HUM 4072: Fundamentals of Business

Analytics

UNIT - 1
INTRODUCTION

Prepared By:
Dr. Vineetha E Jathanna
Assistant Professor
Department of Humanities & Management
Discussion on:

✓ What is Business Analytics?

✓ Evolution of Business Analytics
✓ Classification of Business Analytics
✓ Trends of Business Analytics
✓ Framework of Business Analytics
✓ Scope of Business Analytics
✓ Data for Business Analytics
✓ Decision Models
✓ Problem Solving and Decision Making
 Analytics

Business
A business is defined as an organization or enterprising entity
engaged in commercial, industrial, or professional activities.
Businesses can be for-profit entities or non-profit organizations.
Business types range from limited liability companies to sole
proprietorships, corporations, and partnerships.
- Investopedia

Business is the practice of making one's living or making money by

producing or buying and selling products (such as goods and
services).
Analytics is the scientific process of discovering and
communicating the meaningful patterns which can be found in
data.
- Techopedia

Analytics is the process of discovering, interpreting, and

communicating significant patterns in data.
-Oracle
 MEANING OF BUSINESS ANALYTICS

• Business analytics (BA) refers to

– “The skills, technologies, practices for the

continuous development of new insights
+
and understanding of business
performance based on data and statistical
methods”.

– “The practice of exploration of an

organization’s data with the emphasis on =
statistical analysis". Business analytics is
used by companies committed to data-
driven decision making.
– “The statistical analysis of the data, a business has acquired in order to
make decisions that are based on evidence rather than a guess”.

– “A combination of data analytics, business intelligence and computer

programming. It is the science of analysing data to find out patterns
that will be helpful in developing strategies”
Analytics is a field which combines following into one -

1. Data,

2. Information technology,
3. Statistical analysis,

4. Quantitative methods and

5. Computer-based models
This all are combined to provide decision makers all the possible scenarios to make a
well thought and researched decision.
BA is the scientific process of transforming data into insight for making better
decisions (Source: INFORMS).
[data => information => knowledge => wisdom]
 EVOLUTION OF BUSINESS ANALYTICS

• Business analytics has been existence since very long time and has
evolved with availability of newer and better technologies.
• It has its roots in operations research, which was extensively used during
World War II. Operations research was an analytical way to look at data to
conduct military operations.
• Over a period of time, this technique started getting utilized for business.
Here operation’s research evolved into management science. Again, basis
for management science remained same as operation research in data,
decision making models, etc.
• As the economies started developing and companies became more and
more competitive, management science evolved into-

– Business intelligence,

– Decision support systems and into

– PC software.
• TIME STUDY EXERCISE BY TAYLOR: DEVELOPED IN
THE EARLY 20TH CENTURY BY FREDERICK WINSLOW
TAYLOR.
• OPERATIONS RESEARCH (OR): EMERGED DURING
WORLD WAR II.
• MANAGEMENT SCIENCE (MS): DEVELOPED IN THE
1950S AND 1960S.
• PERSONAL COMPUTER SOFTWARE: BECAME
PROMINENT IN THE LATE 1970S AND 1980S.
• OR AND MS WITH ICT: THE INTEGRATION OF
INFORMATION AND COMMUNICATION
TECHNOLOGY WITH OR AND MS BECAME
SIGNIFICANT IN THE LATE 20TH CENTURY.
• DECISION SUPPORT SYSTEMS: GAINED
PROMINENCE IN THE 1970S AND 1980S.
• BUSINESS INTELLIGENCE: BECAME A KEY FOCUS IN
THE 1990S AND 2000S.
An Evolutionary Approach to Implementing BI
 SIGNIFICANCE AND USAGES OF BUSINESS ANALYITCS

• To make data-driven decisions

• Converts available data into valuable information
• Eliminate guesswork
• Get faster answer to questions
• Get insight into customer behavior
• Get key business metrics reports
when and where needed
• It impacts functioning of the whole organization and
hence, can-
– Improve profitability of the business
– Increase market share and revenue and
– Provide better return to a shareholder
– Reduce overall cost
– Sustain in competition
– Monitor KPIs (Key Performance Indicators) and
– React to changing trends in real time
 ⦁ There is a strong relationship of BA with:
‐ profitability of businesses
‐ revenue of businesses
‐ shareholder return

⦁ BA enhances understanding of data

⦁ BA is vital for businesses to remain competitive

⦁ BA enables creation of informative reports

It is a game between information and analysis. Analytics excellence leads to better

decisions (Gartner)
1.Data Quality and Availability: The quality of the
analysis depends heavily on the quality of the data
being used. Inaccurate, incomplete, or outdated
data can lead to incorrect insights and decisions.
Ensuring data quality and having access to
relevant and comprehensive data can be a
significant challenge.

