the challenge (note: optimality in practice is something different compared to the textbook concept of optimality). With the knowledge gained during each of the above steps, implementing the solution is straight forward, apart from the “normal” potential change management issues. Result of it all is a solution to a practical challenge, and hopefully a satisfied customer.

My clients have never asked me what techniques I use to help solve the challenge they face and I also never tell them. In the past 20 years (See: Does O.R. Sell?) I have never come across a client that hired me because I could analyse data, build a forecast model, build/solve a linear programme or was able to build a simulation model. There is a simple reason for that, they don’t know the difference and they don't need to. Introducing yourself with that you are really good at building a math model, have been in Monte Carlo simulation or Markov chains for years, doesn’t help build your credibility. Talking about O.R. or Analytics doesn’t either. What counts is that you understand or show that you’re able to understand the business of your client, his organisation and the challenge he faces. So discussing whether Analytics and O.R. are the same, part of each other or complementary doesn’t really matter from my point of view. I’ll use the technique that is required to solve my clients challenge, no matter if it’s descriptive, predictive or prescriptive. Whoever thought of the term “Prescriptive Analytics” by the way? It makes O.R. to something that can only be applied when a specialist tells you how and when to use it. “Solve this LP model 3 times a day and your problem is solved?”

I once used just a blank sheet of paper to solve a business challenge, a real back of the napkin situation. One drawing was enough to identify and solve the business issue. The drawing was a simple graph. The shortest path in the graph was the solution to the client’s challenge. Calculations where not required, even my client could see the solution immediately. This shows that O.R. can be down to earth and within reach of everybody. That is also how we should go about in the Analytics vs Operations Research discussion, down to earth and for everybody including clients. I would suggest a small twist and add some special focus on the practical side of it all.

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