UNIT 1

1.1 MANAGEMENT SCIENCES AND QUANTITATIVE ANALYSIS

Management science (MS) is the broad interdisciplinary study of problem solving and decision
making in human organizations. In short, management sciences help businesses to achieve goals
using various scientific methods. Management science is concerned with a number of different areas
of study: One is developing and applying models and concepts that may prove useful in helping to
illuminate management issues and solve managerial problems. The models used can often be
represented mathematically, but sometimes computer-based, visual or verbal representations are used
as well or instead. Another area is designing and developing new and better models of organizational
excellence.

Quantitative Analysis:

Quantitative analysis refers to economic, business or financial analysis that aims to understand or
predict behavior or events through the use of mathematical measurements and calculations, statistical
modeling and research. Quantitative analysts aim to represent a given reality in terms of a numerical
value. Quantitative analysis is employed for a number of reasons, including measurement,
performance evaluation or valuation of a financial instrument, and predicting real world events such
as changes in a country's gross domestic product (GDP) growth rate.

1.1.1 INTRODUCTION

 It is a systematic, analytical and objective approach to tackle industrial problems.

 It employs scientific techniques in method of work, recruitment, selection and training
of workers.
 It strives to find out the best method of doing the work at the cheapest cost.
 It places that age old methods of the rule of thumb and hit or miss approach with
scientific techniques.
 It brings a complete change in the mental attitude of workers as well as the
management.
 It puts stress on all factors of production, men, material and technology.
 It tries to develop each man to his greatest efficiency and prosperity.

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1.1.2 SCOPE OF SCIENTIFIC MANAGEMENT

Initially, the techniques of scientific management were used in engineering undertakings. This was
owing to the fact the F.W. Taylor, its inventor, was concerned with such industries. But later on this
technique of management attracted the attention of other business establishments as well.

Now- a-days, principles of scientific management can be applied to all types of institutions, where
men and materials are to be managed efficiently. The techniques of scientific management can be
usefully employed by all economic and social organisations.

We can conclude that the scope of scientific management is very wide and that is why Taylor
himself emphasised that “the same principle can be applied with equal force to all social activities to
the management of our homes; the management of the business of our tradesmen, large and small, of
our churches, of our philanthropic institutions, our Universities and our Governmental departments.”

1.1.3 HISTORY

Frederick Winslow Taylor is credited with the initial development of scientific management
techniques in the early 1900s. In addition, several management science techniques were further
developed during World War II. Some even consider the World War II period as the beginning of
management science.

World War II posed many military, strategic, logistic, and tactical problems. Operations research
teams of engineers, mathematicians, and statisticians were developed to use the scientific method to
find solutions for many of these problems.

Nonmilitary management science applications developed rapidly after World War II. Based on
quantitative methods developed during World War II, several new applications emerged. The
development of the simplex method by George Dantzig in 1947 made application of linear
programming practical. C. West Churchman, Russell Ackoff, and Leonard Arnoff made management
science even more accessible by publishing the first operations research textbook in 1957.

Computer technology continues to play an integral role in management science. Practitioners and
researchers are able to use ever-increasing computing power in conjunction with management
science methods to solve larger and more complex problems. In addition, management scientists are
constantly developing new algorithms and improving existing algorithms; these efforts also enable
management scientists to solve larger and more complex problems

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1.2 THE MANAGEMENT SCIENCE PROCESS

1.2.1 MEANING

Management science attempts to apply this same approach in dealing with problems that arise within
business operations. Its use as a problem-solving approach finds applications in areas such as
decision-making, design processes and strategic planning.

1.2.2 STEPS

The following 5 steps process that management science uses to solve real world problems:

 Define Problem/Initiation –
Define objectives, variables and constraints in order to formulate the problem
 Gather data to examine –
Construct a representation of the system. The mathematical model should be simplified but
reasonable.
 Find solution to problem –
Test your model until you are completely satisfied.
 Review and Monitor alternatives-
Use your model to obtain a solution
 Apply solution and evaluate effectiveness (also known as completion
step) –
Apply the solution to the real world problem. Document how the problem responds to
solution, just in case revision is required in the future.

Management problems that can be calculated by a mathematical equation do not need to use the
approach. Since there is no reason to have an individual or team work together or think through the
problem they are being replaced by computers. Engineering problem solving is more applied using
Real world Simulated (model).Interdisciplinary approach that enables realization of successful
systems is system engineering.

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1.3 MODEL DEVELOPMENT

A Data Model is a new approach for integrating data from multiple tables, effectively building a
relational data source inside an Excel workbook. Within Excel, Data Models are used transparently,
providing tabular data used in PivotTables, Pivot Charts, and Power View reports. Most of the time,
you’ll never even know the model is there. In Excel, a Data Model is visualized as a collection of
tables in a Field List. To work with the model directly, you’ll need to use the Microsoft Office Power
Pivot in Microsoft Excel 2013 add-in.