2.Data Integration: Many organizations have data

stored in different systems and formats across
various departments. Integrating this data to
create a unified view can be complex and time-
consuming, but it's essential for generating
accurate insights.

3.Data Privacy and Security: With the increasing

focus on data privacy regulations, organizations
must handle data responsibly and ensure
compliance. Balancing the need for analytics with
protecting sensitive customer information can be
challenging.
4. Talent Shortage: Skilled data analysts and data
scientists are in high demand, and there's a
shortage of professionals with the necessary
expertise. Finding and retaining skilled personnel
can be difficult, especially for smaller businesses
with limited resources.

5. Change Management: Implementing business

analytics often requires changes in processes and
workflows. Resistance to change from employees,
lack of understanding of the benefits, and
difficulties in aligning the organization's culture
with analytical thinking can hinder adoption.

6. Complexity of Tools and Techniques: Business

analytics involves using various tools and
techniques, such as statistical analysis, machine
learning, and data visualization. Learning and using
these tools effectively can be daunting, especially
for non-technical users.
7. ROI and Value Demonstration: While business
analytics can yield valuable insights, it might be
challenging to quantify its direct impact on the
bottom line. Demonstrating a clear return on
investment (ROI) for analytics initiatives can be
important for securing continued support.

8. Scope Definition: Defining the scope of business

analytics projects is crucial. Without a clear
understanding of objectives and scope, projects can
become unwieldy and fail to deliver actionable
insights.

9. Real-time Analysis: In today's fast-paced

business environment, real-time insights are
becoming more critical. Processing and analyzing
data in real-time to make timely decisions can be
technically demanding and resource-intensive.
10. Cultural Resistance: Some organizations might
have a culture that is resistant to data-driven
decision-making. Convincing stakeholders to rely on
data rather than intuition or experience can be a
challenge.

11. Scale and Scalability: As businesses grow and

generate more data, the analytics infrastructure
must be able to scale accordingly. Ensuring that the
systems can handle increasing data volumes and
still provide timely insights can be a technical
challenge.

12. Bias and Interpretation: Business analytics

outcomes can sometimes be influenced by biases
present in the data or the modeling process.
Ensuring that the analysis is objective and the
insights are interpreted correctly is essential.
Uses of BA in an Organization
User Type Role/Position Primary Use of Business Analytics
Strategic decision-making, identifying growth
Executives CEO, CFO, COO, CTO
opportunities, financial forecasting, risk management.

Marketing Manager, Sales Campaign performance analysis, sales trend analysis,

Managers customer segmentation, inventory management.
Manager
Financial Analyst, Budget Budget forecasting, financial health assessment,
Financial Analysts
Analyst investment analysis, cost management.
Operations Manager, Supply Process optimization, supply chain management,
Operations
Chain Manager resource allocation, performance tracking.
Employee performance analysis, recruitment strategy,
Human Resources HR Manager, Recruiter
workforce planning, attrition prediction.
System performance monitoring, data security analysis,
IT Professionals IT Manager, Data Analyst
technology adoption analysis, data management.

Customer satisfaction analysis, call centre performance,

Customer Service Customer Service Manager
issue resolution efficiency, feedback analysis.

Product Product Manager, R&D Market trend analysis, product performance evaluation,
Development Manager innovation tracking, user experience analysis.

Sales Executive, Account Sales performance tracking, lead generation analysis,

Sales
Manager customer relationship management, revenue forecasting.

Digital Marketing Specialist, Campaign effectiveness, audience segmentation, brand

Marketing
 Public Sector and Government
Risk Management Professionals
Healthcare Professionals
Retailers and E-commerce Companies
?
Energy and Utilities
Retail Markdown Decisions
Most department stores clear seasonal inventory by reducing prices.

