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Learning from Hurricanes: Big Data Analytics, Risk, & Data Visualization

Learning from Hurricanes: Big Data Analytics, Risk, & Data Visualization

Learning from Hurricanes: Big Data Analytics, Risk, & Data Visualization

This year, Florida has experienced its 10th consecutive year without a hurricane. It is the longest period without a hurricane strike in modern times and one more remarkable considering that Florida’s more then 1200 miles of coastline account for about 40% of the US landed hurricanes recorded in modern history.

Exploring this long stretch without hurricanes is worthy of some examination, as it offers us many lessons in Big Data Analytics, Risk, and Data Visualization. First, the obvious: how frequent are hurricanes and are hurricanes regular in their arrival? The below graphic from the WSJ of last year nicely shows this.[1]

Indeed, the graph shows that in some decades such as the 1910s, 1920s and 1940s, hurricanes were quite frequent in Florida (nearly annual!). Interestingly, the frequency of hurricanes is less in recent decades, except for a major spat of hurricanes in 2004 and 2005. All of this raises questions that are of great interest to climatologists, disaster recovery planners, risk managers, insurers, and re-insurers. Is the irregular arrival of hurricanes just a manifestation of randomness?

It might be a product of climate change, global warming, or simply a level of variation in the natural cycle not seen before. Indeed, hurricane patterns are complex, and we are rapidly learning more about their formation and occurrence, thanks to improved data collection and analytics. In recent years, climatologists have been able to zero in on factors that are more predictive of high hurricane activity years. The below graphic from NOAA communicates some of the most important factors in a high hurricane occurrence year.[2]

A large number of hurricanes are expected when there is high pressure in Northwest Africa, warm temperature in the Atlantic, and favorable trade winds. That is a complex interaction of variables. And, El Niño is generally shown to result in less of these conditions and less therefore hurricanes. Such insight is valuable to a risk manager and risk insurer. From a risk management perspective, knowing about this beforehand allows for more appropriate risk taking, preparation, and investment. Indeed, owning hurricane insurance risk in Florida over the past few years turned out to be a rather nice investment.

Having grown up in Tampa, Florida, I was acutely aware of the dangers and damages from hurricanes – at least I had heard about hurricanes from my grandparents. In some 22 years in Tampa, I saw only one hurricane come by Tampa in 1985. The interesting phenomenon was that the west coast of Florida had seen many hurricanes in the 1910s and 1920s and then a scrap with a category 5 hurricane in 1960. This irregularity in hurricane arrivals perplexed me. I can recall fishing in the inter-coastal way and seeing passes and breaks formed by hurricanes from the past. Why were there less hurricanes in the 1970s and 1980s than in previous decades? Or why were there more in the past? Did something change?

Risk Management Lessons

This phenomenon interested me so much that I explored it as part of my PhD Dissertation at Cornell University.[4] At the time, we did not have the big data tools of today. In particular, I examined if hurricanes and other large flood events were indeed irregular in their arrival. I found that for the southeastern US, large annual flood events are statistically “clustered in time.” That is to stay that some periods of time show many large annual floods and then there are extended periods of time (many decades) with little to no large floods at all. It is a major finding that challenges the principle assumptions of catastrophic risk analysis. It suggests that risk is dynamic and the underlying assumptions subject to changing conditions.

If the 100-year flood comes on average once every 100 years and it has been seen two times in the last 10 years, it also might mean that a long period of tranquility is ahead. That can potentially be exploited by insurers in issuing insurance during low risk periods. The recent Florida hurricane data suggest that such changes are indeed part of the climate.

Key Point: Risk models are simplifications of the real world. With more data, we can explore, understand, and account for relationships across many variables. Big data analytics is changing how we examine risk, not just in climate, but in finance and healthcare, for instance. Deploy Big Data analytics to leverage large scale and multi-variable data sets to understand risk more precisely.

Data Visualization Lessons: Risk is Dynamic and Complex

I came across a great graphic made by John Nelson of IDVSolutions. [3]

It graphs hurricanes and tropical storms since 1851 and uses colors (more green is more severe) to show the severity of hurricanes and the progression of the hurricanes along their tracks. With little explanation or climatic training, you can easily see some interesting things about hurricanes in the Gulf of Mexico and Western Atlantic Ocean. At least for me, I see a rather suspicious blank space in west Florida – an indication of less or at less severe hurricanes than other parts of the state and the Gulf Coast. One explanation is good luck; another is more physical in that hurricanes lose strength over land. It is hard to hit the west coast of Florida without hitting some land first. So, the west coast of Florida, may, in particular, be more protected. It might be useful in selecting risks. Buy hurricane risk on the west cost of Florida over the Miami area.

