Predictive Analytics Proposal

Predictive
Analytics
Confidential Proprietary
Information of Innovation
Solutions
-
Not to be distributed to
“Client Proposal”
other parties without prior
written authorization

September 27, 2010

Peter Karpiuk, Ph.D.

Sampling Distribution of Profitable Customers
0.10
0.08
Probability of  0.06 False Alarm:
Success 0.04 Pr (P<173 = 5 %)
0.02
0.00
140 150 160 170 180 190 200
Number of Successes

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Table of Contents
1  Business Opportunity ............................................................................................... 3 
2  Solution ...................................................................................................................... 3 
2.1  Objectives....................................................................................................................... 3 
2.2  Approach ........................................................................................................................ 4 
2.3  Benefits .......................................................................................................................... 5 
3  Implementation Plan ................................................................................................. 5 
3.1  CRISP Work Breakdown Structure ................................................................................ 6 
3.2  Resources and Roles ..................................................................................................... 6 
3.3  Qualifications .................................................................................................................. 6 
4  Costs .......................................................................................................................... 7 

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20,892 Agents brokers in the U.S

1 Business Opportunity
“Client” offers a full range of insurance and other financial products
and services within an extremely competitive landscape which
includes Allianz, Prudential and AIG.
“Client” will benefit from predictive analytics ability to reveal the sales
tactics, marketing events and product characteristics that are
responsible for consumer purchasing behavior. Additionally,
customer retention and lifetime valuation variables can be mined and
predictive scores developed that guide customer relationship
What is the optimal activities. Three specific decision processes can be targeted with
number of brokers data analysis, data mining and predictive analytics.
that belong in a 1. Strategic decisions of product configuration and market
territory? positioning.
2. Tactical decisions of pricing, customer targeting and messaging.
3. Operational decisions of sales force tasks and resource
allocation.
What is the
behavioral profile of 2 Solution
a customer that
purchases “Client” Dr. Karpiuk proposes to demonstrate a breath of analytic techniques,
products? their inherent strengths and constraints of use within the context of
specific and well formulated questions of historical and most
importantly of predictive interest.
All methodology will be presented in an easy, step by step approach
allowing “Client” personnel to develop the expertise and experience
throughout the project rather than as an after the fact or add-on
What are the most
training exercise.
significant variables
in successful Lastly, a review of different software packages capable of performing
marketing the necessary analytics and their costs of deployment will be
campaigns? evaluated in the last phase of the project, thereby minimizing a full
scale deployment of a supporting architecture that may not satisfy
the complete set of analytic and reporting needs.

2.1 Objectives
What service 2.1.1. Summary statistical analysis of product, customer, marketing
characteristics are and financial data to:
responsible for • Identify past and current key measures
customer retention?
• Clearly define the extent and source of data available for
mining and predictive analytics
2.1.2. Develop a customer profile for specific product purchases
using either factor analysis or correspondence analysis.
2.1.3. Identify predictor variables for marketing campaigns using
regression analysis.
2.1.4. Develop a customer valuation classification, i.e. identify most
profitable customers and key indices of their retention using
ANCOVA (Analysis of Covariance)
2.1.5. Develop a wholesaler segmentation using cluster analysis.

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2.1.6. Software valuation and implementation for company wide

deployment.

2.2 Approach
The project delivery process will apply the industry standard data
mining implementation process called CRISP. (CRoss-Industry
Standard Process for Data Mining). The lifecycle of the CRISP
process is shown in Figure 1.0 below. The cycle consists of 6
phases which align with the major deliverable of each phase.

Fig 1.0. CRISP Data Minining Process Model

• Phase 1. Business Understanding: Identify the specific

business questions that the customer would like to address
and the necessary data, statistical model(s), technical tools
and subject matter experts.
• Phase 2. Data Understanding: Initial data selection including
format and attributes; collection; description and summary
exploration.
• Phase 3. Modeling: Selection of analytic model and/or
experimental design. Review of model assumptions,
constraints and validity. Evaluate all potential interpretations
of the possible results of the selected model or design.
• Phase 4. Build Model: Perform a succession of runs of the
model on the prepared dataset. Attempt to remove any non-
informative outliers and spurious data elements.
• Phase 5. Evaluation of Model: Present the statistical
measures of the model’s predictive and/or descriptive
performance. Re-state the impact in business terms of the

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model’s ability to reliably answer the question(s) identified in

phase 1.
• Phase 6. Deployment: Set up the software and data feeds
necessary to collect, run the data analysis and distribute the
results for timely decision making.
For each set of questions posed by the business stakeholders the
above 6 phases will be repeated in a process analogous to AGILE
software delivery methodology. The final deployment phase can in
this model be delayed until all questions have been addressed,
thereby deploying the final software architecture in the last ‘SPRINT’.
Each ‘SPRINT’ or ‘ITERATION’ of the CRISP process will be
conducted in 5 week cycles.