1.3.1 STEPS IN MODELLING

When importing relational data, creating a model occurs automatically when you select multiple
tables:

 In Excel, use Data > Get External Data to import data from Access or another
relational database that contains multiple related tables.
 Excel prompts you to select a table. Check Enable selection of multiple tables.
 Select two or more tables, click Next, and Finish.
 In Import Data, choose the data visualization option you want, such as a PivotTable in
a new sheet, and build your report. You now have a Data Model that contains all of the tables
you imported. Because you selected the PivotTable report option, the model is represented in
the Field List that you’ll use to build the PivotTable report.

What can you do with this model?

You can use it to create PivotTables, Pivot Charts, and Power View reports in the same workbook.
You can modify it by adding or removing tables, and if you use the Power Pivot add-in, you can
extend the model by adding calculated columns, calculated fields, hierarchies, and KPI s.

When creating a Data Model, the visualization option is important. You want to choose PivotTable
Report, PivotChart, or Power View Report for data visualization. These options allow you to work
with all of the tables collectively. Had you chosen Table instead, each imported table would be
placed into a separate sheet. In this arrangement, the tables can be used individually, but using all of
the tables together requires a PivotTable, PivotChart, or Power View report.

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Model Development Step Modeling Issues

 Definition of Model Purpose Goal

Decisions to be supported
Predictions to be made
 Specification of Modeling Context Scale (spatial and temporal)
Application domain
User community
Required inputs
Desired output
Evaluation criteria
 Conceptual Model Formulation Assumptions
(dynamic, static, stochastic, deterministic)
State variables represented
Level of process detail necessary
Scientific foundations
 Computational Model Development Algorithms
Mathematical/computational methods
Inputs
Hardware platforms and
software infrastructure
User interface
Calibration/parameter determination
Documentation
 Model Testing and Revision Theoretical corroboration
Model components verification
Corroboration (independent data)
Sensitivity analysis
Uncertainty analysis
Robustness determination
Comparison to evaluation criteria set during formulation
 Model Use Analysis of Scenarios
Predictions evaluation
Regulations assessment
Policy analysis and evaluation

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1.4 BENEFITS OF BUSINESS MODELS

Business Process Modeling is a combination of various process related steps such as Process
Mapping, Process Discovery, Process Simulation, Process Analysis and Process Improvement.
Although a holistic business process modeling exercise would cover all these steps in some depth,
analysts have found that even a partial modeling exercise that involves a subset of these steps is a
good start and yields significant benefits. Business process modeling provides important benefits to
companies and organizations such as the ones listed below.

 Competitive Advantage: A significant advantage of a solid business model is

that it can give you a competitive edge over other companies in your industry. Implementing
a unique business model can give your company a unique reputation in the marketplace,
creating buzz among consumers and encouraging first-time purchases. Consider the first
pizza shop to offer online ordering for customers. This was an alteration of an existing
business model that facilitated a new means of placing an order and making a payment while
directly increasing employee productivity by cutting down phone time. Whoever first
introduced this business model likely experienced a significant boost in orders and reduction
in expenses.
 Plan For Growth : A company can survive simply by breaking even each month,
but it must then rely on debt financing for expansion. A solid business model that consistently
brings profit into the organization can help to build a cash reserve that can be used for
investment in new real property, equipment or research and development efforts.
 Financial Sustainability : The largest advantage of a robust and proven business
model is the contribution it makes to organizational sustainability and the ability to weather
economic storms or shifting market conditions. A staggering number of businesses close their
doors each year solely due to poor financial management. A business model forces an
entrepreneur to keep abreast of exactly how much profit is being made each month.

 Lenders And Investors : Lenders and investors are well acquainted with small
business failure rates. No matter how novel or market-oriented your products and services
are, lenders and investors want to know that you have a plan for profitability. Being able to
elaborate on and answer questions about your business model and profit expectations can
give you a large advantage over competitors when seeking new financing.

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 UNIT 2

2.1 FORECASTING ANALYZING FINANCIAL STATEMENTS

USING ACCOUNTING RATIOS

In attempting to evaluate the numerical data contained within a company's financial statements,
accountants employ a spectrum of ratios. Using accounting ratios to assess business performance is a
helpful tool in terms of being able to evaluate the financial results of a business from a performance
standpoint.

Furthermore, ratios provide accountants and business owners with the means to compare a company
against sets of several different standards using figures obtained from the balance sheet.

While accounting ratios have the potential to offer invaluable insight into a business's performance, it
is highly critical that the data used for comparison purposes is accurate and current; otherwise,
results will prove to be irrelevant.

2.1.1 INTERNAL RATE OF RETURN (IRR)

Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows
(both positive and negative) from a project or investment equal zero.

Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a
new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below
the required rate of return, the project should be rejected.

FORMULA-

The formula for IRR is:

0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n

where P0, P1, . . . Pn equals the cash flows in periods 1, 2, . . . n, respectively; and
IRR equals the project's internal rate of return.

