DATA MINING-Learning Objectives

• Define data mining as an enabling technology for business intelligence

• Understand the objectives and benefits of business analytics and data
mining
• Recognize the wide range of applications of data mining
• Learn the standardized data mining processes
– CRISP-DM
– SEMMA
– KDD

(Continued…)
Learning Objectives

• Understand the steps involved in data preprocessing for data mining

• Learn different methods and algorithms of data mining
• Build awareness of the existing data mining software tools
– Commercial versus free/open source
• Understand the pitfalls and myths of data mining
Data Mining Concepts/Definitions
Why Data Mining?
• More intense competition at the global scale.
• Recognition of the value in data sources.
• Availability of quality data on customers, vendors,
transactions, Web, etc.
• Consolidation and integration of data repositories into
data warehouses.
• The exponential increase in data processing and
storage capabilities; and decrease in cost.
• Movement toward conversion of information
resources into nonphysical form.
Definition of Data Mining
• The nontrivial process of identifying valid, novel,
potentially useful, and ultimately understandable
patterns in data stored in structured databases.
• Keywords in this definition: Process, nontrivial,
valid, novel, potentially useful, understandable.
• Data mining: a misnomer?
• Other names: knowledge extraction, pattern
analysis, knowledge discovery, information
harvesting, pattern searching, data dredging,…
Data Mining is at the Intersection of Many Disciplines

Ar
tifi
Pattern

c
ial
Recognition

s
tic

Int
tis

ellig
Sta

en
ce
DATA Machine
MINING Learning

Mathematical
Modeling Databases

Management Science &

Information Systems
Data Mining Characteristics/Objectives
• Source of data for DM is often a consolidated data
warehouse (not always!).
• DM environment is usually a client-server or a Web-
based information systems architecture.
• Data is the most critical ingredient for DM which may
include soft/unstructured data.
• The miner is often an end user.
• Striking it rich requires creative thinking.
• Data mining tools’ capabilities and ease of use are
essential (Web, Parallel processing, etc.).
Application Case 5.1
Smarter Insurance: Infinity P&C Improves
Customer Service and Combats Fraud with
Predictive Analytics
Questions for Discussion
1. How did Infinity P&C improve customer service with data
mining?
2. What were the challenges, the proposed solution, and
the obtained results?
3. What was their implementation strategy? Why is it
important to produce results as early as possible in data
mining studies?
Data in Data Mining
• Data: a collection of facts usually obtained as the result of
experiences, observations, or experiments.
• Data may consist of numbers, words, images, …
• Data: lowest level of abstraction (from which information and
knowledge are derived).
Data

Unstructured or
Structured
Semi-Structured

Categorical Numerical Textual Multimedia HTML/XML

Nominal Ordinal Interval Ratio

What Does DM Do? How Does it Work?
• DM extracts patterns from data
– Pattern? A mathematical (numeric and/or symbolic) relationship
among data items

• Types of patterns
– Association
– Prediction
– Cluster (segmentation)
– Sequential (or time series) relationships
Application Case 5.2
Harnessing Analytics to Combat Crime:
Predictive Analytics Helps Memphis
Police Department Pinpoint Crime and
Focus Police Resources
Questions for Discussion
1. How did the Memphis Police Department use data
mining to better combat crime?
2. What were the challenges, the proposed solution,
and the obtained results?
A Taxonomy for Data Mining Tasks
Data Mining Learning Method Popular Algorithms

Classification and Regression Trees,

Prediction Supervised
ANN, SVM, Genetic Algorithms

Decision trees, ANN/MLP, SVM, Rough

Classification Supervised
sets, Genetic Algorithms

Linear/Nonlinear Regression, Regression

Regression Supervised
trees, ANN/MLP, SVM

Association Unsupervised Apriory, OneR, ZeroR, Eclat

Link analysis Unsupervised Expectation Maximization, Apriory

Algorithm, Graph-based Matching

Sequence analysis Unsupervised Apriory Algorithm, FP-Growth technique

Clustering Unsupervised K-means, ANN/SOM

Outlier analysis Unsupervised K-means, Expectation Maximization (EM)

Data Mining Tasks
• Time-series forecasting
– Part of sequence or link analysis?
• Visualization
– Another data mining task?