The question is: When to reduce the price and by how much?

• examine historical data for similar products (prices, units sold,

advertising, …)

• predict sales based on price

• find the best sets of pricing and advertising to maximize sales revenue
Analytics in Practice: ABC Entertainment

ABCE owns numerous hotels and casinos.

• It uses analytics to:

‐ forecast demand for rooms
‐ segment customers by gaming activities
‐ set room rates
‐ allocate rooms
‐ offer perks and rewards to customers
OPTIMIZE FUNNEL CONVERSION:
Big data analytics allows companies to track leads through the entire sales
conversion process, from a click on an adword ad to the final transaction, in
order to uncover insights on how the conversion process can be improved.

EXAMPLE:

CREDEM uses Data Analytics to predict which financial

products or services a customer would appreciate, so it can
better target consumers during the sales process. With these
insights, the bank increased average revenue by 22 % and
reduced costs by 9 %. Company Industry
Credem Finance
BEHAVIORAL ANALYTICS:
With access to data on consumer behavior, companies can learn what
prompts a customer to stick around longer, as well as learn more about their
customer’s characteristics and purchasing habits in order to improve
marketing efforts and boost profits.
EXAMPLE

McDonalds tracks vast amounts of data in order to

improve operations and boost the customer experience.
The company looks at factors such as the design of the
drive‐thru, information provided on the menu, wait Company Industry
times, the size of orders and ordering patterns in order McDonalds Food &
Beverage
to optimize each restaurant to its particular market s
CUSTOMER SEGMENTATION:

By accessing data about the consumer from multiple sources, such as social
media data and transaction history, companies can better segment and target
their customers and start to make personalized offers to those customers.

EXAMPLE:
Walmart combines public data, social data and internal data to
monitor what customers and friends of customers are saying
about a particular product online. The retailer uses this data to
send targeted messages about the product, and to share
discount offers. Walmart also uses data analysis to identify the Company Industry
context of an online message, such as if a reference to “salt” is Walmart Retail
about the movie or the condiment.
PREDICTIVE SUPPORT:
Through sensors and other machine‐generated data, companies can identify
when a malfunction is likely to occur. The company can then pre‐emptively
order parts and make repairs in order to avoid downtime and lost profits.
EXAMPLE:
Southwest analyses sensor data on their planes in
order to identify patterns that indicate a potential
malfunction or safety issue. This allows the airline
to address potential problems and make necessary Company Industry
repairs without interrupting flights or putting Southwes Travel
passengers in danger. t
airlines
MARKET BASKET ANALYSIS & PRICING OPTIMIZATION:

By quickly pulling data together from multiple sources, retailers can better
optimize their product selection and pricing, as well as decide where to target
ads.
Example

P&G uses simulation models and predictive analytics in order

to create the best design for its products. It creates and sorts
through thousands of iterations in order to develop the best
design for a disposable diaper, and uses predictive analytics
to determine how moisture affects the fragrance molecules in Company Industry
dish soap, so the right fragrance comes out at the right time Procter Househol
& d
in the dishwashing process. Gambl Retail
e
Coca‐Cola uses an algorithm to ensure that its
orange juice has a consistent taste throughout the
year. The algorithm incorporates satellite imagery,
crop yields, consumer preferences and details about
the flavours that make up a particular fruit in order Company Industry
to determine how the juice should be blended. Coca-Cola Food
Co.
PREDICT SECURITY THREATS:

Big data analytics can track trends in security breaches and allow
companies to proactively go after threats before they strike.
Example:

With more than 1.5 billion items in its catalog,

Amazon has a lot of product to keep track of and
Company Industry
protect. It uses its cloud system, S3, to predict which
Amazon Online
items are most likely to be stolen, so it can better Retail
secure its warehouses.
FRAUD DETECTION:

Financial firms use big data to help them identify sophisticated fraud
schemes by combining multiple points of data.

