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December 2010

A new degree: the Professional Master of Science

The New York Times had an interesting article this morning about the P.S.M., which, according to, is "an innovative, new graduate degree designed to allow students to pursue advanced training in science or mathematics, while simultaneously developing workplace skills highly valued by employers." According to that website, there are now 229 PSM programs and 105 PSM-affiliated institutions.

The NYT explains: "Advocates of the degree say it will become a fixture at many more universities because it promises to satisfy the work force requirements of increasingly technological economies in the United States and abroad." The degree was endorsed by the National Research Council in 2008; see for instance this report (available for free) - the news release is available here. My readers in academia might also be interested in this article from the Chronicle of Higher Education (for subscribers only).

Here is an excerpt of the news release by the NRC, back in 2008: "Master's degrees in many fields of the natural sciences traditionally have been embedded in the path to a doctorate rather than viewed as ends in themselves.  But over the past decade, foundations and universities have worked together to develop new master's programs for students seeking professional skills for the global economy. These professional science master's (PSM) programs typically build communication and problem-solving skills along with advanced scientific knowledge, and they often include interdisciplinary training." also links to articles about the PSM in the Journal of Physics (A new model Master's, June 2010) and BioWorld Today (Successful biotech leaders integrate science, biz skills, October 29, 2010). Some quotes from the article in JoP:

  • "This hybrid degree is designed to give would-be scientific managers and laboratory administrators the skills they need to make their mark in hi-tech industry."
  • " "Companies love our students because they can 'speak' science, business and innovation," says Ed Caner, director of the Physics Entrepreneurship Program (PEP) at Case Western Reserve University in Ohio, US, which has offered PSM courses since 2000. "We're training jacks of all trades, people who can write a computer program one day and present a business plan to investors the next." "
  • "Almost one-fifth of the 281 graduates surveyed said they received starting salaries of $90,000 or more, with a median of $60,000–65,000 per year. Graduates with only a bachelor's degree in physics, in comparison, earn about a fifth less."

I found the article in BioWorld Today to be excellent. Quotes include:

  • "While about 70 percent of medical product companies are founded by scientists, it's often difficult for those experts to step out of their comfort zone in the lab... into the world of business."
  • "Academic institutions generally work with industry sectors in creating coursework for PSM degrees... Of the 218 PSM programs at 103 US institutions [note: numbers are slightly different from those in the NYT because the article was published earlier], 89 are in the biosciences... many PSM programs are clustered near US biotech hubs."

The rise of PSM degrees is reflected in recent developments at my own institution - Lehigh University - since my department is launching a new Master's (M.Eng.) in Healthcare Systems Engineering, with the first class to enter in the fall of 2011. You can find information about the program here.

The website explains: "This concentrated degree program is designed to prepare graduate students for engineering and management careers in organizations engaged in delivering healthcare and health related products and services." The program combines healthcare systems courses (in quality and process improvement, financial management, information technology) with traditional industrial and systems engineering courses (optimization, simulation, statistics) as well as a capstone project in partnership with industry.

While the healthcare systems program at Lehigh is still in its infancy, it certainly seems to be a good time to launch a Professional Master's degree.

Creating Better Economic Models

A former student of mine recently sent me a link to this excellent article in the Wall Street Journal: "Economists' Grail: Finding a Post-Crash Model", by Mark Whitehouse (the same Mark Whitehouse who wrote "How a Formula Ignited Market that Burned Some Big Investors", which I mention in my old post "Finance's Gaussian Copulas: The New Frankenstein Monster" from March 2009). The article discusses whether mathematical models can hope to be of any sort of relevance in a world that has proved extremely complex and populated by actors who are not completely rational.

Given the recent crash, there is growing concern that these models are built on inaccurate assumptions. The Institute for New Economic Thinking, launched last year with the help of $50mil donated by financier George Soros, is funding new research attempting to tackle such issues and create better models. 

