Enhance Predictive Modeling with Better Data Preparation

Enhance Predictive Modeling with Better Data
Preparation
Ritu Jain, Director of Industry & Solutions Marketing, Alteryx Inc.
Dr. Dan Putler, Chief Scientist, Alteryx Inc.
April 6, 2016

Speakers
Ritu Jain
Director, Industry & Solutions Marketing
Alteryx
Dr. Dan Putler
Chief Scientist
Alteryx

Download a FREETrial: alteryx.com/trial© 2016 Alteryx, Inc. | Confidential
Agenda
• Alteryx Overview
• ThinkingThrough
Predictive Model Use
Case
• Starting with the
Right Data
• Choosing the Right
ModelingTechnique
3

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• What decision needs to be made?
• What information is needed to inform that decision?
• Typically developing a mental model of the process helps a great deal in terms of
determining all the potentially relevant information
• What type of analysis is going to be able to provide the exact information needed to
inform the decision?
6
Understanding the Business Issue

• How much electricity does a utility need to have the capacity to supply for any given
hour tomorrow?
• To which of its customers should an outdoor sports retailer send a paddling sports
catalog?
7
Two Specific Use Cases to Illustrate Business Issue Understanding

• The question “How much electricity does a utility need to have the capacity to supply
for any given hour tomorrow?” actually has two underlying decisions:
• Which of our existing power plants should we start to bring online or start to take offline?
• Should we purchase electricity from the spot market, and, if yes, how much?
• The critical information that needs to be known is how much electricity will be
demanded in each hour of the day tomorrow
• Unfortunately, this information is not known at the time decisions need to be made, but it
can be predicted using a predictive model
8
The Electricity Supply Use Case

• What factors are likely to drive the demand for electricity in a given hour tomorrow?
• This is where having a mental model of the process can be very handy
• Some factors that are likely to be important:
• Day of the week
• Hour of the day
• The temperature that hour and the preceding hour
• The month of the year
• One issue is that, like electricity demand, the temperature in that hour (or even the
preceding hour) tomorrow will not be known at the time decisions are made (today), but
the temperature in each hour tomorrow can be predicted using a model
9

• Available factors to predict hourly temperatures
• The forecast high and low for the day from the National Weather Service or other
organization
• The number of minutes since sunrise or sunset at the start of each hour
• The temperature for the same hour on the previous day
• In this case two different predictive models are needed:
• Predict hourly temperatures for the next day
• Predict hourly electricity use given temperatures and other factors
10

• The question “To which of its customers should an outdoor sports retailer send a
paddling sports catalog? ” has a definitive answer: Send it to any customer where the
full cost of sending the catalog is less than the expected margin dollars (item price less
item cost) from the items a customer would purchase from the catalog
• While the criteria for answering the question about whether a specific customer should
be sent a catalog is definitive, knowing whether that customer meets the criteria is
another matter
• Predictive models can help to provide the information needed on whether a particular
customer is expected to meet the criteria
• Two models would typically be used
• A model that predicts whether a customer will purchase anything from the catalog at all
• A model of the margin dollars a customer will generate conditional on using the catalog
11
The Paddle Sports Catalog Use Case

• In terms of selecting variables for the two models we have identified, we need to make
use of information that is known prior to sending a catalog to a customer.There are a
number of ready candidates to use
• Demographic and socioeconomic information: Age, income, family status
• Location information: State; travel time to a store; proximity to the sea, lakes, or rivers
• Past purchase behavior, typically measured using the concept of Recency, Frequency, and
MonetaryValue (or RFM)
• We also need to have observations on an appropriate target variable.There are two
ways to do this:
• Use appropriate historical data (i.e., the response to last year’s paddle sports catalog)
• Use of a “test” approach, where we send the catalog to a sample of our customers, and then
use this data to predict the behavior of all our customers
12
The Paddle Sports Catalog Use Case

• There are a large (overwhelming?) number of different modeling methods available
• There are two criteria for selecting the final modeling method to use:
• Selecting an appropriate modeling method, which is largely driven by the data type of the
target variable (categorical or numeric)
• Selecting the model (hence the method) with the greatest predictive efficacy for predicting
new data among a set off of appropriate models
• Basic model types
• Classification models which predict the category into which a case (e.g., a customer) falls
• Regression models which predict numeric quantities
• Linking back to the use cases
• Classification: Whether a customer will respond to the paddling sports catalog
• Regression:The margin dollars from a customer who receives the catalog, hourly
temperature and electricity demand
13
The Nitty-Gritty of Developing a Predictive Model: Modeling Method

• The data hygiene requirements for developing predictive models is more exacting than
for reporting and building BI dashboards
• The common data hygiene “gotchas” are:
• Fields with missing values. Some modeling methods can address missing values for
predictor variables, others cannot, and typically drop records that contain one or more
missing values from the selected set of predictor variables. No method can address records
with a missing target variable
• Categorical variables that have little variability (e.g., 99% of all records are in the same
category) or have categories with a small number of records (leading to reliability problems
and/or the possibility that new data cannot be predicted due to “unknown” categories)
• Categorical variables that are disguised as integers. For target variables it can mean that an
inappropriate modeling method is used, for predictors, it can mean the variable is used in an
inappropriate way
14
The Nitty-Gritty of Developing a Predictive Model: Data Hygiene

• Addressing fields with missing values
• For predictor variables it makes sense to impute missing values
• In the case of numeric variables, using a fixed value, such as the mean, median, or zero is
commonly used to address missing values. In addition, a categorical variable can be created
for each predictor to indicate whether its value has been imputed or not. My
recommendation is to use zero values along with a categorical variable to indicate if the
value of the variable has been imputed
• Missing values of categorical values can be replaced with a new category indicating the
value is missing (my recommendation) or the mode value for the variable
• There are model based methods that replace missing values with predicted values based on
other available data
• Records with missing values for the target variable should be filtered out of the data
15

• Addressing problematic categorical variables
• Addressing categorical variables which are dominated by a single category (e.g., have little
variability) depends on the amount of data available for creating a model. If there is a lot of
data, and there is a reasonable number of records (at least 20) in each of the non-dominant
categories, then including the field in the model is a viable choice. Otherwise, it makes sense
to not include these fields as predictors
• In the case of categorical variables with categories with few records, it makes sense to
combine categories together.The combination of categories should have a sound logical
basis, as opposed to being combined due to having a similar relationship with the target
field
• Fields that use integer values to identify different categories should have their data type
changed to a string type to indicate that the values are actually category labels
16

• Clearly define the business issue – create a mental model
• Starting with the right data is critical to the accuracy of predictive models
• Data hygiene requirements for predictive modeling are more stringent than for
BI/Reporting
• Data variable type – “numeric” or “categorical” – matters:
• For selecting an appropriate modeling method
• When imputing missing values
• The volume of data can be critical when addressing problematic categorical variables
17
KeyTakeaways

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Enhance Predictive Modeling with Better Data Preparation

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