Context: context or scope of the program Project X, division B

Let us consider the five components of goals (business objectives) in the context of DM projects.

• Purpose: the purpose signifies the motivation behind formulating the objective, or why the objective is being formulated. In the context of Data Mining projects, purpose can be of the following five types:

1. Increase/Improve 2. Decrease/Reduce 3. Identify

4. Understand

5. Determine (Hypothesis Testing)

• Object Name and Defining Characteristic: the object is the entity under the study. Examples of objects can include: (1) Customers, (2) Suppliers, (3) Products, (4) Employees, (5) Transactions, etc.

In selecting the object it is important to provide further qualifying information in form of the defining characteristic of the object. For instance, if the object is chosen as simply ‘customers’, it is may not be clear as to which customers of the firm are of interest and a resultant data mining endeavor may be based on the entire customer base of the firm. However, the results of data mining so obtained are likely to be diluted as it is well known that different types of customers behave differently. So when specifying

the object, we must augment it by adding more information, such as (see examples for various types of objects and their defining characteristics in Table 5-6.

Table 5-6: Objects and their Defining Characteristics

Objects Defining Characteristics

Customers Wireless internet Customers Customers with tenure > 1

Customers acquired though marketing channel most loyal Customers

Suppliers Suppliers for Eastern Region Suppliers of small moving parts Suppliers of parts X

Products co-selling Products

Products from a particular line (baby care or feminine products)

Employees internal Hires part time Employees full time Employees Contract Employees

Employees with tenure > 5

Transactions Transactions that occurred in last week/month/year Transactions valued at >$250

• Focus: the focus is the variable or the quality attribute of the entity under study, i.e. what is being studied through the data mining project. The focus of a DM project can be on a tangible or quantitatively measurable behavior, or on an intangible attribute. Below we provide examples of both types.

• Quantitative focus: such a focus variable can be measured in terms of %, rate, amount etc. For e.g., churn rate or loss rate of a CUSTOMER [OBJECT]

ƒ Assuming constancy of other variables: When focus is a quantitatively measured variable, other variables may have to be treated as constant. Constancy of other variables may or may not apply, but the user must be asked to provide this information, whenever applicable. For example, a credit card provider may be interested in increasing approval rates while maintaining the same loss rates. If the latter is not specified, data mining models that lead to an increase in approval rate, but at the cost of increasing bad rates may be created.

• Qualitative focus: such a focus variable cannot be measured in terms of %, rate, amount etc. For e.g., factors affecting motivation of EMPLOYEES [OBJECT]

Relation between Purpose and Focus of a Business Objective

Note that the focus of a business objective is closely related to the purpose of the business objective. When the purpose is to ‘increase’, ‘decrease’ or ‘reduce’, the focus is often on a quantitative variable. On the other hand, when the purpose is to ‘identify’ or ‘understand’ the focus is typically on a qualitative variable. When the purpose is hypothesis testing, the focus can be quantitative or qualitative depending on what is being hypothesized. Table 5-7 shows examples of some preliminary business objectives with three components, namely purpose, focus, and object (and their defining characteristic) identified.

Table 5-7: Preliminary Business Objectives (Purpose, Focus and Object identified)

Purpose Focus/Issue Object

Increase Approval rates - New Credit card applicants

- Customers acquired through alternate channels

Decrease/ Reduce

Loss/Bad/Charge-off - Customers with tenure >2 - Sub-prime credit card customers

Churn Rate - Handset customers

Identify List of probable churners - Customers with tenure > 5 List of responders to a new offer - prospective customers Factors affecting churn rate - Handset customers Characteristics - Most loyal customers

List of yogurt lovers - Overall customer population Co-selling products - Complete line of products

- Line of health and fitness products Occurrence of fraud - Transactions > $250

- Online transactions > $150 Understand Characteristics - High risk customers

Factors affecting retention - Existing customers with tenure > 3 years Reasons behind charge off - Sub-prime credit card customers

Determine if

Difference in price sensitivity - Frequent roamers versus other customers Difference in likelihood of

response to a home equity offer

- Families with children versus others

• Viewpoint: the viewpoint reflects the entity from whose perspective the

objective is being designed. For e.g., (1) Project manager, (2) Project team, (3) Project sponsor, etc.

• Context: Context represents the scope or the environment where the data

mining project is being carried out. For e.g., (1) a particular project (project “Manage Churn”, project “Retain Customers”), (2) a particular division (Marketing division, Credit Risk Management division, Customer Relationship Management division).

Figure below shows how the five facets of information, can be put together to create a preliminary statement of business objective of a DM project.

Select Purpose Increase Reduce Identify Understand Determine If Select Focus

Increase [Approval Rate…Other]

Reduce [Bad Rate, Churn Rate, … Other]

Identify [Factors, Characteristics….Other]

Understand [Factors, Characteristics, Reasons… Other]

Select Entity

Increase Approval Rate of [Sub-Prime Customers, Handset Customers… Other]

Reduce Churn Rate of [Hand Set Customers…Other]

Identify characteristics of [Good Customers… Other]

Understand Reasons for [Churn by Customers with Tenure>3… Other]

Select Viewpoint

Increase Approval Rate of Sub-Prime Customers from the viewpoint of [project manager...Other]

Reduce Churn Rate of Hand Set Customers from the viewpoint of the [Marketing Team… Other]

Identify characteristics of Good Customers from the viewpoint of the [project manager… Other]

Understand Reasons for Churn by Customers with Tenure>3 from the viewpoint of the

[customers… Other]

Select Context

Increase Approval Rate of Sub-Prime Customers from the viewpoint of project manager within the context of [project ‘bring more customers’ … Other]

Reduce Churn Rate of Hand Set Customers from the viewpoint of the Marketing Team within the context of [project ‘retain existing customers’… Other]

Identify characteristics of Good Customers from the viewpoint of the project manager within the scope of the [Credit Risk Management Division… Other]

Understand Reasons for Churn by Customers with Tenure>3 from the viewpoint of the customers within the context of [project ‘Reduce Churn’… Other]

Preliminary Statement of Business Objective

Increase Approval Rate of Sub-Prime Customers from the viewpoint of project manager within the context of project ‘bring more customers’

Reduce Churn Rate of Hand Set Customers from the viewpoint of the Marketing Team within the context of project ‘retain existing customers’

Identify characteristics of Good Customers from the viewpoint of the project manager within the scope of the Credit Risk Management Division

Understand Reasons for Churn by Customers with Tenure>3 from the viewpoint of the customers within the context of project ‘Reduce Churn’

Figure 5-3: Formulating preliminary statement of Business Objective (based on GQM approach)

Step 3: Applying SMART Criteria to Refine Statement of Preliminary Business