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 2.1.2 NET PRESENT VALUE (NPV)

Net Present Value (NPV) is the difference between the present value of cash inflows and the present
value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a
projected investment or project.

FORMULA-

The following is the formula for calculating NPV:

where

Ct = net cash inflow during the period t

Co = total initial investment costs

r = discount rate, and

t = number of time periods

A positive net present value indicates that the projected earnings generated by a project or investment (in
present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a
positive NPV will be a profitable one and one with a negative NPV will result in a net loss. This concept is
the basis for the Net Present Value Rule, which dictates that the only investments that should be made are
those with positive NPV values.
Net present value, NPV, is a capital budgeting formula that calculates the difference between the present
value of the cash inflows and outflows of a project or potential investment. In other words, it’s used to
evaluate the amount of money that an investment will generate compared with the cost adjusted for the time
value of money.

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2.1.3 MODIFIED INTERNAL RATE OF RETURN (MIRR)

Modified internal rate of return is a solution to the shortcomings of internal rate of return as a project
evaluation technique. There are two major disadvantages of IRR. One is Multiple IRR and the other
one is the impractical assumption of reinvesting positive cash flows at the rate of project IRR.

It is a comprehensive method to calculate the IRRs of the projects with uneven cash flows i.e. a mix
of more than one positive and negative cash flow. It not only provides a solution to above situation
but also assumes a practically valid reinvestment rate for positive cash flows

FORMULA-

The formula for MIRR is as follows:

MIRR = Future Value of Positive Cash Flows at the Cost Of Capital of the Firm / Present Value of
all Negative Cash Flows at the Financing Cost of the Firm

2.2 INVENTORY MANAGEMENT

In any business or organization, all functions are interlinked and connected to each other and are
often overlapping. Some key aspects like supply chain management, logistics and inventory form the
backbone of the business delivery function. Therefore these functions are extremely important to
marketing managers as well as finance controllers .

Inventory management is a very important function that determines the health of the supply chain as
well as the impacts the financial health of the balance sheet. Every organization constantly strives to
maintain optimum inventory to be able to meet its requirements and avoid over or under inventory
that can impact the financial figures. Inventory is always dynamic. Inventory management requires
constant and careful evaluation of external and internal factors and control through planning and
review. Most of the organizations have a separate department or job function called inventory
planners who continuously monitor, control and review inventory and interface with production,
procurement and finance departments.

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Types of Inventory by Function

INPUT PROCESS OUTPUT

Raw Materials Work In Process Finished Goods

Consumables required for Semi Finished Production in Finished Goods at Distribution

processing. Eg : Fuel, various stages, lying with Centers through out Supply Chain
Stationary, Bolts & Nuts etc. various departments like
required in manufacturing Production, WIP Stores, QC,
Final Assembly, Paint Shop,
Packing, Outbound Store etc.

Maintenance Production Waste and Scrap Finished Goods in transit

Items/Consumables

Packing Materials Rejections and Defectives Finished Goods with Stockiest

and Dealers

Local purchased Items required Spare Parts Stocks & Bought Out
for production items

2.2.1 EOQ

EOQ is the acronym for economic order quantity. the economic order quantity is the optimum
quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering
andcarrying or holding items in inventory.
EOQ is also referred to as the optimum lot size.

FORMULA

 S represents the cost to place the order

 D represents the demand for the good
 P represents production costs
 I represents the opportunity cost of holding the good, which can be the risk free rate
of investing the money in US Treasuries

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 DEFINITIONS

 Economic Order Quantity (EOQ) is the order quantity that minimizes total inventory
costs.
 Order Quantity is the number of units added to inventory each time an order is placed.
 Total Inventory Costs is the sum of inventory acquisition cost, ordering cost,
and holding cost.
 Ordering Cost is the cost incurred in ordering inventory from suppliers excluding the
cost of purchase such as delivery costs and order processing costs.
 Holding Cost, also known as carrying cost, is the total cost of holding inventory such
as warehousing cost and obsolescence cost.

2.2.2 QUANTITY DISCOUNT

A form of discount generally given to the buyers to persuade them to buy goods / services in larger quantity
is called quantity discount. Buying goods in larger quantities generally results in lower cost of production
per unit item due to economies of scale. Hence incentivizing the buyers to buy larger quantity of goods is
one of the most important tools used by wholesalers and retailers alike.

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 A quantity discount is an incentive offered to a buyer that results in a decreased cost per unit of goods or
materials when purchased in greater numbers. A quantity discount is often offered by sellers to entice buyers
to purchase in larger quantities. The seller is able to move more goods or materials, and the buyer receives a
more favorable price for the goods

There are two types of quantity discount offered to the buyers.

 ALL UNITS DISCOUNT: In such a case, above a certain level Q, all the units are
offered at a discount.For e.g. consider the following table showing the prices of mobile
phones when purchased in bulk.

 INCREMENTAL DISCOUNTS: Here the discount is applied to only those units

which are purchased above a certain threshold Q. The first Q units are not discounted.

