MODULE 2 – THE FRAMEWORK AND PROCESS OF BUSINESS

ANALYTICS

In today's competitive environment, the main goal of every business is to gain

competitive advantage and improved performance. With the large amount of data
stored in databases, data marts and data warehouses together with data analysis
tools, managers are now in a better position to make smart and effective
decisions. Business analytics is the process of transforming huge amount of data into
new knowledge through analysis and utilizing that knowledge for effective decision
making and problem solving which ultimately results in value-creating competitive
actions. This module discusses the business analytics framework, the three types of
business analytics and the relationship between the business analytic process and the
organization’s decision making process.

After completing this course, you should be able to:

1. Describe how data becomes business value.
2. Explain basic concepts on data analysis framework, data extraction, data
warehousing and data analytics.
3. Differentiate the three types of analytics
4. Explain the business analytic process
5. Describe the relationship between the business analytic process and
organization decision making process

Framework for Business Analytics

The process of turning raw data into business action is the framework for
Business Analytics. There are 3 steps in turning data into analytics which are Data
Extraction, Data Warehousing and the Extract, Transform, or Load Processes (ETL).

1. Data extraction
 This is the first step in turning data into analytics. There are at least
various sources of data which are the source systems, raw transactions,
and from documents and forms.

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  The process of obtaining data from a database so that it can be
replicated to a destination — such as a data warehouse

2. Data warehousing
 This is where the data is cleaned, curated, organized, and ready for
analysis.
 It is the electronic storage of a large amount of information by a business
or organization. Data warehousing is a vital component of business
intelligence that employs analytical techniques on business data.

3. Extract, Transform, or Load Processes (ETL).

 This is the process of moving data from source systems to data
warehouse to an analytical tool.
 Extract: Data is extracted from many sources including the internal as
well as from external sources. It is then consolidated, and non-relevant
data is filtered out.
 Transform: Extracted data is validated and cleaned up to correct
missing, inconsistent, oinvalid values. Data is integrated into standard
format and business rules are applied that map data to the warehouse
schema.
 Load: Cleansed data is then loaded into the data warehouse/data mart

Categorization of Analytical Methods and Models

Business analytics can involve anything from simple reports to the most
advanced optimization techniques (methods for finding the best course of action).
Analytics is generally thought to comprise three broad categories of techniques:
descriptive analytics, predictive analytics, and prescriptive analytics.

A. Descriptive Analytics
It composed of set of techniques that describes what has happened in the past.
Examples are data queries, reports, descriptive statistics, data visualization including
data dashboards, some data-mining techniques, and basic what-if spreadsheet models

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 Data Query
 It is a request for information with certain characteristics from a database
 Example of a data query is a manufacturing plant’s database might be for all
records of shipments to a particular distribution center during the month of
March
 A report summarizing relevant historical information for management might be
conveyed by the use of descriptive statistics (means, measures of variation,
etc.) and data visualization tools (tables, charts, and maps). Simple descriptive
statistics and data visualization techniques can be used to find patterns or
relationships in a large database.

Data dashboards
 Collections of tables, charts, maps, and summary statistics that are updated as
new data become available
 It is used to help management monitor specific aspects of the company’s
performance related to their decision-making responsibilities.
 Example is for corporate-level managers, daily data dashboards might
summarize sales by region, current inventory levels, and other company-wide
metrics.

B. Predictive Analytics
It consists of techniques that use models constructed from past data to predict
the future or ascertain the impact of one variable on another. For example, past data
on product sales may be used to construct a mathematical model to predict future
sales, which can factor in the product’s growth trajectory and seasonality based on
past patterns. Linear regression, time series analysis, some data-mining techniques,
and simulation, often referred to as risk analysis, all fall under the banner of predictive
analytics.

Data mining
 It is a technique used to find patterns or relationships among elements of the
data in a large database, is often used in predictive analytics.

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  For example, a large grocery store chain might be interested in developing a
new targeted marketing campaign that offers a discount coupon on potato
chips. By studying historical point-of-sale data, the store may be able to use
data mining to predict which customers are the most likely to respond to an
offer on discounted chips by purchasing higher-margin items such as beer or
soft drinks in addition to the chips, thus increasing the store’s overall revenue

Simulation
 It involves the use of probability and statistics to construct a computer model
to study the impact of uncertainty on a decision.
 For example, banks often use simulation to model investment and default risk
in order to stress test financial models.

C. Prescriptive Analytics
It indicates a best course of action to take; that is, the output of a prescriptive
model is a best decision. The airline industry’s use of revenue management is an
example of a prescriptive analytics. Airlines use past purchasing data as inputs into a
model that recommends the best pricing strategy across all flights for maximizing
revenue. Other examples of prescriptive analytics are portfolio models in finance,
supply network design models in operations, and price markdown models in retailing.
Portfolio models use historical investment return data to determine the mix of
investments that yield the highest expected return while controlling or limiting
exposure to risk.

