Unit-1 Introduction to Business

Analytics
Defining Business Analytics, Evolution of Business Analytics,
Impact and challenges
Scope of Business Analytics, Software support
Data for Business Analytics, Dataset and database, Big data,
Metrics and data classification, Data reliability and validity,
Model in Business Analytics, Problem solving with Analytics
Unit Case Study.

1
 Introduction
to
Business Analytics

2
• Analytics is a field which combines following into one -
1. Data,
2. Information technology,
3. Statistical analysis,
4. Quantitative methods and
5. Computer-based models
• This all are combined to provide decision makers all the
possible scenarios to make a well thought and
researched decision.

3
 Meaning of Business Analytics

• Business analytics (BA) refers to

– “The skills, technologies, practices for continuous
developing new insights and understanding of business
performance based on data and statistical methods”.

– “the practice of exploration of an organization’s data with

emphasis on statistical analysis. Business analytics is used
by companies committed to data-driven decision making.

4
– “The statistical analysis of the data a business has
acquired in order to make decisions that are based
on evidence rather than a guess”.

– “A combination of data analytics, business

intelligence and computer programming. It is the
science of analysing data to find out patterns that
will be helpful in developing strategies”

5
 Evolution of Business Analytics
• Business analytics has been existence since very long time and has
evolved with availability of newer and better technologies.
• It has its roots in operations research, which was extensively used during
World War II. Operations research was an analytical way to look at data to
conduct military operations.

• Over a period of time, this technique started getting utilized for business.
Here operation’s research evolved into management science. Again, basis
for management science remained same as operation research in data,
decision making models, etc.

6
• As the economies started developing and companies
became more and more competitive, management
science evolved into-
– Business intelligence,

– Decision support systems

– PC software.

7
 SIGNIFICANCE AND USAGES
OF BUSINESS ANALYITCS
• To make data-driven decisions
• Converts available data into valuable information.
• Eliminate guesswork
• Get faster answer to questions
• Get insight into customer behavior
• Get key business metrics reports when and where
needed

8
• It impacts functioning of the whole organization
– Improve profitability of the business
– Increase market share and revenue
– Provide better return to a shareholder
– Reduce overall cost
– Sustain in competition
– Monitor KPIs (Key Performance Indicators) and
– React to changing trends in real time

9
 CHALLANGES FOR BUSINESS ANALYITCS

• Business analytics depends on sufficient volumes of high

quality data.

• The difficulty in ensuring data quality.

• Data warehousing require a lot more storage space than
it did speed.

• Business analytics is becoming a tool that can influence

the outcome of customer interactions.

10
• Technology infrastructure and tools must be able to
handle the data and Business Analytics processes.

• Organizations should be prepared for the changes

that Business Analytics bring to current business and
technology operations.

11
 Scope of Business Analytics

• Business analytics has a wide range of

application and usages-

– Descriptive analysis

– Predictive analysis

– Prescriptive analysis

12
 Descriptive Analysis

• This branch of Business Analytics analyses and finds

answer to the question-

“What has happened in the past?”.

• Descriptive analysis/ statistics performs the function
of “describing” or summarizing raw data to make it
easily understandable and interpretable by humans.

13
 Predictive Analytics
• This branch of Business Analytics, uses forecasting
techniques and statistical models to find out-

What is going to happen in future?

• Predictive analysis helps us in predicting the future
course of events and taking necessary measures for the
same.

14
• Predictive analysis employ-
– Predictive modelling and Machine learning techniques.

• Predictive modeling uses statistics to predict outcomes.

• Machine learning(ML) statistical is the scientific

study of algorithms and models that computer systems use to

perform a specific task without using explicit instructions, relying

on patterns and inference instead. Machine learning algorithms

build a mathematical model based on sample data, known in order

to make predictions or decisions without being explicitly

programmed to perform the task.

15
 Prescriptive Analytics
• This branch of Analytics, makes use of optimization and simulation
algorithms to find answer to the question-
“What should we do?”.
• Prescriptive Analysis is used to give advices on possible outcomes.
• This is a relatively new field of analytics that allows users to
recommend several different possible solutions to the problem and
to guide them about the best possible course of action.