Example

Eg: Zions Bank uses data analytics to detect anomalies across

channels that indicate potential fraud. The fraud team receives
data from 140 sources—some in real‐time—to monitor activity,
such as if a customer makes a mobile banking transaction at Company Industry
the same time as a branch transaction. Zions Finance
Bank
General Business Analytics Applications

⦁ Pricing decisions
⦁ Financial and marketing activities
⦁ Supply chain management
⦁ Management of customer relationships
⦁ Human resource planning
⦁ Enterprise resource planning
 COMPONENTS OF BUSINESS ANALYTICS

• There are 6 major components/categories in

any analytics solution:
Data Mining

Text Mining

Components of Forecasting
Business Analytics Predictive Analytics

Optimization

Visualization
• Data Mining – Create models by uncovering previously unknown trends and
pattern in vast amounts of data.
e.g. To detect insurance claims frauds, Retail Market basket analysis.
There are various statistical techniques through which data mining is
achieved.

• Classification (when we know on which variables to classify the data e.g.

age, demographics).
- Regression
• Clustering (when we don’t know on which factors to classify data)
- Associations & Sequencing Models
• Text Mining – Discover and extract meaningful patterns and relationships from
text collections.
E.g.

– Understand sentiments of Customers on social media sites like Twitter, Face

book, Blogs, Call centre scripts etc. which are used to improve the Product
or Customer service or understand how competitors are doing.
• Forecasting – Analyze & forecast processes that take place over the period of time.
E.g.

– Predict seasonal energy demand using historical trends,

– Predict how many ice creams cones are required considering

demand

• Predictive Analytics – Create, manage and deploy predictive

scoring models.
E.g.

– Customer churn & retention,

– Credit Scoring,

– Predicting failure in shop floor machinery

• Optimization– Use of simulations techniques to identify scenarios which will
produce best results.

E.g. - Sale price optimization,

– Identifying optimal Inventory for maximum fulfilment & avoid stock outs.

• Visualization– Enhanced exploratory data analysis & output of modelling

results with highly interactive statistical graphics.
 WHY BUSINESS ANALYTICS
‐ Analytical Approach
‐ Non‐analytical approach (Delphi Technique/ Grounded theory)

Analytical approach is better choice than non‐analytical

approach. Why????

Using data to derive conclusions/decisions can deliver a significant higher chance of

making a good, long‐lasting decision over non‐data driven approach.

More useful Applications as per the current requirements:

Risk management, fraud detection, revenue management, healthcare management
Advantage:
Time saving, cost saving, more productive, competitive advantage, increased
customer satisfaction, expanded sales/profits, etc.
CLASSIFICATION OF BUSINESS ANALYTICS
1. Descriptive Analytics
Is used to analyse historical data to determine the response of a unit over a set of given
variables. It tracks key performance indicators (KPIs) for a better understanding of the
present state of a business.

It involves the following five steps:

•Deciding which business metrics will effectively evaluate performance against
objectives
•Identifying required data as per the current business state
•Collecting and preparing data using various processes like depublication,
transformation, and cleansing.
•Analyzing data for patterns to measure performance
•Presenting data in charts and graphs to make it understandable for non-analytics
experts ‐

Examples of Descriptive Analytics

•Summarizing past events, exchange of data, and social media usage
•Reporting general trends
2. Diagnostic Analytics
Is one of those business analytics types that help understand why things happened in
the past. Using drill-downs, data mining, data discovery, and correlations, you can
comprehend the driving factors.

This advanced analytics method is usually employed as a preceding step of

Descriptive Analytics to find the reasoning behind certain results in finance, marketing,
cybersecurity, and more.

Examples of Diagnostic Analytics

•Examining market demand
•Identifying technical issues
•Explaining customer behavior
3. Predictive Analytics
It considers historical data trends for determining the probability of particular future
outcomes. It uses several techniques like data mining, machine learning
algorithms, and statistical modeling to forecast the likelihood of events.

Predictive analytics helps improve business areas, including customer service,

efficiency, fraud detection and prevention, and risk management. It allows you to
grow the most profitable customers, improve the operations of businesses, and
determine customer responses and cross-sell opportunities.

Examples of Predictive Analytics

•Predicting customer preferences
•Detection of employee intentions
4. Prescriptive Analytics
It generates recommendations to handle similar future situations relying on past
performances. It employs several tools, statistics, and ML algorithms for the available
internal data and external data.

