Business Intelligence, Analytics, and Data

Science: A Managerial Perspective

Fourth Edition

Chapter 2
Descriptive Analytics I:
Nature of Data, Statistical
Modeling, and Visualization

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Learning Objectives (1 of 2)

2.1 Understand the nature of data as it relates to business

intelligence (BI) and analytics
2.2 Learn the methods used to make real-world data
analytics ready
2.3 Describe statistical modeling and its relationship to
business analytics
2.4 Learn about descriptive and inferential statistics
2.5 Define business reporting, and understand its historical
evolution

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Learning Objectives (2 of 2)

2.6 Understand the importance of data/information

visualization
2.7 Learn different types of visualization techniques
2.8 Appreciate the value that visual analytics brings to
business analytics
2.9 Know the capabilities and limitations of dashboards

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The Nature of Data (1 of 2)

• Data: a collection of facts

– usually obtained as the result of experiences,
observations, or experiments
• Data may consist of numbers, words, images, …
• Data is the lowest level of abstraction (from which
information and knowledge are derived)
• Data is the source for information and knowledge
• Data quality and data integrity → critical to analytics

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The Nature of Data (2 of 2)

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Metrics for Analytics Ready Data
• Data source reliability
• Data content accuracy
• Data accessibility
• Data security and data privacy
• Data richness
• Data consistency
• Data currency/data timeliness
• Data granularity
• Data validity and data relevancy
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A Simple Taxonomy of Data (1 of 2)

• Data (datum—singular form of data): facts

• Structured data
– Targeted for computers to process
– Numeric versus nominal
• Unstructured/textual data
– Targeted for humans to process/digest
• Semi-structured data?
– XML, HTML, Log files, etc.
• Data taxonomy…

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A Simple Taxonomy of Data (2 of 2)

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The Art and Science of Data Preprocessing (1 of 2)

• The real-world data is dirty, misaligned, overly complex,

and inaccurate
– Not ready for analytics!
• Readying the data for analytics is needed
– Data preprocessing
▪ Data consolidation
▪ Data cleaning
▪ Data transformation
▪ Data reduction
• Art – it develops and improves with experience
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The Art and Science of Data Preprocessing (2 of 2)

• Data reduction
1. Variables
– Dimensional reduction
– Variable selection
2. Cases/samples
– Sampling
– Balancing / stratification

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Data Preprocessing Tasks and Methods (1 of 3)

Table 2.1 A Summary of Data Preprocessing Tasks and Potential

Methods
Main Task Subtasks Popular Methods
Data Access and collect the data SQL queries, software agents, Web services.
consolidation Select and filter the data Domain expertise, SQL queries, statistical tests.
Integrate and unify the data SQL queries, domain expertise, ontology-driven data
mapping.
Data Handle missing values in Fill in missing values (imputations) with most
cleaning the data appropriate values (mean, median, min/max, mode,
etc.); recode the missing values with a constant such
as “ML”; remove the record of the missing value; do
nothing.
Data Identify and reduce noise in Identify the outliers in data with simple statistical
cleaning the data techniques (such as averages and standard deviations)
or with cluster analysis; once identified, either remove
the outliers or smooth them by using binning,
regression, or simple averages.

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Data Preprocessing Tasks and Methods (2 of 3)
Main Task Subtasks Popular Methods
Data cleaning Find and Identify the erroneous values in data (other than
eliminate outliers), such as odd values, inconsistent class
erroneous data labels, odd distributions; once identified, use domain
expertise to correct the values or remove the records
holding the erroneous values.
Data Normalize the Reduce the range of values in each numerically
transformation data valued variable to a standard range (e.g., 0 to 1 or -1
to +1) by using a variety of normalization or scaling
techniques.
Data Discretize or If needed, convert the numeric variables into
transformation aggregate the discrete representations using range-or
data frequency-based binning techniques; for categorical
variables, reduce the number of values by applying
proper concept hierarchies.

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Data Preprocessing Tasks and Methods (3 of 3)
Main Task Subtasks Popular Methods
Data Construct new Derive new and more informative variables from the
transformation attributes existing ones using a wide range of mathematical
functions (as simple as addition and multiplication or
as complex as a hybrid combination of log
transformations).
Data reduction Reduce number Principal component analysis, independent
of attributes component analysis, chi-square testing, correlation
analysis, and decision tree induction.
Data reduction Reduce number Random sampling, stratified sampling, expert-
of records knowledge-driven purposeful sampling.
Data reduction Balance skewed Oversample the less represented or undersample
data the more represented classes.

