Module-1: Introduction to

Analytics
Prof. Gayathri P
Professor
SCOPE, VIT Vellore
 Module-1: Introduction to Analytics
Introduction to predictive analytics – Business analytics: types, applications-
Models: predictive models – descriptive models – decision models -
applications – analytical techniques.

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 Analytics - Definition
• Analytics is a field of computer science that uses mathematics, statistics
and machine learning methods to find meaningful patterns in the data.
• Analytics is the systematic computational analysis of data.
• It is used for the discovery, interpretation, and communication of
meaningful patterns in data.
• It also entails applying data patterns towards effective decision-making.

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 Types of Data Analytics

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 Types of Data Analytics
• Descriptive - Aims to uncover valuable insight from the data being analyzed.
Answers the question “What happened?”

• Examples:
 How much did we sell as a company?
 What was our overall productivity?
 How many customers churned in the last quarter?

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 Types of Data Analytics
• Diagnostic – Provides crucial information about why a trend occurred.
Answers the question “Why things happened?”
• Examples:
 Why did our company sales decrease in the previous quarter?
 Why are we seeing an increase in customer churn?

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 Types of Data Analytics
• Predictive - Helps forecast behavior of people, markets etc.,. Answers
the question “What is likely to happen? (or) what could happen?”
• Examples:
 Predicting maintenance issues and part breakdown in machines.
 Determining credit risk and identifying potential fraud.
 Predicting customer churn by identifying signs of customer
dissatisfaction.

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 Types of Data Analytics
• Prescriptive - Suggests conclusions or actions that may be taken based
on the analysis. Answers the question “What should be done next?”
• Examples:
• Automatic adjustment of product pricing based on anticipated
customer demand and external factors.

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 What is Predictive Analytics?
• Predictive analytics is the use of data mining, statistical algorithms and
machine learning techniques to identify the likelihood of future
outcomes based on historical data.
• Predictive analytics is the practice of extracting insights from the existing
data set with the help of data mining, statistical modeling and machine
learning techniques and using it to predict unobserved/unknown events.
• The goal is to go beyond knowing what has happened to providing a
best assessment of what will happen in the future.
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 Predictive Analytics
• Also known as predictive modeling
• It encompasses a variety of statistical, machine learning, and data
mining techniques.
• Analyze current and historical facts to make predictions about future, or
otherwise unknown events.

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 Predictive Analytics
 Some mistake predictive analysis to have exclusive relevance to predicting
future events.
– However, in cases such as sentiment analysis, existing data (e.g., the text of
a tweet) is used to predict non-existent data (whether the tweet is positive
or negative).
 Several models can be used for predictive analytics.
Examples: Regression, Classification, Clustering
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 How does Predictive Analytics work??
Five basic steps:

1. Define the problem: Understanding problem definition and its requirements is the first basic step. So that appropriate method
of predictive analytics can be used.

2. Acquire and organize data: An organization may have decades of data (i.e.) historical data. Also, may have current data from
customer interactions. Before predictive analytics models can be developed, data must be identified, and then datasets can be
organized in a repository such as a data warehouse.

3. Pre-process data: Raw data is only nominally useful by itself. To prepare the data for the predictive analytics models, it should be
cleaned to remove anomalies, missing values, or extreme outliers. So that, performance of the model can be improved.

4. Develop predictive models: Data scientists have a variety of tools and techniques to develop predictive models depending on
the problem to be solved and nature of the dataset. Machine learning, regression models, and decision trees are some of the
most common types of predictive models.

