The Fundamentals of

Business
Analytics
ITST 111

INSTRUCTOR: MARY JOY M. FERNANDEZ, MIT

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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 ___________________________________________________

LEARNING MODULE
FOR
ITST 111: FUNDAMENTALS OF BUSINESS ANALYTICS

_____________________________________________________

WEEK 1

COURSE OUTLINE

COURSE CODE : ITST 111

TITLE : Fundamentals of Business Analytics
TARGET POPULATION : Bachelor of Science in Information Technology – Business Analytics
INSTRUCTOR : MS. MARY JOY M. FERNANDEZ, MIT

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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Overview:

It covers managerial statistical tool in descriptive analytics, and predictive analytics including regression.
Others covered include forecasting, risk analysis, simulation, and data mining and decision analysis.
Objectives:
General Objective

To understand the importance of analytics to other sectors, industries, and functional areas of
organizations.

Contents:
Decision Making
Business Analytics Defined
Categorization of Analytical Methods and Models
Big Data
Business Analytics in Practice
Instruction to the Learner

Each chapter in this module contains a major lesson involving Business Analytics. The units are characterized
by continuity, and are arranged in such a manner that the present unit is related to the next unit. For this reason,
you are advised to read this module. After each unit, there are exercises to be given. Submission of task given will
be every first week of the month during your scheduled class hour.

GETTING STARTED:

Have you ever made a choice that resulted in a consequence that you did not want?

How do we decide whether we should do something or not?

How do you make a choice or a decision?

Today you are going to learn how to improve consequences by improving how you go about choosing what to do.
You are going to clarify the problem, then moving through the steps of thinking to come to a decision. Read the
scenario:

You are a freshman and an only child whose parents have demanding careers and time to spend at home.
You are left home alone a lot and have friends over for parties all the time. The parties can sometimes get out
hand, but so far have not been caught. Recently, your friends have challenged you to take them for a ride in
your parent’s car but you don’t have your license yet. However, you’d like it.

Using the Decision Wheel as a guide, you must use one of the Decision Wheels to record the answers to each
question.

This wheel will help you to make better choices in your life. When you have an important decision to make, start
by stating the problem in the hub of the wheel. Next, move through the 9 choices, one by one. When you have a
decision to make fill in the blanks.

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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 9. Assess 2. Choices
Decision

8. Decision

7. Who can Help 4. Values

6. More Info 5. Feelings

1. What is the problem?

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2. What are the choices you have?
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3. What do you think the consequences of these choices will be for yourself and others who are involved?
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4. What values do you need to consider?
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5. How do you feel about the situation?
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6. Is there anything else you need to learn about it?
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7. Do you need to ask for help? Who will you ask?
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8. What is your decision?
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9. Do you think you made the right decision? Why?
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ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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Introduction

Three developments spurred recent explosive growth in the use of analytical methods in business applications:

1. First development:
• Technological advances, Internet social networks, and data generated from personal electronic
devices, produce incredible amounts of data for businesses.
• Businesses want to use these data to improve the efficiency and profitability of their operations,
better understand their customers, price their products more effectively, and gain a competitive
advantage.

2. Second development:
• Ongoing research has resulted in numerous methodological developments, including:
• Advances in computational approaches to effectively handle and explore massive
amounts of data
• Faster algorithms for optimization and simulation, and
• More effective approaches for visualizing data.

3. Third development:
• The methodological developments were paired with an explosion in computing power and storage
capability.
• Better computing hardware, parallel computing, and cloud computing have enabled businesses to
solve big problems faster and more accurately than ever before.

Figure 1.1 - Google Trends Graph of Searches on the term Analytics

• Figure 1.1 is a graph generated by Google Trends that displays the search volume for the word analytics
from 2004 to 2013 (projected) on a percentage basis from the peak.
• The figure clearly illustrates the recent increase in interest in analytics.

DECISION MAKING

Managers’ responsibility:
• To make strategic, tactical, or operational decisions.
• Strategic decisions:
• Involve higher-level issues concerned with the overall direction of the organization.
• These decisions define the organization’s overall goals and aspirations for the future.
• Tactical decisions:
• Concern how the organization should achieve the goals and objectives set by its strategy.
• They are usually the responsibility of midlevel management.
• Operational decisions:
• Affect how the firm is run from day to day.
• They are the domain of operations managers, who are the closest to the customer.