The next observation of this impressive data visualization by IDV Solutions is that the strongest hurricanes do in fact avoid land in their formation, riding through the Florida Straits, skirting south of Cuba, and otherwise strengthening in the Gulf of Mexico. And if you ever thought that New Orleans and the Louisiana Gulf Coast gets more strong hurricanes that elsewhere, this graphic would support your hypothesis. This is a great example of a data visualization that allows for the communication of hurricane tracks, relative strength, and geographic occurrence. It would have been great to have this when we looked at hurricane and flood data some years ago.[4] It is a great example of how data visualization is changing analysis. In a few minutes, complex relationship between location, direction, intensity, and reporting can be understood. It is also a great example of why we need data visualization as part of our analytical and risk toolbox.

We, as humans, cannot easily process complexity in numbers. However, we (or some of us in particular) are quite good at addressing and processing complexity expressed in shapes, colors, and graphics. This strength and weakness of our cognitive skills requires that we be mindful of how to use data visualization as part of an analytical strategy. It makes sense and I am reminded of this every time I park on the purple level of the parking garage at Northwestern University. I can’t as easily recall the number of the level at the garage, but the colors of each level are crystal clear to me in memory, and yet I use the garage nearly everyday. Numbers although necessary for analytics, are not the best form for our cognitive processing. Relative comparison and rate changes are more easily understood through graphics.

Key point: Leverage data visualization to understand and explore complex relationships across many variables in data. Leverage the human mind to look for patterns and ask interesting questions of the graphics. It leverages the best of graphics and our cognitive skills.

About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University.

His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.

You can find him at @RussWalker1492 and russellwalkerphd.com

References:

[1] Jakab, Spencer. “Florida’s Hurricane Dry Spell Lasts.” The Wall Street Journal. November 28, 2014.

[2] Klotzbatch, Phil. “Forecast groups nailed the 2015 hurricane season, thanks to El Niño.” Washington Post. November 25, 2015.

[3] Nelson, John, IDVSolutions.com. Hurricane Data Visualization, Accessed November 27, 2015.

[4] Walker, Russell. “Risk and Statistical Analysis of Hydrologic and Environmental Data.” Ph.D. Dissertation, Cornell University Library, August 1999.

[5] Walker, Russell and J. R. Stedinger. “Long-term Variability in the Arrival Rate of Flood Events as Evidenced by Flood Clustering.” EOS Transactions, American Geophysical Union 2000 Spring Meeting, 81(19), S200, May 9, 2000.

Practical Advice for MBAs & all Going to College: Get the Most from your Venture and Investment

Practical Advice for MBAs & all Going to College: Get the Most from your Venture and Investment

Fall is already in the air here in Evanston, Illinois. In the coming weeks, we will welcome our new students to campus at Northwestern University. It is always an exciting time of the year. It is exciting to be part of the new journey that our students are all beginning. For me, I look forward to working with our new and talented MBA class at the Kellogg School of Management. Heading to college (or back to college in the case of our MBAs and graduate students) is an important venture and investment in one’s life. It is also a period that moves by much more quickly than anticipated. Reflecting on what worked for me and my students, I offer some points and reminders to help incoming and returning college students get the most out of their venture and investment.

Be Organized

Although some programs like pre-medicine are really trying to separate students, I find that most universities and professors want to see their students excel. And when students struggle, it is often self-inflicted and due to poor organization – not following directions on an assignment, not meeting deadlines, not doing the reading, not doing the simple stuff. Not all of college is simple, but there is no need to let the simple and small stuff trip you up. Get Organized! Make a list of to dos each day. Knock those out. Complete tasks early. Get up early – there is so much that can be done before lunch! Ask for help before the deadline. In many ways, college is preparing you for work and life management. Self organization is critical (and not necessarily that hard). Also, don’t expect others to organize things for you.

Challenge Yourself

Few college students will know upon entering college what career or job they will take. College is a place to learn and grow. However, you are not growing if you are not working and challenging yourself. Indeed, it should push you and even at times hurt a bit. Loading up on easy classes will make for an easy semester and result in a high GPA, but did it advance you? Did you grow? Probably not. Companies are looking for graduates, more than ever, that can handle complexity, and STEM careers are more attractive than ever for that reason. Take classes that allow you to contribute in these expanding markets. A wise man once told me upon my entry to college, “Work hard for the next 10 years and you can relax for the rest of your life. Relax for the next 10 years and you will work hard for the rest of life.” It still holds true today. The more you put in, the more you will get out.

Explore and Take Risks

The wonderful thing of a university is that it is full of great classes and professors. Many students come to me and ask my advice on which classes to take or if they should retake statistics or finance of something that they already know. My advice is always, take new things and things that allow your to explore. If you already know an area well, consider exploring it in greater depth or try a new topic. I greatly enjoyed my classes in history, art, architecture, and philosophy. Each has made my travels more enjoyable and brought richness to appreciating life. Each also has added an ability to work with and communicate with people from many cultures. So, take classes outside of your major, take those that you can use to explore genuine interests and enjoy that special opportunity!

Get to Know People…No Really!