The article does an excellent job summarizing the flaws of current models:

  1. "If the equations [defining the dynamic stochastic general equilibrium model] get too complex, or if there are too many elements, the models have a hard time finding the point at which all the players' preferences meet."
  2. "Before the crisis, most models didn't have banks, defaults or capital markets, a fact that proved problematic when the financial crisis hit."
  3. "They also commonly use a single equation to represent each player [i.e., they consider households, firms, central banks as monolithic groups], impairing the models' ability to explain the unexpected outcomes that can emerge when millions of different people interact."

A possible solution to address these flaws would be, the journalist explains, to resort to agent-based modeling; this would yield a fine-grained description of reality with individual actors and their sometimes irrational behavior (via prespecified rules). Computer-based simulations would be used to produce tractable answers. Such models are, unfortunately, a long way off for now.

My favorite idea in the article was the concept of "imperfect knowledge economics" proposed by New York University professor Roman Frydman, who explains that "[t]he main flaw in the dominant models... is the same feature that makes them so attractive to policy makers: Their ability to make precise predictions" and "believes economists and policy makers must come to terms with the limits of their knowledge." Frydman's eponymous book was highly recommended by The Economist in the article "A new fashion in modeling: what to do when you don't know everything" when it came out in 2007 and in a blog post entitled "New economics" dated February 2009. Time will tell if the idea catches on.

The Rise of Analytics

As my operations-research readers know, analytics has become the word en vogue in the community - the INFORMS Practice conference was recently renamed INFORMS Conference on Business Analytics and Operations Research to reflect this trend, as Mike Trick pointed out in this blog post of his. My non-operations-research readers will be left thinking: what exactly is operations research anyway? Research on operations? That is partly true - OR (as we call it, which makes for some interesting Google queries since the web service mistakes it for "or" (as in "either/or") emerged from the need to improve military logistics during World War II, but has become much broader than that, now representing the broad field of quantitative decision-making.

According to this Wikipedia page, "operations research is an interdisciplinary mathematical science that focuses on the effective use of technology by organizations"; this certainly is the most awful definition of OR that I've ever seen. The second paragraph is more accurate, stating: "Employing techniques from other mathematical sciences --- such as mathematical modeling, statistical analysis, and mathematical optimization --- operations research arrives at optimal or near-optimal solutions to complex decision-making problems."

Few non-OR trained people will naturally come to the same conclusion when first faced with operations research, and the issue of how to call what we are doing is one that we have all struggled with, whenever anyone asks us about our profession. (I stick to: "I do mathematical models for business.") In contrast, analytics has become a much more accepted term in the business community, where books by Thomas Davenport and Jeanne Harris have emerged as market leaders: "Competing on Analytics: The New Science of Winning" (2007) is a landmark book in that respect, and was followed earlier this year by "Analytics at Work: Smarter Decisions, Better Results". These books are published by Harvard Business Press, which certainly added to their legitimacy.

Mike Trick recently posted on his Twitter feed a graph, using a new Google Labs tool called n-grams, showing the incidence of words like "operations research" and "analytics" in books; when this morning a friend and reader of this blog sent me a more complete graph including "industrial engineering" and "systems engineering", I figured it was time for a blog post. Here is the graph, courtesy of Andrew Ross. You will notice that the use of "operations research" abruptly rose in the 1950s and peaked in the early 1960s, to undergo a fast-paced decline ever after. This is not good news for our profession, as "operations research" is part of the brand we communicate to the media and potential business collaborators. Analytics, on the other hand, is currently the most popular of the terms by far, and the trend does not seem to be slowing down by far.

 Will analytics (as a word, not a discipline) turn out to be only a fad? The term is marginally clearer than "operations research", but a lot remains to be desired. For instance, Wikipedia defines it as (and we all know not to trust Wikipedia, but it remains the first site people looking for definitions go to): "Analytics is the application of computer technology and statistics to solve problems in business and industry"; in other words, it makes no mention of optimization. In addition, the rise of Google and its own Google Analytics will indoubtedly reinforce the idea that analytics are about analyzing numbers such as web traffic data, without recognizing the need for mathematical models and optimization software. From the n-gram, laypeople could easily conclude that "operations research" was the fad, and that the bubble burst thirty years ago; however, we have all continued to practice operations research. Maybe it became less interesting to the general public, after the novelty effect wore off - but our field is there to stay, under one name or another.