Optimization models
 give the best decision subject to constraints of the situation.
 use algorithms such as linear programming, mixed integer programming,
constraint programming, and heuristic algorithms to minimize or maximize
some objective while meeting global business constraints.

Simulation optimization
 combines the use of probability and statistics to model uncertainty with
optimization techniques to find good decisions in highly complex and highly
uncertain settings
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 Table 1. Types of Analytics

The purposes and methodologies used for each of the three types of analytics
differ, as can be seen in Table 2. It is these differences that distinguish analytics from
business analytics. Whereas analytics is focused on generating insightful information
from data sources, business analytics goes the extra step to leverage analytics to
create an improvement in measurable business performance. Whereas the process of
analytics can involve any one of the three types of analytics, the major components
of business analytics include all three used in combination to generate new, unique,
and valuable information that can aid business organization decision-making. In
addition, the three types of analytics are applied sequentially (descriptive, then
predictive, then prescriptive).
Table 2. Analytic Purposes and Tools

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Business Analytic Process
The complete business analytic process involves the three major
component steps applied sequentially to a source of data (see Figure 1). The outcome
of the business analytic process must relate to business and seek to improve business
performance in some way.

Figure 1. Business Analytic Process

The three major components of descriptive, predictive, and prescriptive

analytics arranged as steps in the BA process can help a firm find opportunities in
data, predict trends that forecast future opportunities, and aid in selecting a course of
action that optimizes the firm’s allocation of resources to maximize value and
performance.

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Relationship of BA Process and Organization Decision-Making Process
The BA process can solve problems and identify opportunities to improve
business performance. In the process, organizations may also determine strategies to
guide operations and help achieve competitive advantages. Typically, solving problems
and identifying strategic opportunities to follow are organization decision-making
tasks.
The latter, identifying opportunities, can be viewed as a problem of strategy
choice requiring a solution. It should come as no surprise that the BA process
described is closely parallels classic organization decision-making processes. As
depicted in Figure 2, the business analytic process has an inherent relationship to the
steps in typical organization decision-making processes.

Figure 2. Comparison of business analytics and organization decision-

making processes

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 The organization decision-making process (ODMP) developed by Elbing (1970)
and presented in Figure 2 is focused on decision making to solve problems but could
also be applied to finding opportunities in data and deciding what is the best course
of action to take advantage of them. The five-step ODMP begins with the perception
of disequilibrium, or the awareness that a problem exists that needs a decision.
 Step 1 is to recognize that databases may contain information that could both
solve problems and find opportunities to improve business performance.
 Step 2 is an exploration of the problem to determine its size, impact, and other
factors is undertaken to diagnose what the problem is. Likewise, the BA
descriptive analytic analysis explores factors that might prove useful in solving
problems and offering opportunities.
 Step 3 is the problem statement which is similarly structured to the BA
predictive analysis to find strategies, paths, or trends that clearly define a
problem or opportunity for an organization to solve problems.
 The ODMP’s last steps of strategy selection and implementation (Step 4 and 5)
which involve the same kinds of tasks that the BA process requires in the final
prescriptive step (make an optimal selection of resource allocations that can be
implemented for the betterment of the organization).

ACTIVITY

1. Watch "Framework for Business Analytics" at

https://networks.upou.edu.ph/11630/framework-for-business-analytics-
dominic-ligot/
2. Watch Descriptive Analytics at
https://networks.upou.edu.ph/11632/descriptive-analytics-dominic-ligot/
3. Watch Predictive Analytics at https://networks.upou.edu.ph/11634/predictive-
analytics-dominic-ligot/
4. Watch Prescriptive Analytics at https://www.youtube.com/watch?v=Z9-
0ei8HnYU

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 DISCUSSION QUESTIONS

Answer the following questions.

1. What is the difference between analytics and business analytics?
2. How does data become business value?
3. Compare and differentiate the three types of analytics.
Types of Analytics Similarities Differences
Descriptive
Predictive
Prescriptive

4. Why are the steps in the business analytics process sequential?

5. How is the business analytics process similar to the organization decision
making process?

REFERENCES

Almodiel, M., & Garcia, P. G. (2018). Fundamentals of Business Analytics: A Business

Analytics Course. University of the Philippines Open University.
Camm, Cochran, Fry, Ohlmann, Anderson, & Sweemey, W. (2015). Essentials of
Business Analytics. Stamford USA: Cengage Learning.
Schniederjans, M. J., Schniederjans, D. G., & Starkey, C. M. (2014). Business Analytics:
Principles, Concepts and Applications. New Jersey: Pearson Education Inc.

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