For example, the cost per unit for t-shirts might be $7.50 per unit if less than 48 pieces are ordered;
$7.25 per unit if 49-72 pieces are ordered; or $7.00 per unit if 73 or more pieces are ordered.
Depending on the quantity discount, all pieces ordered must be delivered and paid for by a certain
date, or the purchases and payments can be spread out over a specified period of time.

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 2.3 LEASING DECISIONS

Lease or buy decision involves applying capital budgeting principles to determine if leasing as asset is a
better option than buying it.

Leasing in a contractual arrangement in which a company (the lessee) obtains an asset from another
company (the lessor) against periodic payments of lease rentals. It may typically also involve an option to
transfer the ownership of the asset to the lessee at the end of the lease.
Buying the asset involves purchase of the asset with company’s own funds or arranging a loan to finance the
purchase.
In finding out whether leasing is better than buying, we need to find out the periodic cash flows under both
the options and discount them using the after-tax cost of debt to see where does the present value of the cost
of leasing stands as compared to the present value of the cost of buying. The alternative with lower present
value of cash outflows is selected.

After-tax cash flows of lease

Determining periodic cash flows in case of leasing is easy. Most leases involve periodic fixed payments and
an optional one-time terminal payment. They may also involve payment of insurance, etc. associated with
the asset which also need to be accounted for. These payments have associated tax shield, i.e. they are
allowed as deduction from the company’s taxable income which results in a decrease in net tax liability of
the company.
Periodic after-tax cash flows of lease = (maintenance costs + lease rentals) * (1 – tax rate)

After-tax cash flows of purchase

The most significant component of cash outflows in case of purchase of asset is the payment for cost of the
asset. If the company uses its own funds, the total cost is assumed to be paid at the time 0, however, if the
company obtains a loan to finance the purchase, the loan repayment and associated tax shield on interest
shall appear in all the periods of the lease analysis.
Other cash flows include the tax shield on depreciation, any potential savings, maintenances costs,
insurance, etc. associated with the purchase and use of the asset.

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 2.4 FLEXIBLE BUDGETS

A flexible budget calculates different expenditure levels for variable costs, depending upon changes in
actual revenue. The result is a budget that varies, depending on the actual activity levels experienced. Actual
revenues or other activity measures are entered into the flexible budget once an accounting period has been
completed, and it generates a budget that is specific to the inputs. The budget is then compared to actual
information for control purposes. The steps needed to construct a flexible budget are:
Identify all fixed costs and segregate them in the budget model.

 Determine the extent to which all variable costs change as activity measures
change.
 Create the budget model, where fixed costs are “hard coded” into the model, and
variable costs are stated as a percentage of the relevant activity measures or as a cost per
unit of activity measure.
 Enter actual activity measures into the model after an accounting period has been
completed. This updates the variable costs in the flexible budget.
 Enter the resulting flexible budget for the completed period into the ac counting
system for comparison to actual expenses.

This approach varies from the more common static budget, which contains nothing but fixed
amounts that do not vary with actual revenue levels. Budget versus actual reports under a
flexible budget tend to yield variances that are much more relevant than those generated under a
static budget, since both the budgeted and actual expenses are based on the same activity
measure. This means that the variances will likely be smaller than under a static budget, and
will also be highly actionable.

2.5 BREAK-EVEN ANALYSIS

Break-even analysis is of vital importance in determining the practical application of cost functions.
It is a function of three factors, i.e. sales volume, cost and profit. It aims at classifying the dynamic
relationship existing between total cost and sale volume of a company.

Hence it is also known as “cost-volume-profit analysis”. It helps to know the operating condition that
exists when a company ‘breaks-even’, that is when sales reach a point equal to all expenses incurred
in attaining that level of sales. The break-even point may be defined as that level of sales in which
total revenues equal total costs and net income is equal to zero. This is also known as no-profit no-
loss point

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2.5.1 ASSUMPTIONS OF BREAK-EVEN ANALYSIS:

The break-even analysis is based on the following set of assumptions:

 The total costs may be classified into fixed and variable costs. It ignores semi-variable
cost.
 The cost and revenue functions remain linear.
 The price of the product is assumed to be constant.
 The volume of sales and volume of production are equal.
 The fixed costs remain constant over the volume under consideration.
 It assumes constant rate of increase in variable cost.
 It assumes constant technology and no improvement in labour efficiency.
 The price of the product is assumed to be constant.
 The factor price remains unaltered.
 Changes in input prices are ruled out.
 In the case of multi-product firm, the product mix is stable.

2.5.2 CONTENTS

BREAK-EVEN POINT:

The break-even point (B.E.P.) of a firm can be found out in two ways. It may be determined in terms
of physical units, i.e., volume of output or it may be determined in terms of money value, i.e., value
of sales.

