INTRODUCTION

DECISION MAKING
• Strategic Decisions - higher-level issues concerned with the overall direction of the organization
o Decisions that define the organization’s goals and aspirations (time horizon of 3 to 5 years)
• Tactical Decisions – responsibility of midlevel management
o how the organization should achieve the goals and objectives set by its strategy (span a year)
• Operational Decisions - domain of operations managers, who are the closest to the customer
o how the firm is run from day to day

Regardless of the level within the firm, decision making can be defined as the following process:

1. Identify and define the problem (most critical)

2. Determine the criteria that will be used to evaluate alternative solutions (problem is well-defined, with clear
metrics of success or failure)
3. Determine the set of alternative solutions (proper approach for solving the problem is devised)
4. Evaluate the alternatives (proper approach for solving the problem is devised)
5. Choose an alternative (decision making concludes with the choice of an alternative)

BUSINESS ANALYTICS
- the scientific process of transforming data into insight for making better decisions.
- Used for data-driven or fact-based decision making, often seen as more objective than other alternatives
for decision making

CATEGORIZATION OF ANALYTICAL METHODS AND MODELS

1. Descriptive Analytics Set of techniques that describes what has happened in the past

Ex:
• Data Query - 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 (used to help management
monitor specific aspects of the company’s
performance related to their decision-making
responsibilities)
2. Predictive Analytics Techniques that use models constructed from past data to predict the
future or ascertain the impact of one variable on another
o 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 – techniques used to find patterns or

relationships among elements of the data in a large database
• Simulation – the use of probability and statistics to construct
a computer model to study the impact of uncertainty on a
decision
3. Prescriptive Analytics Indicate a best course of action to take; that is, the output of a
prescriptive model is a best decision
 Portfolio Models (finance) – use historical investment return data to
determine the mix of investments that yield the highest expected
return while controlling or limiting exposure to risk

Supply Network Design Models (operations) – provide the cost-

minimizing plant and distribution center locations subject to meeting
the customer service requirements

These models are known as optimization models. These are models

that give the best decision subject to constraints of the situation.

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

Decision Analysis – used to develop an optimal strategy when a

decision maker is faced with several decision alternatives and an
uncertain set of future events
• Utility Theory – assigns values to outcomes based on the
decision maker’s attitude toward risk, loss, and other factors

BIG DATA
- A set of data that cannot be managed, processed, or analyzed with commonly available software in a
reasonable amount of time.

BUSINESS ANALYTICS IN PRACTICE

Business analytics involves tools as simple as reports and graphs, as well as some that are as sophisticated as
optimization, data mining, and simulation.

Predictive and prescriptive analytics are sometimes therefore referred to as advanced analytics.

Types of Applications of Analytics by Application Area

Financial Analytics
Predictive models are used to forecast future financial performance, to assess the risk of investment portfolios and
projects, and to construct financial instruments such as derivatives. Prescriptive models are used to construct
optimal portfolios of investments, to allocate assets, and to create optimal capital budgeting plans.

Human Resource (HR) Analytics

The HR function is charged with ensuring that the organization

(1) has the mix of skill sets necessary to meet its needs,
(2) is hiring the highest-quality talent and providing an environment that retains it, and
(3) achieves its organizational diversity goals.

Marketing Analytics
Descriptive, predictive, and prescriptive analytics are all heavily used in marketing.
A better understanding of consumer behavior through 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.

Health Care Analytics

The use of analytics in health care is on the increase because of pressure to simultaneously control cost and
provide more effective treatment. Descriptive, predictive, and prescriptive analytics are used to improve patient,
staff, and facility scheduling; patient flow; purchasing; and inventory control.

Supply Chain Analytics

One of the earliest applications of analytics was in logistics and supply chain management. Companies can
benefit from better inventory and processing control and more efficient supply chains.

Analytics for Government and Nonprofits

Government agencies and other nonprofits have used analytics to drive out inefficiencies and increase the
effectiveness and accountability of programs. Likewise, nonprofit agencies have used analytics to ensure their
effectiveness and accountability to their donors and clients.

Sports Analytics
The use of analytics for player evaluation and on-field strategy is now common, especially in professional sports.
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
Web analytics 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.

GLOSSARY
STRATEGIC DECISION A decision that involves higher-level issues and that is concerned with the overall
direction of the organization, defining the overarching goals and aspirations for the
organization’s future.
TACTICAL DECISION A decision concerned with how the organization should achieve the goals and
objectives set by its strategy.
OPERATIONAL DECISION A decision concerned with how the organization is run from day to day.
BUSINESS ANALYTICS The scientific process of transforming data into insight for making better decisions
DESCRIPTIVE ANALYTICS Analytical tools that describe what has happened.
DATA QUERY A request for information with certain characteristics from a database.
DATA DASHBOARD A collection of tables, charts, and maps to help management monitor selected
aspects of the company’s performance.
PREDICTIVE ANALYTICS Techniques that use models constructed from past data to predict the future or to
ascertain the impact of one variable on another.
DATA MINING Techniques used to find patterns or relationships among elements of the data in a
large database.
SIMULATION The use of probability and statistics to construct a computer model to study the
impact of uncertainty on the decision at hand.
PRESCRIPTIVE ANALYTICS Techniques that take input data and yield a best course of action.
OPTIMIZATION MODEL A mathematical model that gives the best decision, subject to the situation’s
constraints.
SIMULATION OPTIMIZATION The use of probability and statistics to model uncertainty, combined with
optimization techniques, to find good decisions in highly complex and highly
uncertain settings.
DECISION ANALYSIS A technique used to develop an optimal strategy when a decision maker is faced
with several decision alternatives and an uncertain set of future events.
UTILITY THEORY The study of the total worth or relative desirability of a particular outcome that
reflects the decision maker’s attitude toward a collection of factors such as profit,
loss, and risk.
BIG DATA A set of data that cannot be managed, processed, or analyzed with commonly
available software in a reasonable amount of time.
ADVANCED ANALYTICS Predictive and prescriptive analytics.