• Types of DM
– Hypothesis-driven data mining
– Discovery-driven data mining
Data Mining Applications
• Customer Relationship Management
– Maximize return on marketing campaigns
– Improve customer retention (churn analysis)
– Maximize customer value (cross-, up-selling)
– Identify and treat most valued customers

• Banking & Other Financial

– Automate the loan application process
– Detecting fraudulent transactions
– Maximize customer value (cross-, up-selling)
– Optimizing cash reserves with forecasting
Data Mining Applications
• Retailing and Logistics
– Optimize inventory levels at different locations
– Improve the store layout and sales promotions
– Optimize logistics by predicting seasonal effects
– Minimize losses due to limited shelf life

• Manufacturing and Maintenance

– Predict/prevent machinery failures
– Identify anomalies in production systems to optimize the use manufacturing
capacity
– Discover novel patterns to improve product quality
Data Mining Applications
• Brokerage and Securities Trading
– Predict changes on certain bond prices
– Forecast the direction of stock fluctuations
– Assess the effect of events on market movements
– Identify and prevent fraudulent activities in trading

• Insurance
– Forecast claim costs for better business planning
– Determine optimal rate plans
– Optimize marketing to specific customers
– Identify and prevent fraudulent claim activities
Data Mining Applications
• Computer hardware and software
• Science and engineering
• Government and defense
• Homeland security and law enforcement
• Travel industry
• Healthcare Increasingly more popular
application areas for data
• Medicine mining
• Entertainment industry
• Sports
• Etc.
Application Case 5.3
A Mine on Terrorist Funding
Questions for Discussion
1. How can data mining be used to fight terrorism?
Comment on what else can be done beyond what is
covered in this short application case.
2. Do you think data mining, while essential for
fighting terrorist cells, also jeopardizes individuals’
rights of privacy?
Data Mining Process
• A manifestation of best practices
• A systematic way to conduct DM projects
• Different groups have different versions
• Most common standard processes:
– CRISP-DM (Cross-Industry Standard Process for
Data Mining)
– SEMMA (Sample, Explore, Modify, Model, and
Assess)
– KDD (Knowledge Discovery in Databases)
Data Mining Process: CRISP-DM

1 2
Business Data
Understanding Understanding

3
Data
Preparation
Data Sources
6
4
Deployment
Model
Building

5
Testing and
Evaluation
Data Mining Process: CRISP-DM

Step 1: Business Understanding Accounts for

Step 2: Data Understanding ~85% of total
project time
Step 3: Data Preparation (!)
Step 4: Model Building
Step 5: Testing and Evaluation
Step 6: Deployment
• The process is highly repetitive and experimental
(DM: art versus science?)
Data Preparation – A Critical DM Task
Real-world
Data

· Collect data
Data Consolidation · Select data
· Integrate data

· Impute missing values

Data Cleaning · Reduce noise in data
· Eliminate inconsistencies

· Normalize data
Data Transformation · Discretize/aggregate data
· Construct new attributes

· Reduce number of variables

Data Reduction · Reduce number of cases
· Balance skewed data

Well-formed
Data
Data Mining Process: SEMMA
Sample
(Generate a representative
sample of the data)

Assess Explore
(Evaluate the accuracy and (Visualization and basic
usefulness of the models) description of the data)

SEMMA

Model Modify
(Use variety of statistical and (Select variables, transform
machine learning models ) variable representations)
Application Case 5.4
Data Mining in Cancer Research
Questions for Discussion
1. How can data mining be used for ultimately
curing illnesses like cancer?
2. What do you think are the promises and major
challenges for data miners in contributing to
medical and biological research endeavors?
Data Mining Methods: Classification
• Most frequently used DM method
• Part of the machine-learning family
• Employ supervised learning
• Learn from past data, classify new data
• The output variable is categorical (nominal or ordinal)
in nature
• Classification versus regression?
• Classification versus clustering?
Assessment Methods for Classification
• Predictive accuracy
– Hit rate
• Speed
– Model building; predicting
• Robustness
• Scalability
• Interpretability
– Transparency, explainability
Accuracy of Classification Models
• In classification problems, the primary source for
accuracy estimation is the confusion matrix
True Class TP + TN
Positive Negative Accuracy =
TP + TN + FP + FN
Positive True False TP
True Positive Rate =
Predicted Class

Positive Positive
TP + FN
Count (TP) Count (FP)
TN
True Negative Rate =
TN + FP
Negative

False True
Negative Negative
Count (FN) Count (TN) TP TP
P recision = Recall =
TP + FP TP + FN
Estimation Methodologies for Classification

• Simple split (or holdout or test sample estimation)

– Split the data into 2 mutually exclusive sets training (~70%)
and testing (30%)

Model
Training Data Development
2/3

Preprocessed Classifier
Data
1/3 Model
Prediction
Assessment
Accuracy
– For ANN, the data is split into three sub-sets (training [~60%],
Testing Data (scoring)

validation [~20%], testing [~20%])

Estimation Methodologies for Classification

• k-Fold Cross Validation (rotation estimation)

– Split the data into k mutually exclusive subsets
– Use each subset as testing while using the rest of the
subsets as training
– Repeat the experimentation for k times
– Aggregate the test results for true estimation of prediction
accuracy training
• Other estimation methodologies
– Leave-one-out, bootstrapping, jackknifing
– Area under the ROC curve
Estimation Methodologies for Classification – ROC Curve
1

0.9

0.8
A

True Positive Rate (Sensitivity)

0.7

B
0.6

C
0.5

0.4

0.3

0.2

0.1

0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

False Positive Rate (1 - Specificity)