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 DETERMINATION OF BREAK-EVEN POINT:

The formula for calculating the break-even point is

ВЕР – Total Fixed Cost/Contribution Margin Per Unit

Contribution margin per unit can be found out by deducting the average variable cost from the
selling price. So the formula will be

BEP = Total Fixed Cost/Selling Pr ice – AVC

MANAGERIAL USES OF BREAK-EVEN ANALYSIS:

To the management, the utility of break-even analysis lies in the fact that it presents a microscopic
picture of the profit structure of a business enterprise.

 Focuses entrepreneur on how long it will take before a start-up reaches profitability –
i.e. what output or total sales is required
 Helps entrepreneur understand the viability of a business proposition, and also those
who will lend money to, or invest in the business
 Margin of safety calculation shows how much a sales forecast can prove over-
optimistic before losses are incurred
 Helps entrepreneur understand the level of risk involved in a start-up
 Illustrates the importance of a start-up keeping fixed costs down to a minimum
(higher fixed costs = higher break-even output)
 Calculations are quick and easy – great for giving quick estimates

LIMITATIONS OF BREAKEVEN ANALYSIS

 Unrealistic assumptions – products are not sold at the same price at different levels of
output; fixed costs do vary when output changes
 Sales are unlikely to be the same as output – there may be some build up of stocks or
wasted output too
 Variable costs do not always stay the same. For example, as output rises, the business
may benefit from being able to buy inputs at lower prices (buying power), which would
reduce variable cost per unit.
 Most businesses sell more than one product, so break-even for the business becomes
harder to calculate

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UNIT 3

INTRODUCTION TO DATABASE MANAGEMENT SYSTEM

(DBMS)

DBMS stands for Database Management System. We can break it like this DBMS = Database +
Management System. Database is a collection of data and Management System is a set of programs
to store and retrieve those data. Based on this we can define DBMS like this: DBMS is a collection
of inter-related data and set of programs to store & access those data in an easy and effective manner.

3.1 FEATURES OF DBMS

 The scope of Database management system is not hidden from any organization.
Everyone knows that how important database management system is if they want to manage
their precious data securely. Here we are sharing few most important features of database
management system.
 Minimum Duplication and Redundancy- Because there are many users
who use the database so chances of data duplicity are very high. As in database management
system, data files are shared that in turns minimizes data duplication and redundancy. All the
information in database management system occurs only once so chances of duplicity are
very less.
 Saves storage space and cost - All the Database management systems have a
lot of data to save. But DBMS proper integration of data saves much more space. Companies
are paying so much amount of money to store data. If they have managed data to save then it
will saves their cost of saving data and data entry.
 Anyone can work on it - Users who are not having any technical skills can
work on database management system. The query language provided by DBMS is so easy to
understand. If you want to update, insert, delete and search any record then it is very easy
with the help of queries provided by DBMS. Any non programming user can do this with the
help of any programmer

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  Large database maintenance- Large databases of big companies can be
maintained only by database management system. These databases require lots of security
and other feature like backup and recovery. All these features are contained in DBMS. It can
maintain a database with lots of data and information.
 Provides high level of security - Security is a very big concern for all the
organizations who are handling a large amount of data. DBMS doesn’t give the full access of
database except DBA or head of the department. They are able to alter the database and all
the users are created by them so security level of DBMS becomes so high. No other person or
user can access the full database; all of them have restrictions according to their work.
 Permanent Storage of Data - DBMS stores all the data files permanently and
there is no chance of any loss of data. If somehow the data get lost then there is a backup and
recovery method too that can save organization’s data files. So no need to worry about data
loss in DBMS.

3.2 COMPONENTS OF DBMS

Let us examine the major components of a typical database environment and their relationships.
Following is a brief description of the nine components :

 Computer-aided software engineering (CASE) tools- CASE tools are

automated tools used to design databases and application programs. These tools help with
creation of data models and in some cases can also help automatically generate the “code”
needed to create the database. We reference the use of automated tools for database design
and development throughout the text.
 Repository- A repository is a centralized knowledge base for all data definitions,
data relationships, screen and report formats, and other system components. A repository
contains an extended set of metadata important for managing databases as well as other
components of an information system.
 DBMS- A DBMS is a software system that is used to create, maintain, and provide
controlled access to user databases.
 Database- A database is an organized collection of logically related data, usually
designed to meet the information needs of multiple users in an organization. It is important to
distinguish between the database and the repository. The repository contains definitions of
data, whereas the database contains occurrences of data.

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  Application programs- Computer-based application programs are used to create
and maintain the database and provide information to users.
 User interface- The user interface includes languages, menus, and other facilities
by which users interact with various system components, such as CASE tools, application
programs, the DBMS, and the repository.
 Data and database administrators- Data administrators are persons who are
responsible for the overall management of data resources in an organization. Database
administrators are responsible for physical database design and for managing technical issues
in the database environment.
 System developers- System developers are persons such as systems analysts and
programmers who design new application programs. System developers often use CASE
tools for system requirements analysis and program design.
 End users- End users are persons throughout the organization who add, delete, and
modify data in the database and who request or receive information from it. All user
interactions with the database must be routed through the DBMS.