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Statistical Modeling for Business Analytics (1 of 2)

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Statistical Modeling for Business Analytics (2 of 2)

• Statistics
– A collection of mathematical techniques to
characterize and interpret data
• Descriptive Statistics
– Describing the data (as it is)
• Inferential statistics
– Drawing inferences about the population based on
sample data
• Descriptive statistics for descriptive analytics

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Descriptive Statistics Measures of Centrality
Tendency

• Arithmetic mean

∑
n
x1 + x2 + ⋅ ⋅ ⋅ + xn x
x = x = i =1 i
n n
• Median
– The number in the middle
• Mode
– The most frequent observation

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Descriptive Statistics Measures of
Dispersion (1 of 2)

• Dispersion
– Degree of variation in a given
variable
• Range
– Max - Min
Standard Deviation
• Variance
∑i = 1 i
n 2
∑
n
( xi − x) 2 ( x − x)
2
s = i =1 s =
n −1 n −1
• Mean Absolute Deviation (MAD)
– Average absolute deviation from the mean
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Descriptive Statistics Measures of
Dispersion (2 of 2)
• Quartiles
• Box-and-Whiskers Plot
– a.k.a. box-plot
– Versatile / informative

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Descriptive Statistics Shape of a Distribution

• Histogram – frequency chart

• Skewness
– Measure of asymmetry

∑i =1 i
n 3
( x − x )
Skewness= S=
(n − 1) s 3
• Kurtosis
– Peak/tall/skinny nature of the distribution

∑i =1 i
n 4
( x − x )
Kurtosis
= K
= 4
− 3
ns
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Relationship Between Dispersion and
Shape Properties

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Technology Insights 2.1 (1 of 2)
Descriptive Statistics in Excel

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Technology Insights 2.1 (2 of 2)
Descriptive Statistics in Excel Creating box-plot in Microsoft Excel

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Regression Modeling for Inferential
Statistics

• Regression
– A part of inferential statistics
– The most widely known and used analytics technique
in statistics
– Used to characterize relationship between
explanatory (input) and response (output) variable
• It can be used for
– Hypothesis testing (explanation)
– Forecasting (prediction)

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Regression Modeling (1 of 3)

• Correlation versus Regression

– What is the difference (or relationship)?
• Simple Regression versus Multiple Regression
– Base on number of input variables
• How do we develop linear regression models?
– Scatter plots (visualization—for simple regression)
– Ordinary least squares method
▪ A line that minimizes squared of the errors

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Regression Modeling (2 of 3)

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Regression Modeling (3 of 3)

• x: input, y: output
• Simple Linear Regression
y β 0 + β1 x
=
• Multiple Linear Regression

y β 0 + β1 x1 + β 2 x2 + β3 x3 + ⋅ ⋅ ⋅ + β n xn
=
• The meaning of Beta ( β ) coefficients
– Sign (+ or -) and magnitude

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Process of Developing a Regression Model

How do we know if the model is good enough?

– R 2 (R-Square)
– p Values
– Error measures (for
prediction problems)
▪ MSE, MAD, RMSE

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Regression Modeling Assumptions

• Linearity
• Independence
• Normality (Normal Distribution)
• Constant Variance
• Multicollinearity
• What happens if the assumptions do Not hold?
– What do we do then?

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Logistic Regression Modeling (1 of 2)

• A very popular statistics-based classification algorithm

• Employs supervised learning
• Developed in 1940s
• The difference between Linear Regression and Logistic
Regression
– In Logistic Regression Output/Target variable is a
binomial (binary classification) variable (as opposed
to numeric variable)

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Logistic Regression Modeling (2 of 2)

1
f ( y) =
1 + e − ( β0 + β1x )

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Time Series Forecasting

• Is it different than Simple Linear Regression? How?

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Business Reporting Definitions and Concepts

• Report = Information → Decision

• Report?
– Any communication artifact prepared to convey
specific information
• A report can fulfill many functions
– To ensure proper departmental functioning
– To provide information
– To provide the results of an analysis
– To persuade others to act
– To create an organizational memory…
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What is a Business Report?