16
 USERS OF BUSINESS ANALYITCS
1. Students

2. Business man

3. Accountants and Auditors

4. Organization/Companies/Group of industries/
Small firm

17
 MAIN SOFTWARE USED FOR BUSINESS
ANALYITCS

1. MS-EXCEL

2. SPSS

3. R

4. SAS

5. E-views

18
• SPSS-
– SPSS Statistics is a software package used for statistical
analysis. Long produced by SPSS Inc., it was acquired by
IBM in 2009. The latest version of IBM SPSS Statistics as of
2024 is Version 29, with recent updates such as 29.0.2.

• MS-EXCEL-
– Microsoft Excel is a spreadsheet application developed by
Microsoft for Microsoft Windows. It features calculation,
graphing tools, pivot tables, and a macro programming
language called Visual Basic for Applications.

19
MS-EXCEL in Business Analytics
– Microsoft Excel is a spreadsheet application
developed by Microsoft for Microsoft Windows.

– It features
• Calculation,

• Graphing tools,

• Pivot tables, and

• A macro programming language called Visual Basic

20
The Business Analytic Process

21
Components of Business Analytics
• There are 6 major components/categories in
any analytics solution:
Data Mining

Text Mining

Components of Forecasting
Business Analytics Predictive Analytics

Optimization

Visualization
22
• Data Mining – Create models by uncovering previously
unknown trends and pattern in vast amounts of data e.g.
detect insurance claims frauds, Retail Market basket
analysis.
• There are various statistical techniques through which data
mining is achieved.
– Classification (when we know on which variables to classify the
data e.g. age, demographics)
– Regression
– Clustering (when we don’t know on which factors to classify
data)
– Associations & Sequencing Models
23
• Text Mining – Discover and extract meaningful
patterns and relationships from text
collections. E.g.
– Understand sentiments of Customers on social
media sites like Twitter, Face book, Blogs, Call
centre scripts etc. which are used to improve the
Product or Customer service or understand how
competitors are doing.

24
• Forecasting – Analyze & forecast processes that take place
over the period of time. E.g.

– Predict seasonal energy demand using historical trends,

– Predict how many ice creams cones are required considering

demand

• Predictive Analytics – Create, manage and deploy

predictive scoring models. E.g.

– Customer churn & retention,

– Credit Scoring,

– Predicting failure in shop floor machinery

25
• Optimization– Use of simulations techniques to
identify scenarios which will produce best results.
E.g.
– Sale price optimization,
– Identifying optimal Inventory for maximum fulfilment
& avoid stock outs.
• Visualization– Enhanced exploratory data
analysis & output of modelling results with highly
interactive statistical graphics.

26
Data for Business Analytics

DATA
- collected facts and figures
DATABASE
- collection of computer files containing data
INFORMATION
- comes from analyzing data

27
Examples of using DATA in business:
Annual reports
Accounting audits
Financial profitability analysis
Economic trends
Marketing research
Operations management performance
Human resource measurements

28
Four Types Data Based on Measurement
Scale:
Categorical (nominal) data
Ordinal data
Interval data
Ratio data

29
Dataset and database

Dataset
• Dataset is like a collection of data, primarily
used for analysis
• Datasets are typically employed for analysis
purposes

30
The characteristics of a dataset
1.Structure: Datasets are structured in a tabular format, with rows representing instances
or observations and columns representing variables or features.
2.Data Types: Datasets can contain different types of data, such as numerical (e.g.,
integers, floating-point numbers), categorical (e.g., strings, labels), and temporal (e.g.,
dates, timestamps).
3.Numerical data: Represents quantitative values, such as measurements, counts, or
scores.
4.Categorical data: Consists of non-numerical values, such as labels, categories, or
names.
5.Text data: Datasets can include textual data, such as product descriptions, customer
reviews, or social media posts.
6.Geospatial data: Represents geographical information, such as coordinates, addresses,
or map data.
7.Time-series data: Contain data points collected over time, such as stock prices, weather
measurements, or sensor readings.
8.Size: Depending on the application and the amount of data collected, datasets can vary in
size, ranging from a few records to billions of records.
9.Quality: The quality of a dataset is crucial for accurate analysis and reliable results.
High-quality datasets are complete, consistent, and free from errors or inconsistencies.
31
 Database