3.3 TYPES OF DATABASES

The relationships among the many individual data elements stored in databases are based on one
of several logical data structures, or models. Database management system (DBMS) packages
are designed to use a specific data structure to provide end users with quick, easy access to
information stored in databases. fundamental database structures are the hierarchical, network,
relational, normalization models.

3.3.1 HIERARCHICAL DATABASES (DBMS)

In the Hierarchical Database Model we have to learn about the databases. It is very fast and simple. In a
hierarchical database, records contain information about there groups of parent/child relationships, just like
as a tree structure. The structure implies that a record can have also a repeating information. In this
structure Data follows a series of records, It is a set of field values attached to it. It collects all records
together as a record type. These record types are the equivalent of tables in the relational model, and with
the individual records being the equivalent of rows. To create links between these record types, the
hierarchical model uses these type Relationships.

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3.3.2 NETWORK DATABASE

A network databases are mainly used on a large digital computers. It more connections can be made
between different types of data, network databases are considered more efficiency It contains
limitations must be considered when we have to use this kind of database. It is Similar to the
hierarchical databases, network databases .Network databases are similar to hierarchical databases by
also having a hierarchical structure. A network database looks more like a cobweb or interconnected
network of records.

In network databases, children are called members and parents are called occupier. The difference
between each child or member can have more than one parent.

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 3.3.3 RELATIONAL DATABASES

In relational databases, the relationship between data files is relational. Hierarchical and network databases
require the user to pass a hierarchy in order to access needed data. These databases connect to the data in
different files by using common data numbers or a key field. Data in relational databases is stored in
different access control tables, each having a key field that mainly identifies each row. In the
relational databases are more reliable than either the hierarchical or network database structures. In
relational databases, tables or files filled up with data are called relations (tuples) designates a row or record,
and columns are referred to as attributes or fields.

Relational databases work on each table has a key field that uniquely indicates each row, and that
these key fields can be used to connect one table of data to another.

3.4 NORMALIZATION DATABASES

 Normalization is a process of organizing the data in the database.

 It is a systematic approach of decomposing tables to eliminate data redundancy.
 It was developed by E. F. Codd.
 Normalization is a multi-step process that puts the data into a tabular form by
removing the duplicate data from the relation tables.
 It is a step by step decomposition of complex records into simple records.
 It is also called as Canonical Synthesis.
 It is the technique of building database structures to store data.

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Here are the most commonly used normal forms:

 First normal form(1NF)

 Second normal form(2NF)
 Third normal form(3NF)
 Boyce & Codd normal form (BCNF)

3.5 DATABASE ADMINISTRATOR

A database administrator (DBA) is responsible for the performance, integrity and security of a
database. They will also be involved in the planning and development of the database, as well as
troubleshooting any issues on behalf of the users.

A DBA makes sure that databases have the following qualities:

 data remains consistent across the database;

 data is clearly defined;
 users access data concurrently, in a form that suits their needs;
 there is provision for data security and recovery control (all data is retrievable in an
emergency).

DBA roles vary depending on the type of database, the processes they administer and the capabilities
of the database management system (DBMS) in use.

3.5.1 EDUCATION REQUIREMENTS

 DBAs come into jobs with at least a bachelor's degree in computer science,
information science, or similar fields. Larger firms might want people with master's degrees.
On top of this, DBAs must have a practical knowledge of database languages, the most
common of which is SQL.
 Many DBAs start as data analysts or developers for companies, and gain years of
experience before becoming administrators.
 Certification is available.

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3.5.2 JOB SKILLS AND REQUIREMENTS

 Analytical Skills: DBAs monitor a lot of information and need to be able to think of
solutions as problems arise.
 Communication Skills: DBAs are part of a team, working with other DBAs, data
analysts and management and need to be effective communicators.
 Attention to Detail: Databases are complex, and a minute error can cause huge
problems.
 Logical Thinking: DBAs take code and data and turn it into logical patterns, so that it
can be analyzed.
 Problem-Solving Skills: As problems come up, DBAs must come up with solutions
quickly.

3.6 DATA WAREHOUSING

Data warehousing is the process of constructing and using a data warehouse. A data warehouse is
constructed by integrating data from multiple heterogeneous sources that support analytical
reporting, structured and/or ad hoc queries, and decision making. Data warehousing involves data
cleaning, data integration, and data consolidations.

3.6.1 CHARACTERISTICS OF A DATA WAREHOUSE

The key characteristics of a data warehouse are as follows:

 Some data is denormalized for simplification and to improve performance.

 Large amounts of historical data are used.
 Queries often retrieve large amounts of data.
 Both planned and ad hoc queries are common.
 The data load is controlled.