• A written document that contains information regarding

business matters.
• Purpose: to improve managerial decisions
• Source: data from inside and outside the organization
(via the use of ETL)
• Format: text + tables + graphs/charts
• Distribution: in-print, email, portal/intranet
Data acquisition → Information generation → Decision
making → Process management

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Business Reporting

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Types of Business Reports

• Metric Management Reports

– Help manage business performance through metrics
(SLAs for externals; KPIs for internals)
– Can be used as part of Six Sigma and/or TQM
• Dashboard-Type Reports
– Graphical presentation of several performance
indicators in a single page using dials/gauges
• Balanced Scorecard–Type Reports
– Include financial, customer, business process, and
learning & growth indicators

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Data Visualization

“The use of visual representations to explore, make sense

of, and communicate data.”
• Data visualization vs. Information visualization
• Information = aggregation, summarization, and
contextualization of data
• Related to information graphics, scientific visualization,
and statistical graphics
• Often includes charts, graphs, illustrations, …

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A Brief History of Data Visualization

• Data visualization can date back to the second century AD

• Most developments have occurred in the last two and a
half centuries
• Until recently it was not recognized as a discipline
• Today’s most popular visual forms date back a few
centuries

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The First Pie Chart Created by William
Playfair in 1801
William Playfair is widely credited as the inventor of the modern
chart, having created the first line and pie charts.

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Decimation of Napoleon’s Army During
the 1812 Russian Campaign

By Charles Joseph Minard

• Arguably the most popular multi-dimensional chart

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Which Chart or Graph Should You Use?

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An Example Gapminder Chart Wealth and
Health of Nations

See gapminder.org for Interesting animated examples

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The Emergence of Data Visualization and
Visual Analytics (1 of 2)

• Magic Quadrant for

Business Intelligence
and Analytics Platforms
(Source: Gartner.com)
• Many data visualization
companies are in the
4th quadrant
• There is a move
towards visualization

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The Emergence of Data Visualization and
Visual Analytics (2 of 2)

• Emergence of new companies

– Tableau, Spotfire, QlikView, …
• Increased focus by the big players
– MicroStrategy improved Visual Insight
– SAP launched Visual Intelligence
– SAS launched Visual Analytics
– Microsoft bolstered PowerPivot with Power View
– IBM launched Cognos Insight
– Oracle acquired Endeca

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Visual Analytics

• A recently coined term

– Information visualization + predictive analytics
• Information visualization
– Descriptive, backward focused
– “what happened” “what is happening”
• Predictive analytics
– Predictive, future focused
– “what will happen” “why will it happen”
• There is a strong move toward visual analytics

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Visual Analytics by SAS Institute (1 of 2)

• SAS Visual Analytics Architecture

– Big data + In memory + Massively parallel processing + ..
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Visual Analytics by SAS Institute (2 of 2)

• At teradatauniversitynetwork.com, you can learn more

about SAS VA, experiment with the tool

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Technology Insight 2.3

Telling Great Stories with Data and Visualization

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Performance Dashboards (1 of 4)

• Performance dashboards are commonly used in BPM

software suites and BI platforms
• Dashboards provide visual displays of important
information that is consolidated and arranged on a single
screen so that information can be digested at a single
glance and easily drilled in and further explored

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Performance Dashboards (2 of 4)

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Performance Dashboards (3 of 4)

• Dashboard design
– The fundamental challenge of dashboard design is to
display all the required information on a single screen,
clearly and without distraction, in a manner that can
be assimilated quickly
• Three layer of information
– Monitoring
– Analysis
– Management

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Performance Dashboards (4 of 4)
• What to look for in a dashboard
– Use of visual components to highlight data and exceptions
that require action
– Transparent to the user, meaning that they require minimal
training and are extremely easy to use
– Combine data from a variety of systems into a single,
summarized, unified view of the business
– Enable drill-down or drill-through to underlying data
sources or reports
– Present a dynamic, real-world view with timely data
– Require little coding to implement, deploy, and maintain

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Best Practices in Dashboard Design

• Benchmark KPIs with Industry Standards

• Wrap the Metrics with Contextual Metadata
• Validate the Design by a Usability Specialist
• Prioritize and Rank Alerts and Exceptions
• Enrich Dashboard with Business-User Comments
• Present Information in Three Different Levels
• Pick the Right Visual Constructs
• Provide for Guided Analytics

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End of Chapter 2

• Questions / Comments

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Copyright

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