• Database is a system designed for storing and

managing data efficiently.
• Databases for ongoing data management tasks.
• Designed to handle large volumes of data at scale
while ensuring data integrity, consistency, and
security.

32
Types of databases
There are several types of databases, each designed to meet specific
needs and optimize performance for different types of data and
applications.
•Relational Databases (RDBMS): Store data in tables with rows and
columns. Foreign keys define the relationships between tables.
Examples include MySQL, PostgreSQL, Oracle, SQL Server.
•NoSQL Databases: Handle unstructured or semi-structured data and
offer flexible schema designs. Types include document stores
(MongoDB), key-value stores (Redis), and graph databases (Neo4j).
•In-Memory Databases (IMDBs): Provide faster response times by
storing data in RAM. Examples are Redis and SAP HANA.
•Distributed Databases: Spread across multiple locations to enhance
redundancy and improve access times, like Cassandra and Couchbase.

33
34
Introduction to Big Data

What is Big Data?

• Big Data is also data but with a huge size. Big Data is a
term used to describe a collection of data that is huge in
volume and yet growing exponentially with time. In short
such data is so large and complex that none of the
traditional data management tools are able to store it or
process it efficiently.
• “Extremely large data sets that may be analyzed
computationally to reveal patterns , trends and
association, especially relating to human behavior and
interaction are known as Big Data.”

35
Examples Of Big Data

• The New York Stock Exchange

generates about one terabyte of
new trade data per day.
• Social Media etc

36
37
 Metrics
• Quantitative measures used to evaluate, compare, and
track performance or progress in a given context.
• Help organizations and analysts understand performance,
make data-driven decisions, and improve processes.
Examples:
• In business, common metrics include sales revenue, customer
retention rate, and profit margins.
• In machine learning, metrics like accuracy, precision, recall, and
F1-score measure model performance.
• In software development, metrics such as code complexity,
defect density, and code coverage can indicate software quality.

38
Data Classification
• Data classification is the process of organizing data into categories based
on its characteristics or intended use.
• Helps in securing, managing, and analyzing data. Classification makes
data easier to locate, access, and protect.
Types of Classification:
• By Sensitivity: Common in cybersecurity and information
management, data can be classified as public, confidential, sensitive,
or restricted.
• By Structure: Structured, semi-structured, and unstructured data,
which helps in deciding storage, processing, and analysis approaches.
• By Purpose: Data can be classified based on its intended use, such as
operational data, analytical data, or archived data.

39
Data reliability and validity

40
41
Model in Business Analytics

Model:
⦁ An abstraction or representation of a real
system, idea, or object
⦁ Captures the most important features
⦁ Can be a written or verbal description, a visual
display, a mathematical formula, or a
spreadsheet representation

42
Example : Three Forms of a Model
The sales of a new produce, such as a first-
generation iPad or 3D television, often follow a
common pattern.
•Sales might grow at an increasing rate over time
as positive customer feedback spreads.
(See the S-shaped curve on the following slide.)
•A mathematical model of the S-curve can be
identified; for example,
S = aebect,
where S is sales, t is time, e is the base of natural
logarithms, and a, b and c are constants.
43
44
⦁ A decision model is a model used to
understand, analyze, or facilitate decision
making.

45
Nature of Decision Models

Figure 1.4

46
 Decision Models
Example : A Sales-Promotion Model
In the grocery industry, managers typically need to know
how best to use pricing, coupons and advertising strategies
to influence sales.
Using Business Analytics, a grocer can develop a model that
predicts sales using price, coupons and advertising.