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3.6.2 USING DATA WAREHOUSE INFORMATION

There are decision support technologies that help utilize the data available in a data warehouse.
These technologies help executives to use the warehouse quickly and effectively. They can gather
data, analyze it, and take decisions based on the information present in the warehouse. The
information gathered in a warehouse can be used in any of the following domains:

 Tuning Production Strategies - The product strategies can be well tuned by

repositioning the products and managing the product portfolios by comparing the sales
quarterly or yearly.
 Customer Analysis - Customer analysis is done by analyzing the customer's buying
preferences, buying time, budget cycles, etc.
 Operations Analysis - Data warehousing also helps in customer relationship
management, and making environmental corrections. The information also allows us to
analyze business operations.

3.6.3 ARCHITECTURAL FRAMEWORK OF A DATA WAREHOUSE

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 OPERATIONAL SOURCE SYSTEMS

 Operational systems are used to process everyday transactions of an organization

 The operational systems are designed in such a way that the transactions occur
smoothly and the data-integrity is maintained efficiently
 The operational systems have very fast insert/update since minimal data is affected
each time a transaction occurs
 In order to improve performance the old data is purged systematically

DATA STAGING AREA- ETL –

EXTRACTION, TRANSFORMATION AND LOADING.

EXTRACTION

 The extraction methods in a data warehouse depend on the performance of the source
system and the demands of the business.
 Full extraction is applied when the data is required to be retrieved and loaded the first
time. Hence, this extraction represents the current data available in the source system
 Incremental extraction is a process where the differences in the source data since the
last extraction are captured. Only the changes will be loaded based on the last changed
timestamp
 Online extraction is a process where the data is extracted from the source system
directly
 Offline extraction is a process of extraction where the source system is emptied into a
flat file outside of the source. This flat file is used to extract the data

TRANSFORMATION

 The data is transformed based on the transformation rules provided by the business.
The data is converted to a standard format and common semantics
 Data cleansing is the process of distinguishing and correcting the discrepant data from
a database or table. Data cleansing also involves the synchronization of data. For example,
the compliance of Male/Female to M/F

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LOADING

 Once the data is cleansed and transformed into a structure persistent with the data
warehouse requisites, the data is then qualified to be loaded into a data warehouse
 Populating the data into the tables present in a data warehouse and verifying if the
data is ready for use is the first step of loading
 After loading the facts and dimensions a DBA should check for referential integrity
i.e. each record from the fact table should be related to a dimension record

DATA PRESENTATION AREA

 The presentation area represents a collection of data marts. A data mart is a sub set of
a data warehouse
 Data marts are preferred for smaller data volumes and fewer data sources. It enables
easier data cleaning process

 Dependent data marts retrieve data from a central data warehouse whereas the
independent data marts are standalone systems that extract data directly from the operational
systems or external sources

DATA ACCESS TOOLS

 Business Intelligence tools are used for accessing the data for strategic, operational,
and analytical purposes
 Senior executives and managers access the data warehouse for taking critical
decisions. They devise strategies and observe the business performance
 E.g. Balance Scorecards
 Operational managers execute the details of the strategies against the targets.
 E.g. Sales Forecasts
 Analytical operations are performed by analysts to evaluate the outcomes of a
business process and understand the functioning of the business
 E.g. Financial and Sales Analysis

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3.7 DATA MINING

Data mining, the extraction of hidden predictive information from large databases, is a powerful new
technology with great potential to help companies focus on the most important information in their
data warehouses. Data mining tools predict future trends and behaviors, allowing businesses to make
proactive, knowledge-driven decisions. The automated, prospective analyses offered by data mining
move beyond the analyses of past events provided by retrospective tools typical of decision support
systems. Data mining tools can answer business questions that traditionally were too time consuming
to resolve. They scour databases for hidden patterns, finding predictive information that experts may
miss because it lies outside their expectations.

Most companies already collect and refine massive quantities of data. Data mining techniques can be
implemented rapidly on existing software and hardware platforms to enhance the value of existing
information resources, and can be integrated with new products and systems as they are brought on-
line. When implemented on high performance client/server or parallel processing computers, data
mining tools can analyze massive databases to deliver answers to questions such as, "Which clients
are most likely to respond to my next promotional mailing, and why?"

This white paper provides an introduction to the basic technologies of data mining. Examples of
profitable applications illustrate its relevance to today’s business environment as well as a basic
description of how data warehouse architectures can evolve to deliver the value of data mining to end
users.

3.7.1 THE SCOPE OF DATA MINING

Data mining derives its name from the similarities between searching for valuable business
information in a large database — for example, finding linked products in gigabytes of store scanner
data — and mining a mountain for a vein of valuable ore. Both processes require either sifting
through an immense amount of material, or intelligently probing it to find exactly where the value
resides. Given databases of sufficient size and quality, data mining technology can generate new
business opportunities by providing these capabilities:

 Automated prediction of trends and behaviors.- Data mining automates

the process of finding predictive information in large databases. Questions that traditionally
required extensive hands-on analysis can now be answered directly from the data — quickly.
A typical example of a predictive problem is targeted marketing. Data mining uses data on
past promotional mailings to identify the targets most likely to maximize return on
investment in future mailings

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  Automated discovery of previously unknown patterns.- Data mining
tools sweep through databases and identify previously hidden patterns in one step. An
example of pattern discovery is the analysis of retail sales data to identify seemingly
unrelated products that are often purchased together. Other pattern discovery problems
include detecting fraudulent credit card transactions and identifying anomalous data that
could represent data entry keying errors.