I've always been interested in promoting operations research and related ideas (hence, this blog), but the issue of raising general awareness of operations research has taken a new relevance for me, as I am the incoming chairwoman of the Public Information Committee at INFORMS. You can read more about that committee here. (If you have ideas on how to raise awareness and understanding of operations research, management science and analytics in the general public and fight misconceptions, feel free to drop me a note.) Given the rise of the word "analytics" and its higher name recognition in the media, it is up to the INFORMS community to make sure the term continues to reflect what we do and that its meaning is not affected by web powerhouses counting page views. I've created a new category for my blog - Analytics - to support the mission of the Public Information Committee and this represents the inaugural post under the new label.

First Book and the Difficulty in Rating Charities

I recently learned with dismay that my favorite charity, First Book, has lost its prized four-star rating on Charity Navigator. First Book is an organization that provides books to low-income children; I wrote about it here. It is dear to my heart because education enabled my own family to come out of poverty not too long ago, and children who don't know how to read don't stand a chance in life - they aren't even given the option between studying hard or falling behind; the choice is made for them. I was very happy to contribute to a charity with such a worthy cause that is closely aligned with my own priorities. I have followed First Book for several years now and receive emails from them regularly; the rating loss was very unexpected. As a matter of fact, I have yet to receive an email from the organization about it, email that I hope would detail the steps they are taking to remedy the situation or the reasons why they believe that being judged according to this or that metric is misguided.

First Book had held its four-star rating for many years, but Charity Navigator changed the way it computes its ratings over the summer - as it so happens, The Economist wrote about measuring charities' efficiency back in November and mentioned the new ratings: "These scores originally looked simply at overheads as a percentage of money raised. This proved a poor guide, as low overheads may mean not thrift but ill-paid (and incompetent) staff. In July [Charity Navigator] revamped its ratings to give more weight to transparent and well-run charities. Charity Navigator is also testing a new “impact” rating, which it hopes to roll out in 2012."

Not only did First Book's rating dropped, but it dropped to two stars. The report summary is available here. Its overall rating now consists in two sub-ratings, "organizational efficiency", where First Book gets four stars, and "organizational capacity", where it gets only one. Charity Navigator explains its methodology here. I am not quite sure where the new measurement of "transparent and well-run charities" is taken into account; the idea behind quantifying organizational capacity, which cost First Book its top rating, is "to determine how well [the charity] has sustained its programs and services over time, and whether it can continue to do so, even if it loses support or faces broad economic downturns." An issue for the organization is that it had negative program expense growth; also, its working capital ratio was only 0.19 years, which means it has little cash in reserves if donations stop.

The task of rating charities is made particularly difficult by the wide array of organizations being analyzed, each with vastly different missions, donor bases and operating structures. To Charity Navigator's immense credit, it distinguishes between the types of nonprofits (food banks, fundraising organizations, community foundations, museums) to compute its numerical scores, as explained here; however, if you click on Charity Navigator's "10 Charities with the Most Consecutive 4-Star Ratings" link, you end up with a list of 8 universities, including Harvard and Yale, and the Children's Aid Society as well as the Center on Budget and Policy Priorities. 

Clearly, in spite of Charity Navigator's attempts to level the playing field by adjusting scores, development offices in private universities have a much different task than nonprofits fighting hunger in disadvantaged neighborhoods. Universities will not fold because giving is down; they have a well-defined donor base enjoying a close link with the organization (whether these people choose to donate or not). So sure, Harvard has a working capital ratio of 6 years and Yale of 5.2, compared to First Book's paltry 0.19 year, but they are in a completely different league. For instance, Yale had a revenue of $2.6bn (yes, billion) and functional expenses of $2.8bn for a deficit of $113mil, but since its net assets are valued at $17bn, I'll venture it's going to be alright. Harvard had a revenue of $-2.5bn (with $2.5bn in primary revenue and over $-5bn in some mysteriously-named "other revenue"), and functional expenses of $4bn, but its deficit of $6.5bn is more than covered by its net assets valued at $29bn. Steering away from these outlier points, universities definitely face challenges too as they attempt to ensure affordable education for deserving students, among other things, but their foundations benefit from built-in advantages too. People served by, say, food banks, rarely become rich enough to send donations later.