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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Decision making can be defined as the following process:

1. Identify and define the problem

2. Determine the criteria that will be used to evaluate alternative solutions
3. Determine the set of alternative solutions
4. Evaluate the alternatives
5. Choose an alternative
Step 1 of decision making, identifying and defining the problem, is the most critical. Only if the problem is
well-defined, with clear metrics of success or failure (step 2), can a proper approach for solving the problem
(step 3 and 4) be devised. Decision making concludes with the choice of one of the alternatives (step 5).
There are a number of approaches to making decisions: tradition (“We’ve always done in this way”),
intuition (“gut feeling”), and rules of thumb (“As the restaurant owner, I schedule twice the number of waiters
and cooks on holidays”). The power of each of these approaches should not be underestimated.

Common approaches to making decisions

• Tradition
• Intuition
• Rules of thumb
• Using the relevant data available

BUSINESS ANALYTICS DEFINED

Business analytics is the scientific process of transforming data into insight for making better decisions.
Business analytics is used for data-driven or fact-based decision making, which is often seen as more objective
than other alternatives for decision making.

Tools of business analytics can aid decision making by:

• Creating insights from data
• Improving our ability to more accurately forecast for planning
• Helping us quantify risk
• Yielding better alternatives through analysis and optimization

CATEGORIZATION OF ANALYTICAL METHODS AND MODELS

• Descriptive analytics: It encompasses the set of techniques that describes what has happened in the past.
Examples - data queries, reports, descriptive statistics, data visualization (data dashboards),
data-mining techniques, and basic what-if spreadsheet models.
o Data query - It is a request for information with certain characteristics from a database.
o Data dashboards - Collections of tables, charts, maps, and summary statistics that are updated
as new data become available.
 Uses of dashboards:
 To help management monitor specific aspects of the company’s performance related to
their decision-making responsibilities.
 For corporate-level managers, daily data dashboards might summarize sales by region,
current inventory levels, and other company-wide metrics.
 Front-line managers may view dashboards that contain metrics related to staffing levels,
local inventory levels, and short-term sales forecasts.
 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.
 Survey data and past purchase behavior may be used to help predict the market share of a new
product.
 Techniques used in Predictive Analytics:

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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 Data mining

•Used to find patterns or relationships among elements of the

data in a large database; often used in predictive analytics.

Simulation

•It involves the use of probability and statistics to construct a

computer model to study the impact of uncertainty on a
decision.

Example for Data Mining:

• 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.
Example for Simulation:
• Banks often use simulation to model investment and default risk in order to stress test financial
models.
• Used in the pharmaceutical industry to assess the risk of introducing a new drug.
• Prescriptive Analytics: It indicates a best course of action to take.
• Models used in prescriptive analytics:

• Optimization models

ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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BIG DATA
Big data - A set of data that cannot be managed, processed, or analyzed with commonly available
software in a reasonable amount of time.
• Big data represents opportunities.
• It also presents analytical challenges from a processing point of view and consequently has itself
led to an increase in the use of analytics.
• More companies are hiring data scientists who know how to process and analyze massive amounts
of data.

BUSINESS ANALYTICS IN PRACTICE

Figure 1.2 - The Spectrum of Business Analytics

Companies that apply analytics often follow a trajectory similar to that shown in Figure 1.2.
 Organizations start with basic analytics in the lower left.
 As they realize the advantages of these analytic techniques, they often progress to more sophisticated
techniques in an effort to reap the derived competitive advantage.
 Predictive and prescriptive analytics are sometimes therefore referred to as advanced analytics.
Types of applications of analytics by application area
 Financial analytics
 Use of predictive models
• To forecast future financial performance
• To assess the risk of investment portfolios and projects
• To construct financial instruments such as derivatives
 Use of prescriptive models
• To construct optimal portfolios of investments
• To allocate assets, and
• To create optimal capital budgeting plans.
 Simulation is also often used to assess risk in the financial sector
Example for use of prescriptive models:
• GE Asset Management uses optimization models to decide how to invest its own cash
received from insurance policies and other financial products, as well as the cash of its
clients such as Genworth Financial.
• The estimated benefit from the optimization models was $75 million over a five-year
period.
Example for use of simulation:
• Deployment by Hypo Real Estate International of simulation models to successfully
manage commercial real estate risk.
•
 Human resource (HR) analytics
 New area of application for analytics
 The HR function is charged with ensuring that the organization
• Has the mix of skill sets necessary to meet its needs

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 • Is hiring the highest-quality talent and providing an environment that retains it, and
• Achieves its organizational diversity goals.
Example for Human Resource (HR) Analytics:
• Sears Holding Corporation (SHC), owners of retailers Kmart and Sears, Roebuck and
Company, has created an HR analytics team inside its corporate HR function.
• The team uses descriptive and predictive analytics to support employee hiring and to track
and influence retention.