It gives you insights into what may happen, when, and why.

Examples of Prescriptive Analytics

•Tracking fluctuating manufacturing prices
•Suggest the best course of action
•Price modeling
5. Cognitive Analytics
Combining Artificial Intelligence and Data Analytics, Cognitive Analytics is one of
the newest types of business analytics. It looks at the available data in the
knowledge base and discovers the best solutions for the questions posed.

Cognitive analytics covers multiple analytical techniques to analyze large data sets
and monitor customer behavior patterns and emerging trends.

Examples of Cognitive Analytics

Tapping unstructured data sources such as images, text documents, emails, and
social posts.
THE BUSINESS ANALYTIC PROCESS
 POSSIBLE STRATEGIES FOR BUSINESS ANALYTICS

1. Competing ON Analytics
– Analytics is THE key competitive advantage
– Target Result – Sustainable competitive advantage
2. Competing WITH Analytics
– Focus on one business process
– Target result – Incremental profits
3. Improving With Analytics
– Culture of analytics
– Target result – Continuous improvement
4. Revenue Through Analytics
– “Sell” data as a secondary product
– Improved margins or market share
5. Persevering Through Analytics
– Do what the competition does
– The price of entry
✓ Competing ON Analytics: This strategy involves making analytics itself a core
competitive advantage. By emphasizing a data-driven approach across all
aspects of the business, companies can continuously innovate and improve their
products, services, and operations. The ultimate goal is to establish a
sustainable competitive advantage based on the effective use of analytics.

✓ Competing WITH Analytics: This strategy involves using analytics to gain a

competitive edge within a specific business process or area. By focusing on one
particular aspect of the business (such as supply chain management, customer
service, or marketing), companies can make incremental improvements that
lead to increased profitability and efficiency.
✓ Improving With Analytics: This strategy centers around cultivating a culture of analytics
within the organization. By encouraging employees at all levels to embrace data-driven
decision-making and continuous improvement, companies can achieve better
operational efficiency and enhance their overall performance over time.

✓ Revenue Through Analytics: In this strategy, companies explore the possibility of

monetizing their data by "selling" it as a secondary product. By analyzing and packaging
their data, they can offer valuable insights to other businesses or stakeholders, leading
to improved financial outcomes such as increased margins or market share.

✓ Persevering Through Analytics: This strategy involves using analytics as a means to

keep up with the competition and meet industry standards. While not necessarily a
groundbreaking approach, it's seen as essential in certain markets to maintain
relevance and avoid falling behind.
FRAMEWORK OF BUSINESS ANALYTICS

⦁ Statistics
‐ descriptive statistics
‐ inferential statistics
‐ forecasting
‐ modelling
⦁ Quantitative methods
‐ Simulation
‐ optimization
‐ modelling
⦁ Information systems for business intelligence
‐ Big data, small data
‐ data marts, spreadsheets
‐ modelling
DATA FOR BUSINESS ANALYTICS

⦁ VARIABLES
⦁ DATA
‐ collected facts and figures
⦁ DATABASE
‐ collection of computer files containing data
⦁ INFORMATION
‐ comes from analyzing data
VARIABLES FOR BUSINESS ANALYTICS

Variables:

Categorical (Qualitative); Quantitative

Dependent Independent
Endogenous Exogenous
Explained Effect Explanatory
Controlled Outcome Cause Control
Regressand Covariate
Predictand Regressor
Response Predictor
Stimulus
 DATA ARCHITECTURE

⦁ Big data and small data

⦁ Primary and secondary data
⦁ Quantitative and qualitative data
⦁ Experimental and non‐experimental data
⦁ Structured and unstructured data
⦁ Internal and External data
⦁ Traditional and “New” data
⦁ “Free” and Purchased data
⦁ Historical data
 DATA FOR BUSINESS ANALYTICS

Examples of using DATA in business:

⦁ Annual reports
⦁ Accounting audits
⦁ Financial profitability analysis
⦁ Economic trends
⦁ Marketing research
⦁ Operations management performance
⦁ Human resource measurements
 VISUALIZATION OF DATA

• Example:
1, 2, 50, 500 …, Kharagpur, gender, 10k3002, xy@gov.in,
Anything else?