With revenues of $44mil and expenses of $42mil, First Book is not small - it recently celebrated the milestone of distributing 80 million books, in its 18-year existence. The link above to a Publishers Weekly article also provides an interesting glimpse into its operations: for instance, First Book operates a free National Book Bank and a deeply discounted online bookstore , "which sells exclusively to Title I programs for disadvantaged children." An issue pointed by CEO and co-founder Kyle Zimmer is that “With emerging technology like print on demand, the number of books in excess inventory [which publishers can then donate to First Book] is likely to go down.” The organization also uses its purchasing power to buy books at a steep discount; publishers like that books can't be returned. While the charity distributes a total of 7.5million books last year, it hopes to double that next year; this goal seems unrealistic in light of the ratings loss.

I hope that First Book's two-star rating is only temporary, and that the organization will make the necessary improvements to receive four stars again next year. In the meantime, I gave it the benefit of the doubt and donated anyway.


More interesting links to the Charity Navigator website: MIT(3 stars), Lehigh University (4 stars), Allentown Art Museum (gasp! 1 star only!), United Way of the Greater Lehigh Valley (3 stars), Habitat for Humanity of the Lehigh Valley (4 stars), Metropolitan Museum of Art (4 stars), Carnegie Hall (3 stars). Organizations that get only 1 star include Arizona State University Foundation, the Virginia Opera and the Alabama Shakespeare Festival. You can also find a list of the top 10 super-sized charities here with the expenses of each charity totaling over $500mil in its most recent fiscal year.

My visit to Purdue

Last week I left my undergraduate students to their last quiz of the semester while I headed to West Lafayette, Indiana, to give the INFORMS student chapter lecture in the School of Industrial Engineering. (I try to schedule my travels so that they fall on exam days.) My students did great at the quiz and I thoroughly enjoyed my visit, so it was all for the best in the end.

I'd never been to Purdue before and was really looking forward to the trip, which did not disappoint, although I had to connect through the Chicago O'Hare airport - not something I would've chosen if the flights hadn't been so cheap (I wanted to keep costs down for the Purdue people who invited me, but flights via Chicago through O'Hare are usually cheap for a reason, in the same way that using US Airways to connect from Allentown through Philly is usually cheap, but the short flight from Allentown to Philadelphia is sometimes canceled. You get what you pay for.)

I left on Wednesday, December 1 - my local readers with a good memory will remember this was a day of severe storms in the Northeast and many cancellations. A Newark-bound aircraft that had left from Chicago was even forced to land in our small airport and then passengers were bused to Newark - that's how bad the weather was. My plane (that had to come in from Chicago with its own set of passengers before we could board) made multiple attempts to land in Allentown that were aborted due to the severe gust winds and rain, and we ended up leaving over one hour late.

I only had one hour and ten minutes to switch flights (acquaintances at Purdue later told me no one "in the know" ever connects through the O'Hare airport to go to Purdue - West Lafayette, IN is only about two-to-three hours drive from the airport depending on traffic, so people who want to use that airport simply drive there instead of taking a connection flight) and the next flight to West Lafayette was full, so I really worried I wouldn't be able to make my connection and wouldn't arrive at Purdue before much later that evening, which would have ruined my plans for the day. But the good thing about connecting through the O'Hare airport is, the outbound flights are just as late as the inbound flights. So I even had time for a snack at the Tapenade cafe (serving Mediterranean cuisine to go) and chatted with a Birmingham, AL-bound sales rep from a company selling tuition management software to universities before I boarded my flight to Indianapolis.

A grad student from Purdue picked me up - as I'd been warned, there is basically nothing between Indianapolis and West Lafayette - barely any highway exits to begin with; I don't know how people about to run out of gas even handle the situation. (I guess AAA makes a brisk business in that area.) The shoulder has big signs "no parking, stopping or standing", or something along those lines, because of the big slope downward close to the shoulder. When you live in the Northeast, even in a not very densely populated area, it is easy to assume all other areas will show similar characteristics because you lose sight of what "isolated" can mean - you tend to expect exits on the highway to reach gas stations, for instance. Indiana gave the word "not densely populated" a whole new dimension. But you can certainly get used to it when you live there - you simply have to change some of the habits you gained on the East Coast.