The most troubling effect of our social media and mobile world is that many people have grown uncomfortable with in person communications. At Kellogg, professors invite their students to lunch for the sole purpose of building relationships with our students. It is the most enjoyable part of teaching – to get to know our students outside of the classroom and for them to get to know us. The skill and art in getting to know people is important in leadership roles of all forms. Consider college an opportunity to do that.

I teach many lab classes at Kellogg, in which student teams work on real-world projects. These popular classes are a great opportunity for our students. Realizing that many teams struggled to click, I now require all teams to meet over a meal and to swap personal stories. The impact has been highly positive on the team dynamics and many teams share with me that they continue to meet long after the class. Be that person that reaches out to get to know others. They will appreciate that in you and look to you as a leader.

The time spent in getting to know others will be greatly important in team work, as we conduct it in our MBA program at Kellogg, but also in overcoming challenges and difficulties in college and afterwards. You might even meet someone really special with whom you’d like to share your life!

Learn New Life Skills

A wise professor of mine at Cornell University offered me this same sage advice – Learn New Life Skills! College is not only about preparing for your first job or even your career, it is about preparing for life. Universities offer many great opportunities to develop new skills, for life. Take a class in music appreciation, learn a foreign language, learn a programming language, visit other countries, learn about science and the body, take a geology trip, take a cooking class, build something, grow something, and for MBAs, sell something or start something special. The ability to pick up such skills is much harder once work and family set in. Identify a few skills that you would like to develop and take classes to grow those skills.

Develop Great Presentation Skills

In recent years, it seems that less emphasis has been placed on critical presentation skills. Indeed every profession that I can imagine involves some level of important presentation. Doctors are expected to have good bedside manners. Business consultants are expected to make compelling presentations to their clients. And, the chance opportunity to meet with the CEO or a possible client is most likely to occur in person with little to no warning. An observation from my career is that those people most entrusted with working on top projects or with top clients are those who have greatest presentation skills. Few firms will honestly state that, but the bias is inherent in how we view a good presentation as the sign of a better leader or more thoughtful person. Gain that advantage! Develop a natural and comfortable style presenting your ideas. Take classes in speech and speaking. Learn to write in the manner demanded of your career. For MBAs, learn to develop compelling presentations and pay close attention to formatting details. Volunteer to do this on behalf of your team. The team will thank you, and you will be the real beneficiary of the practice in presenting.

Be Frugal

Here is the hard and honest truth. With most Americans borrowing to go to college and with graduates (such as MBAs) borrowing even more, the cost of college is a drain on your future earnings. So, it is all the more important to make the most of it. Delayed gratification is really in order. If you are borrowing money to buy a $5 latte each day, that will cost you much more later. For a dollar borrowed at 6% (a common rate at least among graduate students) and paid out after college and at the end of a ten-year payback period, graduates will need to make over $3.45 for that dollar borrowed. That coffee and other expensive luxuries will really impede your lifestyle going forward. Consider alternatives. Can you live with less? Can you spend less? Prioritize those things that are most important. Consider a part-time job to offset costs or to pay for some luxury that you really want. Make a financial plan and stick to it.

Have Fun…by Getting Involved!

College can and should be fun and memorable. This is most likely the case when you are active and involved. Join clubs – but get involved! Start a new club. Help your student club with a new effort. Help your major or program. Meet your professors to learn about opportunities in your field (really, few people come to office hours anymore – you will have no wait). Work to bring special speakers to campus. Invite your friends and family to campus; show them what excites you about your venture and investment. Take classes that bring passion and excitement to your work and studies. Being involved and passionate will allow you to get the most from your time at college.

And if you (or your son or daughter) are coming to the Kellogg School of Management or Northwestern University, stop by and say hello! It would be great to meet you or them in person!

About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.

books together from amazon

Professor Walker has developed and taught executive programs on Enterprise Risk, Operational Risk, Corporate Governance, Analytics and Big Data, and Global Leadership. Russell leads the Kellogg PRMIA Complete Course in Executive Education for Risk Management. He founded and teaches the Analytical Consulting Lab, Risk Lab, Global Lab, and Digital Lab, all very popular experiential learning classes at the Kellogg School of Management, which bring Kellogg MBA students together with corporate opportunities focused on data and strategy. He also teaches courses in risk management, analytics, and on strategies in globalization. He was awarded the Kellogg Impact award by Kellogg MBA students for excellence and impact in teaching Enterprise Risk Management in 2011.

He serves on the Scientific and Technical Council for the Menus of Change, an initiative led by the Harvard School of Public Health and the Culinary Institute of America, to develop healthier and more environmentally friendly food choices. He is a former member of the board of the Education and Technology Committee to the Morton Arboretum. He was a board member of the Virginia Hispanic Chamber of Commerce, where he developed support programs for Hispanic entrepreneurs and worked with US senators on US Latino matters.

You can find him at @RussWalker1492 and russellwalkerphd.com

He looks forward to the start of school each fall.