• Data vs. Information

100.0, 0.0, 250.0, 150.0, 220.0, 300.0, 110.0

Is there any information?

⦁ Metrics are used to quantify performance.

⦁ Measures are numerical values of metrics.

⦁ Discrete metrics involve counting

‐ on time or not on time
‐ number or proportion of on time deliveries

⦁ Continuous metrics are measured on a continuum

‐ delivery time
‐ package weight
‐ purchase price 1‐58
 DATA FOR BUSINESS ANALYTICS

Example :A Sales Transaction Database File

Records

Entities Fields or Attributes

Example: Classifying Data Elements in a Purchasing Database
 Classifying Data Elements in a Purchasing Database

Figure 1.2
Types Data Based on Measurement Scale:

⦁ Categorical (nominal) data

⦁ Ordinal data
⦁ Interval data
⦁ Ratio data
Categorical (nominal) Data

⦁ Data placed in categories according to a specified characteristic

⦁ Categories bear no quantitative relationship to one another

⦁ Examples:
‐ customer’s location (America, Europe, Asia)
‐ customer’s location (West Bengal, Karnataka, Punjab)
‐ employee classification (manager, supervisor, associate)
‐ employee classification (male, female)
‐ employee classification (adult, child)
Ordinal Data

⦁ Data that is ranked or ordered according to some relationship with one

another
⦁ No fixed units of measurement

⦁ Examples:
‐ college football rankings (Ravenshaw, Christ, Xavier)
‐ Management school rankings (VGSOM, IIMA, IIMB, IIMC, IIML, XLRI)
‐ survey responses (poor, average, good, very good, excellent)
Interval Data

⦁ Ordinal data but with constant differences between observations

⦁ No true zero point
⦁ Ratios are not meaningful
⦁ Examples:
‐ temperature readings
‐ SAT scores
‐ CAT scores
Ratio Data

⦁ Continuous values and have a natural zero point

⦁ Ratios are meaningful
⦁ Examples:
‐ monthly sales
‐ delivery times
‐ weekly sales
‐ processing timings
DATA ANALYTICS PROCESS

• Master data management

• Data visualization
• Data quality
• Data integration
• Data transformation
• Data governance
 DATA ANALYSIS PROCESS FLOWS

• Reporting:
scorecards, dashboards
• Descriptive:
statistics, historical
• Predictive:
forecasting, recommendations
• Prescriptive:
simulation, what‐if
• Machine learning
pattern discovery
DECISION MODELS

Model:
⦁ An abstraction or representation of a real system, idea, or object

⦁ Captures the most important features

⦁ Can be a written or verbal description, a visual display, a mathematical

formula, or a spreadsheet representation
 Example : Three Forms of a Model

The sales of a new produce, such as a first‐generation iPad or 3D television, often

follow a common pattern.
•Sales might grow at an increasing rate over time as positive customer feedback spreads.
(See the S‐shaped curve on the following slide.)
•A mathematical model of the S‐curve can be identified; for
example, S = aebect
where S is sales, t is time, e is the base of natural logarithms, and a, b and c are constants.
A decision model is a logical or mathematical representation of a
problem or business situation that can be used to understand, analyze,
or facilitate decision making.

Types of model input

‐ data
‐ uncontrollable variables
‐ decision variables (controllable)
⦁ Types of model output
‐ performance measures
‐ behavioral measures
DECISION MODELS
 1. Descriptive Decision Models

⦁ Simply tell “what if” and describe relationships

⦁ Do not tell managers what to do

Example : An Influence Diagram for Total Cost

Influence Diagrams -
visually show how various model
elements relate to one another.
A Mathematical Model for Total Cost

TC = F +VQ
TC is Total Cost
F is Fixed cost
V is Variable unit cost
Q is Quantity produced
Example : A Break‐even Decision
Model
TC(manufacturing) = $50,000 +
$125*Q TC(outsourcing) = $175*Q
Breakeven Point:
Set TC(manufacturing)
= TC(outsourcing)
Solve for Q = 1000
units
2. Predictive Decision Models:

• Aim to predict what will happen in the future.