Data mining techniques can yield the benefits of automation on existing software and hardware
platforms, and can be implemented on new systems as existing platforms are upgraded and new
products developed. When data mining tools are implemented on high performance parallel
processing systems, they can analyze massive databases in minutes. Faster processing means that
users can automatically experiment with more models to understand complex data. High speed
makes it practical for users to analyze huge quantities of data. Larger databases, in turn, yield
improved predictions.

Databases can be larger in both depth and breadth:

 More columns. Analysts must often limit the number of variables they examine when
doing hands-on analysis due to time constraints. Yet variables that are discarded because they
seem unimportant may carry information about unknown patterns. High performance data
mining allows users to explore the full depth of a database, without preselecting a subset of
variables.
 More rows. Larger samples yield lower estimation errors and variance, and allow
users to make inferences about small but important segments of a population.

3.7.2 COMMONLY USED TECHNIQUES IN DATA MINING

The most commonly used techniques in data mining are:

 Artificial neural networks: Non-linear predictive models that learn through training
and resemble biological neural networks in structure.

 Decision trees: Tree-shaped structures that represent sets of decisions. These

decisions generate rules for the classification of a dataset. Specific decision tree methods
include Classification and Regression Trees (CART) and Chi Square Automatic Interaction
Detection (CHAID) .

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  Genetic algorithms: Optimization techniques that use processes such as genetic
combination, mutation, and natural selection in a design based on the concepts of evolution.

 Nearest neighbor method: A technique that classifies each record in a dataset based on
a combination of the classes of the k record(s) most similar to it in a historical dataset (where
k ³ 1). Sometimes called the k-nearest neighbor technique.

 Rule induction: The extraction of useful if-then rules from data based on statistical
significance.

Many of these technologies have been in use for more than a decade in specialized analysis tools that
work with relatively small volumes of data. These capabilities are now evolving to integrate directly
with industry-standard data warehouse and OLAP platforms. The appendix to this white paper
provides a glossary of data mining terms.

3.8 RDBMS

RDBMS stands for Relational Database Management System. RDBMS is the basis for SQL, and for
all modern database systems like MS SQL Server, IBM DB2, Oracle, MySQL, and Microsoft
Access.

A Relational database management system (RDBMS) is a database management system (DBMS)

that is based on the relational model as introduced by E. F. Codd.

RDBMS is used to manage Relational database. Relational database is a collection of organized set
of tables from which data can be accessed easily. Relational Database is most commonly used
database. It consists of number of tables and each table has its own primary key.

3.8.1 FEATURES OF RDBMS

The system caters to a wide variety of applications and quite a few of its stand out features enable its
worldwide use. The features include:

 First of all, its number one feature is the ability to store data in tables. The fact that the
very storage of data is in a structured form can significantly reduce iteration time.

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  Data persists in the form of rows and columns and allows for a facility primary key to
define unique identification of rows.
 It creates indexes for quicker data retrieval.
 Allows for various types of data integrity like (i) Entity Integrity; wherein no
duplicate rows in a table exist, (ii)Domain Integrity; that enforces valid entries for a given
column by filtering the type, the format, or the wide use of values, (iii)Referential Integrity;
which disables the deletion of rows that are in use by other records and (iv)User Defined
Integrity;providing some specific business rules that do not fall into the above three.
 Also allows for the virtual table creation which provides a safe means to store and
secure sensitive content.
 Common column implementation and also multi user accessibility is included in the
RDBMS features.

3.8.2 MAINTENANCE ACTIVITY

The latest RDBMS allows an online maintenance, fast recovery and software based fault tolerance.
These features ensure the availability of the database round the clock as the database maintenance is
possible online when the system is in use. The maintenance activity comprises of the following tasks:

 Backup
 Diagnostic
 Integrity changes
 Recovery
 Design changes
 Performance tuning

3.9 USE OF RDBMS IN BUSINESS DECISIONS

There is numerous benefit of using RDBMS. It improves conceptual simplicity. RDBMS makes
easier database design, implementation, management, and use. It is a dominant database
management system.

 The role of a RDBMS in the enterprise is to allow the business to store information
about it’s customers, transactions, inventory, manufacturing processes, etc
 Once data has been collected it becomes the basis for all business activity

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 Data can then be reported on, managed, updated as new information becomes
available
 The RDBMS is the Heart of the business
 This system avoids data duplication
 RDBMS evades inconsistent records

 In this system, it is easier to change data and data format

 Data can be added and removed easily in RDBMS
 In RDBMS, it is easier to maintain security

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