Exercise: Characterizing Costs and Savings
Explore how to quantify expected costs and savings from a counseling program by analyzing model prediction thresholds. Understand how to calculate net savings by balancing counseling costs with prevented defaults, select optimal thresholds, and visualize financial outcomes to support client decision-making.
We'll cover the following...
Analyzing costs and savings of a counseling program
The connection between model output and business decisions the client will make comes down to selecting a threshold for the predicted probabilities. Therefore, in this exercise, we will characterize the expected costs of the counseling program, in terms of costs of offering individual counseling sessions, as well as the expected savings, in terms of prevented defaults, at a range of thresholds. There will be different costs and savings at each threshold, because each threshold is expected to result in a different number of positive predictions, as well as a different number of true positives within these. The first step is to create an array of potential thresholds. We will use 0 through 1, going by an increment of 0.01. Perform the ...