• It analyses historical data by assuming past is the representative of
the future.
Example A Sales‐Promotion Model:

In the grocery industry, managers typically need to know how best to use pricing,
coupons and advertising strategies to influence sales.

Using Business Analytics, a grocer can develop a model that predicts sales using
price, coupons and advertising.
Sales = 500 – 0.05(price) + 30(coupons) +0.08(advertising) + 0.25(price)(advertising)
EXAMPLE : A LINEAR DEMAND PREDICTION MODEL AS PRICE INCREASES, DEMAND FALLS.
 Example: A Nonlinear Demand Prediction Model

Assumes price elasticity (constant ratio of % change in demand to % change in price)

Figure 1.9
3. Prescriptive Decision Models:

It helps decision makers identify the best solution.

⦁ Optimization ‐ finding values of decision variables that minimize (or
maximize) something such as cost (or profit).

⦁ Objective function ‐ the equation that minimizes (or maximizes)

the quantity of interest.
⦁ Constraints ‐ limitations or restrictions.

⦁ Optimal solution ‐ values of the decision variables at the minimum (or

maximum) point.
• Algorithms are systematic procedures used to find
optimal solutions to decision models.
• Search algorithms are used for complex problems to find a
good solution without guaranteeing an optimal solution.
EXAMPLE: A PRICING MODEL

A firm wishes to determine the best pricing for one of its products in order
to maximize revenue.

⦁ Analysts determined the following model:

sales = ‐2.9485(price) + 3240.9

Total revenue = (price)(sales)

Identify the price that maximizes total revenue, subject to any constraints that
might exist.
• Uncertainty is imperfect knowledge of what will
happen in the future.

• Risk is associated with the consequences of what actually happens.

• Deterministic prescriptive models have inputs that are known

with certainty.
• Stochastic prescriptive models have one or more inputs that are not
known with certainty.
PROBLEM SOLVING AND DECISION
MAKING

BA represents only a portion of the overall problem solving and

decision making process.

Six steps in the problem solving process

1. Recognizing the problem
2. Defining the problem
3. Structuring the problem
4. Analyzing the problem
5. Interpreting results and making a decision
6. Implementing the solution
PROBLEM SOLVING AND DECISION MAKING

1. Recognizing the Problem

⦁ Problems exist when there is a gap between what is

happening and what we think should be happening.

⦁ For example, costs are too high compared with competitors.

2. Defining the Problem:

⦁ Clearly defining the problem is not a trivial task.

⦁ Complexity increases when the following occur:
‐ large number of courses of action
‐ several competing objectives
‐ external groups are affected
‐ problem owner and problem solver are not the same person
‐ time constraints exist
3. Structuring the Problem

⦁ Stating goals and objectives

⦁ Characterizing the possible decisions
⦁ Identifying any constraints or restrictions
4. Analyzing the Problem

⦁ Identifying and applying appropriate Business Analytics techniques

⦁ Typically involves experimentation, statistical analysis, or a solution

process
5. Interpreting Results and Making a Decision

⦁ Managers interpret the results from the analysis phase.

⦁ Incorporate subjective judgment as needed.

⦁ Understand limitations and model assumptions.

⦁ Make a decision utilizing the above information.
6. Implementing the Solution

⦁ Translate the results of the model back to the real

world.
⦁ Make the solution work in the organization by
providing adequate training and resources.
 DETAILED STEP-WISE PROCESS OF BUSINESS ANALYTICS

Define Business Objectives and Goals:

• Identify the specific business problems or questions you want
to address with analytics.
• Clearly define the goals you aim to achieve through data
analysis.
Data Collection:
• Gather relevant data from various sources, including internal
databases, external datasets, spreadsheets, and more.
• Ensure data accuracy, completeness, and consistency.
Data Cleaning and Preparation:
• Cleanse the data by removing duplicates, correcting errors,
and handling missing values.
• Transform the data into a format suitable for analysis, which
might involve data normalization, aggregation, and feature
engineering.
Data Exploration and Analysis:
• Use descriptive statistics, data visualization, and exploratory
data analysis to understand the characteristics and patterns
within the data.
• Identify trends, correlations, outliers, and potential insights.

Hypothesis Formulation:
• Based on the insights gained from data exploration,
formulate hypotheses or questions to investigate further.