5. Validate and deploy results: Check on the accuracy of the model. Once acceptable results have been achieved, make them
available to stakeholders via an app, website, or data dashboard.
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 Examples of Predictive Analytics
• Finance: Forecasting Future Cash Flow
• Entertainment & Hospitality: Determining Staffing Needs
• Marketing: Behavioural Targeting (technique used in online advertising
and publishing, where data from visitor browsing habits (e.g., search
terms, sites visited, purchases) is used to display relevant ads and offers
and improve campaign effectiveness.
• Manufacturing: Preventing Malfunction
• Health Care: Early Detection of Allergic Reactions
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 Applications of Predictive Analytics
1. Marketing
• Consumers are attracted with pool of advertising and marketing
• Individuals working in the marketing domain need to look how consumers will react on
a particular market campaign
• Predictive analytics tools could be helpful in displaying ads over websites and social
media platforms relating to consumer behavior and interest.
• Predictive analytics tools can explore “expect to purchase” by analyzing consumer’s
behavior on past and current available data to find people whose data matches with
ideal consumers.
• Marketers could also use predictive analytics to identify how likely the prospective
consumers will buy products or services and to plan how they should be contacted
and with what information.

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 Applications of Predictive Analytics
2. Retail
• Predictive analytics methods allow retailers to correlate huge data information such as
historical sales data, purchasing products and customer behavior.
• Customer sales data analysis using predictive analytics helps retailers for planning
campaigns, making ads and promotions that buyers will respond the most.
• Sales and logistics data analysis using predictive analytics helps retailers to ensure the
availability of sufficient inventory/products in warehouses, and good merchandise in
stores at the right time.
• Conducting predictive analytics over customer, inventory, and historical sales data
provides suitable circumstances/timing for lowering or raising prices.
• Predictive analytics lets retailers in merchandise planning and price optimization to
investigate the impact of promotional events and to figure out appropriate offers for
consumers.
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 Applications of Predictive Analytics
3. Manufacturing
• With the modernized technology and fully automated factory machines, predictive
analytics tools are very significant in operating and optimizing the manufacturing process
at each stage of designing, purchasing, developing, quality and inventory control, delivery,
etc.
• Moreover, predictive analytics is helpful in tracking and comparing machines’
performance and equipment maintenance status and predicting which particular
machine will fail.
• Predictions over supply chain and sales data helps in making more considerable decisions
for purchasing and ensuring that no expensive raw materials get purchased unless not
required. This data can also be used in aligning manufacturing processes with consumer
demands.

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 Applications of Predictive Analytics
4. Healthcare
• Healthcare industry by using predictive analytics techniques can save money and
improve health practices efficiencies.
• Predictive analytics can help medical practitioners by analyzing patient drug
interactions, patient diagnostic history individually to provide advanced care and
conduct more effective medical practices.
• Applying predictive analytics on clinics’ past appointment data helps in identifying
probable cancellations more accurately and thus save time and resources.
• To detect claims frauds, the health insurance industry is using predictive analytics.

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 Applications of Predictive Analytics
5. Finance
• In banking and financial services, predictive analytics is the most valuable process
helping from accessing risks to maximizing customer satisfaction.
• Predictive analytics are useful in;
• Prohibition of credit card fraud via indicating unusual transactions,
• Credit card scoring to determine whether to approve or deny loan applications,
• Analyzing customers’ churn data and facilitating banks to approach potential
customers
• Measuring credit risk and retaining valuable customers.

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 Basic Terminologies
 Predictive modelling - refers to the process of uncovering relationships within data for
predicting some desired outcome.

 Sample, data point, observation, or instance - refer to a single, independent unit of data, such
as a customer, patient. The term sample can also refer to a subset of data points, such as the
training set sample or testing set sample.

 The training set consists of the data used to develop models while the test or validation sets
are used solely for evaluating the performance of model.

 The predictors, independent variables, attributes, or descriptors are the data used as input for
the prediction.
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 Basic Terminologies
 Outcome, dependent variable, target, class, or response refer to the outcome event or
quantity that is being predicted.

 Continuous data have numeric scales. Blood pressure, the cost of an item, or the
number of books are all continuous. In the last case, the counts cannot be a fractional
number, but is still treated as continuous data.

 Categorical data, otherwise known as nominal attribute or discrete data, take on

specific values that have no scale. Credit status (good or bad) or colour (red, blue, etc.,)
or age (young, medium, old) are examples.

 Model building, model training, and parameter estimation all refer to the process of
using data.
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