Classification Techniques
• Decision tree analysis
• Statistical analysis
• Neural networks
• Support vector machines
• Case-based reasoning
• Bayesian classifiers
• Genetic algorithms
• Rough sets
Decision Trees
▪ Employs the divide and conquer method
▪ Recursively divides a training set until each division
consists of examples from one class
1. Create a root node and assign all of the training data
A general to it.
algorithm
2. Select the best splitting attribute.
for
decision 3. Add a branch to the root node for each value of the
tree split. Split the data into mutually exclusive subsets
building along the lines of the specific split.
4. Repeat steps 2 and 3 for each and every leaf node
until the stopping criteria is reached.
Decision Trees
• DT algorithms mainly differ on
1. Splitting criteria
• Which variable, what value, etc.
2. Stopping criteria
• When to stop building the tree
3. Pruning (generalization method)
• Pre-pruning versus post-pruning
• Most popular DT algorithms include
– ID3, C4.5, C5; CART; CHAID; M5
Decision Trees
• Alternative splitting criteria
– Gini index determines the purity of a specific class as a result of a
decision to branch along a particular attribute/value
• Used in CART
– Information gain uses entropy to measure the extent of uncertainty
or randomness of a particular attribute/value split
• Used in ID3, C4.5, C5
– Chi-square statistics (used in CHAID)
 R (245)
Excel (238)

Data Mining Software Rapid-I RapidMiner (213)

KNIME (174)
Weka / Pentaho (118)
StatSoft Statistica (112)
SAS (101)

• Commercial Rapid-I RapidAnalytics (83)

MATLAB (80)
IBM SPSS Statistics (62)
– IBM SPSS Modeler (formerly IBM SPSS Modeler (54)
SAS Enterprise Miner (46)
Clementine) Orange (42)
Microsoft SQL Server (40)

– SAS - Enterprise Miner Other free software (39)

TIBCO Spotfire / S+ / Miner (37)
Tableau (35)
– IBM - Intelligent Miner Oracle Data Miner (35)
Other commercial software (32)

– StatSoft – Statistica Data JMP (32)

Mathematica (23)

Miner Miner3D (19)

IBM Cognos (16)
Stata (15)
– … many more Zementis (14)
KXEN (14)

• Free and/or Open Source

Bayesia (14)
C4.5/C5.0/See5 (13)
Revolution Computing (11)

– R Salford SPM/CART/MARS/TreeNet/RF (9)

XLSTAT (7)
SAP (BusinessObjects/Sybase/Hana)(7)
– RapidMiner Angoss (7)
RapidInsight/Veera (5)

– Weka… Teradata Miner (4)

11 Ants Analytics (4)
WordStat (3)
Predixion Software (3)

0 50 100 150 200 250 300

Source: KDNuggets.com
 Big Data Software Tools and Platforms
Apache Hadoop/Hbase/Pig/Hive (67)

Amazon Web Services (AWS) (36)

NoSQL databases (33)

Other Big Data software (21)

Other Hadoop-based tools (10) R (245)

0 10 20 30 40 SQL
50(185)
60 70 80
Java (138)
Python (119)
C/C++ (66)
Other languages (57)
Perl (37)
Awk/Gawk/Shell (31)
F# (5)

0 50 100 150 200 250 300

Application Case 5.6
Data Mining Goes to Hollywood:
Predicting Financial Success of Movies
Questions for Discussion
• Decision situation
• Problem
• Proposed solution
• Results
• Answer & discuss the case questions.
Application Case 5.6-Data Mining Goes to Hollywood!
Prediction Models

Individual Models Ensemble Models

Performance Random Boosted Fusion

Measure SVM ANN C&RT Forest Tree (Average)

Count (Bingo) 192 182 140 189 187 194

Count (1-Away) 104 120 126 121 104 120

Accuracy (% Bingo) 55.49% 52.60% 40.46% 54.62% 54.05% 56.07%

Accuracy (% 1-Away) 85.55% 87.28% 76.88% 89.60% 84.10% 90.75%

Standard deviation 0.93 0.87 1.05 0.76 0.84 0.63

* Training set: 1998 – 2005 movies; Test set: 2006 movies
Application Case 5.7-Data Mining & Privacy Issues
Predicting Customer Buying Patterns—
The Target Story

Questions for Discussion

1. What do you think about data mining and its
implication for privacy? What is the threshold
between discovery of knowledge and
infringement of privacy?
2. …
Data Mining Myths
• Data mining …
– provides instant solutions/predictions
– is not yet viable for business applications
– requires a separate, dedicated database
– can only be done by those with advanced degrees
– is only for large firms that have lots of customer
data
– is another name for the good-old statistics
Common Data Mining Blunders
1. Selecting the wrong problem for data mining
2. Ignoring what your sponsor thinks data mining is
and what it really can/cannot do
3. Not leaving sufficient time for data acquisition,
selection, and preparation
4. Looking only at aggregated results and not at
individual records/predictions
5. Being sloppy about keeping track of the data mining
procedure and results
6. …