Model Selection and Building:

• Choose appropriate analytical models, algorithms, or
statistical methods based on the nature of the data and the
business objectives.
• Develop predictive or descriptive models using techniques
like regression, classification, clustering, or time-series
analysis.
Model Training and Validation:
• Split the data into training and validation sets to train the
chosen models.
• Use validation techniques to assess the models' performance,
accuracy, and generalization ability.

Model Interpretation:
• Understand the significance and impact of the model's features
and parameters.
• Evaluate the model's strengths, limitations, and potential biases.

Insight Generation:
• Apply the trained model to new data or real-world scenarios to
generate predictions or classifications.
• Extract insights from the model's output that are relevant to the
business objectives.
Decision-Making and Implementation:
• Translate the generated insights into actionable recommendations for decision-
makers.
• Collaborate with stakeholders to implement the recommended strategies or
changes.

Monitoring and Optimization:

• Continuously monitor the outcomes of implemented decisions and track their
impact on key performance indicators (KPIs).
• Refine models and strategies based on real-world results and feedback.

Communication and Reporting:

• Summarize the analysis process, findings, and recommendations in a clear and
concise manner.
• Use data visualization and storytelling techniques to communicate complex
insights to non-technical stakeholders.

Feedback Loop:
• Encourage a feedback loop between decision-makers, analysts, and other
stakeholders to refine the analysis process over time.
• Incorporate lessons learned from previous analyses into future projects.
 MAIN SOFTWARE USED FOR BUSINESS ANALYITCS

1.Microsoft Excel: Excel is one of the most widely used tools for basic data analysis,
reporting, and visualization. It's suitable for smaller datasets and simpler analysis tasks.

2.Tableau: Tableau is a powerful data visualization tool that allows users to create
interactive and shareable dashboards and reports. It supports connecting to various data
sources and is known for its user-friendly interface.

3.Power BI: Microsoft Power BI is another popular data visualization and business
intelligence tool. It enables users to connect to a wide range of data sources, create
interactive reports, and share insights across organizations.

4.QlikView and Qlik Sense: Qlik's tools, including QlikView and Qlik Sense, provide self-
service data visualization and exploration capabilities, enabling users to uncover insights
from their data.

5.IBM Cognos Analytics: This is an enterprise-level business intelligence and analytics

platform that supports various data sources, reporting, and dashboard creation.
6. SAS Business Analytics: SAS offers a suite of analytics tools for data management,
advanced analytics, and business intelligence. It's often used in industries like finance,
healthcare, and government.

7. R: R is a programming language and environment for statistical computing and graphics.

It's widely used for data analysis, statistical modeling, and creating custom analytics
solutions.

8. Python: Python, with libraries like pandas, NumPy, and scikit-learn, is commonly used for
data analysis, machine learning, and creating custom analytics workflows.

9. MATLAB: MATLAB is a programming language and environment used for numerical

computing, data analysis, and advanced analytics.

10. Alteryx: Alteryx is a platform that enables data blending, preparation, and advanced
analytics. It's often used for data preprocessing and cleaning before analysis. d creation.
11. Sisense: Sisense is a business intelligence software that focuses on data visualization
and dashboard creation, with capabilities for data integration and analytics.

12. Domo: Domo is a cloud-based business intelligence platform that offers real-time
data insights and dashboar

13. Google Analytics: This is a widely used web analytics service that tracks and reports
website traffic, providing insights into user behavior and website performance.

14. Splunk: Splunk is known for its capabilities in processing and analyzing machine-
generated data, making it valuable for IT operations and security analytics.

15. Apache Hadoop and Spark: These open-source frameworks are used for big data
processing and analytics, enabling organizations to handle and analyze large volumes of
data.
Analytics in Practice: Developing Effective
Analytical Tools at Hewlett‐Packard
⦁ Will analytics solve the problem?
⦁ Can they leverage an existing solution?
⦁Is a decision model really needed?
Guidelines for successful implementation:
⦁ Use prototyping.
⦁ Build insight, not black boxes.
⦁ Remove unneeded complexity.
⦁ Partner with end users in discovery and design.
⦁ Develop an analytic champion.