I loved West Lafayette - any town that has a Panera Bread shop is alright in my book! It was interesting to see that, both evenings where we went to restaurants, these restaurants closed at 9pm and we were the only ones in there quite a bit before 9pm too. Local acquaintances told me there are many fast-food chains (which I noticed by myself after we exited the highway) but few good restaurants - Midwesterners apparently tend not to eat out that much. Which, if I had not seen McDonald's and Denny's and IHOP lined on the same stretch of road and apparently thriving, would be a very good, healthy thing. (Eating at home is much healthier than eating out.) Apparently the lack of good restaurants is common in the West Lafayette area. Compared to West Lafayette, the Lehigh Valley looks positively effervescent.

Purdue has many positive features. People were so nice throughout my stay! I thoroughly enjoyed my interactions with faculty and students during my visit. People discussed robust optimization and provided references or asked for my input on some ideas; I also enjoyed general conversations about life in academia with the doctoral students I had breakfast, lunch or dinner with. The visit was exceptionally well organized by the INFORMS student chapter, which unwittingly made a strong case to leave such matters to graduate students - the student chapter did the best job I've ever seen assisting the speaker during the visit. The doctoral students were positively phenomenal.

The School of Industrial Engineering (soon to be headed by one of my former program managers at NSF, Abhi Deshmukh) is in Grissom Hall - for many people, Grissom is the name of a character on the TV show CSI, but Virgil (Gus) Grissom was a Purdue alumnus and Air Force pilot who was killed in a fire during a pre-launch test for Apollo 1 at Cap Carnaveral in 1967 and is buried at Arlington National Ceremony. The building was shared by the School of Industrial Engineering and the School of Aeronautics and Astronautics, before the Aero-Astro folks moved to the brand new (and spectacular) Armstrong hall. Gus Grissom's legacy truly is an inspiration and it is too bad so few people outside Purdue are aware of it.

As a funny aside, Purdue has taken an active stance in recycling, so active in fact that faculty are apparently not allowed to have regular trash cans in their office - they can only have recycling bins. (A regular trash can has to be within 20 or 25 feet of their office, but they have to walk outside their office to reach it.) I've been told that this good intention backfired during the height of flu season last winter, when faculty members kept mounds of used Kleenex on their desks to avoid getting up and throwing them in the trash (because people don't feel like walking when they are sick). The solution is apparently for faculty members to buy a small trash can with their own money and keep it hidden somewhere so that the janitor can't confiscate it (which has happened otherwise).

I love the idea of the university providing every office with a small recycling bin - Lehigh U, are you listening? As long as the recycling trash cans are harder to get to than the regular trash cans, if only because faculty members have regular trash cans in their office but nothing to use for recycling, I doubt Lehigh's efforts to become a green university will take off. But this would be a great time of the year to offer each faculty member a little recycling bin.

Other than that, my talk was on log-robust portfolio management and I thought the feedback was very valuable and instructive. Thanks again to the INFORMS student chapter for inviting me. 

Congratulations to my student Dr Michael Dziecichowicz!

Congratulations are in order for my student Mike Dziecichowicz, who just passed his dissertation defense! You can all call him Dr Dziecichowicz now (or Dr Mike, if you belong to the 99% of the population who has no clue how to pronounce his last name.) Mike's dissertation is entitled Robust Timing Decisions with Applications in Finance and Revenue Management. I wrote a post about our recent work together, on robust markdown times in retail revenue management, here. Another part of Mike's dissertation investigates end-of-horizon effects in bond and stock allocation - think of an investor planning his retirement - when return uncertainty is modeled using robust optimization techniques.

Mike is a honors graduate of Lafayette College with a double major in math and economics, and a former NSF IGERT [Integrative Graduate Education and Research Traineeship] and NSF IREE [International Research and Education in Engineering] fellow, with international finance-related experiences in London and Hong Kong. He will remain at Lehigh for a few more months as a Visiting Research Associate and is now looking for a permanent position in the finance industry. You can learn more about him here.