 Marketing analytics
 Marketing is one of the fastest growing areas for the application of analytics.
 A better understanding of consumer behavior through the use of scanner data and data generated
from social media has led to an increased interest in marketing analytics.
 A better understanding of consumer behavior through marketing analytics leads to:
 The better use of advertising budgets
 More effective pricing strategies
 Improved forecasting of demand
 Improved product line management, and
 Increased customer satisfaction and loyalty
Example of high-impact marketing analytics:
 Automobile manufacturer Chrysler teamed with J. D. Power and Associates to develop an
innovate set of predictive models to support its pricing decisions for automobiles.
 These models help Chrysler to better understand the ramifications of proposed pricing
structures (a combination of manufacturer’s suggested retail price, interest rate offers,
and rebates) and, as a result, to improve its pricing decisions.
 The models have generated an estimated annual savings of $500 million.

Figure 1.3 - Google Trends for Marketing, Financial, and Human Resource Analytics, 2004–2012

While interest in marketing, financial, and human resource analytics is increasing, the graph clearly shows the
pronounced increase in the interest in marketing analytics.

 Health Care Analytics

• Descriptive, predictive, and prescriptive analytics are used:
 To improve patient, staff, and facility scheduling
 Patient flow
 Purchasing
 Inventory control
 Use of prescriptive analytics for diagnosis and treatment
Example for use of prescriptive analytics for diagnosis and treatment:
• Working with the Georgia Institute of Technology, Memorial Sloan-Kettering Cancer Center
developed a real-time prescriptive model to determine the optimal placement of radioactive
seeds for the treatment of prostate cancer.
• Using the new model, 20–30 percent fewer seeds are needed, resulting in a faster and less invasive
procedure.
 Supply Chain Analytics
• The core service of companies such as UPS and FedEx is the efficient delivery of goods, and
analytics has long been used to achieve efficiency.

ITST 111 – Fundamentals of Business Analytics

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 • The optimal sorting of goods, vehicle and staff scheduling, and vehicle routing are all key to
profitability for logistics companies such as UPS, FedEx, and others like them.
• Companies can benefit from better inventory and processing control and more efficient supply
chains.
Example for supply chain analytics:
• ConAgra Foods uses predictive and prescriptive analytics to better plan capacity utilization by
incorporating the inherent uncertainty in commodities pricing.
• ConAgra realized a 100 percent return on their investment in analytics in under three months—
an unheard of result for a major technology investment.

 Analytics For Government And Nonprofits

• To drive out inefficiencies
• To increase the effectiveness and accountability of programs
• Analytics for nonprofit agencies
• To ensure their effectiveness and accountability to their donors and clients.
Example of analytics for government agencies:
• The New York State Department has worked with IBM to use prescriptive analytics in the
development of a more effective approach to tax collection. The result was an increase in
collections from delinquent payers of $83 million over two years.
Example of analytics for nonprofit agencies:
• Catholic Relief Services (CRS) is the official international humanitarian agency of the U.S. Catholic
community. The CRS mission is to provide relief for the victims of both natural and human-made
disasters and to help people in need around the world through its health, educational, and
agricultural programs.
• CRS uses an analytical spreadsheet model to assist in the allocation of its annual budget based on
the impact that its various relief efforts and programs will have in different countries.

 Sports Analytics
• Used for player evaluation and on-field strategy in professional sports.
• To assess players for the amateur drafts and to decide how much to offer players in
contract negotiations.
• Professional motorcycle racing teams that use sophisticated optimization for gearbox
design to gain competitive advantage.
• The use of analytics for off-the-field business decisions is also increasing rapidly.
• Using prescriptive analytics, franchises across several major sports dynamically adjust
ticket prices throughout the season to reflect the relative attractiveness and potential
demand for each game.
 Web analytics
• It is the analysis of online activity, which includes, but is not limited to, visits to Web sites and
social media sites such as Facebook and LinkedIn.
• Leading companies apply descriptive and advanced analytics to data collected in online
experiments to:
• Determine the best way to configure Web sites,
• Position ads, and
• Utilize social networks for the promotion of products and services

• Online experimentation involves exposing various subgroups to different versions of a Web site and
tracking the results.
• Because of the massive pool of Internet users, experiments can be conducted without risking the
disruption of the overall business of the company.
• Such experiments are proving to be invaluable because they enable the company to use trial-
and-error in determining statistically what makes a difference in their Web site traffic and
sales.

ITST 111 – Fundamentals of Business Analytics

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ITST 111 – Fundamentals of Business Analytics

SOUTH EAST ASIAN INSTITUTE OF TECHNOLOGY, INC.

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