2.3 Benefits
The key benefits of combining these processes are:
1. Each ‘SPRINT’ will answer specific business questions.
2. Each ‘SPRINT’ will allow the evaluation of a specific analytic
technique.
3. Each ‘SPRINT’ will inevitably propose data needs whose
capture can be initiated during further iterations.
4. Each ‘SPRINT’ will introduce a new analytic technique as
well as reinforcing previous statistical terminology and
concepts.
5. Evaluation of competing technologies can be performed in
concert with each ‘SPRINT’. As each set of questions and
the corresponding model are created the ease of use and
cost associated with implementing these models in various
software technologies can be evaluated.

3 Implementation Plan
The CRISP methodology has an easy to follow and well defined
Project is scheduled Work Breakdown Structure that provides the basis for developing a
for 30 Weeks: refined project plan. Figure 2.0 below shows the high level tasks
within each phase of the project. Again, each ‘SPRINT’ would be
conducted over a 5 week period. Each objective listed in 2.1 above
May - November 2009
would be addressed in a single ‘SPRINT’. Therefore the complete
project including deployment of the final software architecture and
training would be conducted in 30 weeks. (6 objectives conducted
over 5 cycles).
Again, the incorporation of the Agile methodology allows for a
specific objective to be completed and presented to the business
stakeholders every 5 weeks, thereby answering specific business
needs, training personnel on the analytic techniques and reinforcing
value and reinforcing the predictive analytics methodology.

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3.1 CRISP Work Breakdown Structure

The Work Breakdown
structure represents
a 5 week cycle.

Each 5 week cycle

will answer a specific
Business Objective.

Fig 2.0. CRISP Data Minining Work Breakdown Structure

3.2 Resources and Roles

The project team will consist of:
1. Statistician (Peter Karpiuk) will be responsible for data
assessment, analysis and the selection of all modeling
techniques and tools.
2. Project Manager will ensure planning, execution and delivery of
project goals are achieved.
3. Business Subject Matter Expert(s) will provide both high-level and
detailed understanding of the business objectives and determine what
questions should be answered.
4. Database Analyst will be responsible for data acquisition and
management.

3.3 Qualifications
Dr. Peter Karpiuk has extensive training and experience developing
mathematical models and performing statistical analysis both in
academia and industry. Below are a list of available presentations
and publications:
Industry White Papers
Life Composite Rating Algorithm: A Single Parameter Approach:
BEST Life Insurance, 2008
Quality Assurance of Provider Directory Search Accuracy using a
Sequential Probability Ratio Test: Word and Brown, presented at
the Southern California Coalition Technology Conference, 2007.
Measuring the ROI of Host Interface Implementations: A Goodness
of Fit (Chi-Square) Methodology: Optum Software, 2001

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Academic Publications
Clark, M. M, Karpiuk, P and Galef, B.J. Jr.(1993). Hormonally
mediated inheritance of acquired characteristics in Mongolian
gerbils. Nature, 364, p. 712.
Ginsburg, G. and Karpiuk, P. (1994) Random generation: Analysis of
responses. Perceptual and Motor Skills, 79, pp.1059-1067.
Karpiuk, P. (1994) Fechner and Stevens: Vive la difference! Les
Cahiers de Recherche de l'Ecole de Psychologie, 164 - 196.
Ginsburg, N., & Karpiuk, P. (1995). Simulation of human
performance on a random generation task. Perceptual and Motor
Skills, 81,. 1183–1186.
Karpiuk P., Jr., Lacouture Y., Marley Y A. A. J. (1997). A limited
capacity, wave equality, random walk model of absolute
identification. In Marley A. A. J. (Ed.), Choice, decision, and
measurement: Essays in honor of R. Duncan Luce (pp. 279-299).
Mahwah, NJ: Erlbaum.

4 Costs
The project costs listed below are for statistical consulting and
project management. All software and licensing costs will be
determined by MetLife based upon their technology selection.

Total Hours
Cost Schedule Weekly Hours Cost/Hour based upon 6 Total Cost
SPRINTS

Statistical
20 $ 600 $
Consulting
Project “Client”
8 240
Management 1 Employee
Business
“Client” * Costs to be
Subject Matter 10 300 provided by
Employee
Expert “Client” to
Data Base “Client” determine Total
10 300 Project Costs.
Analyst Employee

Grand Total 48 * 1440

Table 1.0: Consulting Services Costs. Total Project Costs are based upon 20 hours per week.
1.
NOTE: Project Management duties can be performed as an adjunct to the statistical consulting
services at an industry rate of $.00/hour.

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