47
 Decision Models

Sales = 500 – 0.05(price) + 30(coupons)

+0.08(advertising) + 0.25(price)(advertising)

48
 Decision Models
Descriptive Decision Models
⦁ Simply tell “what is” and describe relationships
⦁ Do not tell managers what to do
Example : An Influence Diagram for Total Cost

Influence Diagrams
visually show how
various model elements
relate to one another.

Figure 1.5

49
 Decision Models
Example : A Mathematical Model for Total Cost

TC = F +VQ

TC is Total Cost
F is Fixed cost
V is Variable unit cost Figure 1.6

Q is Quantity produced

50
 Decision Models
Example : A Break-even Decision
Model TC(manufacturing) = $50,000 +
$125*Q TC(outsourcing) = $175*Q
Breakeven Point:
Set TC(manufacturing)
= TC(outsourcing)
Solve for Q = 1000
units Figure 1.7

51
 Decision Models
Example : A Linear Demand Prediction Model
As price increases, demand falls.

Figure 1.8

52
 Decision Models
Example : A Nonlinear Demand Prediction Model
Assumes price elasticity (constant ratio of % change in
demand to % change in price)

53
 Decision Models
• Predictive Decision Models often incorporate
uncertainty to help managers analyze risk.
• Aim to predict what will happen in the future.
• Uncertainty is imperfect knowledge of what
will happen in the future.
• Risk is associated with the consequences of
what actually happens.

54
 Decision Models
Prescriptive Decision Models help decision
makers identify the best solution.
⦁ Optimization - finding values of decision
variables that minimize (or maximize) something
such as cost (or profit).
⦁ Objective function - the equation that minimizes
(or maximizes) the quantity of interest.
⦁ Constraints - limitations or restrictions.
⦁ Optimal solution - values of the decision variables
at the minimum (or maximum) point.

55
 Decision Models
Example : A Pricing Model
⦁ A firm wishes to determine the best pricing for
one of its products in order to maximize revenue.
⦁ Analysts determined the following model:
Sales = -2.9485(price) + 3240.9
Total revenue = (price)(sales)
⦁ Identify the price that maximizes total revenue,
subject to any constraints that might exist.

56
 Decision Models
• Deterministic prescriptive models have inputs
that are known with certainty.
• Stochastic prescriptive models have one or more
inputs that are not known with certainty.
• Algorithms are systematic procedures used to
find optimal solutions to decision models.
• Search algorithms are used for complex problems
to find a good solution without guaranteeing an
optimal solution.
57
 Problem Solving and
Decision Making
⦁ BA represents only a portion of the overall
problem solving and decision making process.
⦁ Six steps in the problem solving process
1. Recognizing the problem
2. Defining the problem
3. Structuring the problem
4. Analyzing the problem
5. Interpreting results and making a decision
6. Implementing the solution
58
 Problem Solving and
Decision Making
1. Recognizing the Problem
⦁ Problems exist when there is a gap between
what is happening and what we think should
be happening.
⦁ For example, costs are too high compared
with competitors.

59
 Problem Solving and
Decision Making
2. Defining the Problem
⦁ Clearly defining the problem is not a trivial task.
⦁ Complexity increases when the following occur:
- large number of courses of action
- several competing objectives
- external groups are affected
- problem owner and problem solver are not the

same person
- time constraints exist

60
 Problem Solving and
Decision Making
3. Structuring the Problem
⦁ Stating goals and objectives
⦁ Characterizing the possible decisions
⦁ Identifying any constraints or restrictions

61
 Problem Solving and
Decision Making
4. Analyzing the Problem
⦁ Identifying and applying appropriate Business
Analytics techniques
⦁ Typically involves experimentation, statistical
analysis, or a solution process

62
 Problem Solving and
Decision Making
5. Interpreting Results and Making a Decision
⦁ Managers interpret the results from the
analysis phase.
⦁ Incorporate subjective judgment as needed.
⦁ Understand limitations and model
assumptions.
⦁ Make a decision utilizing the above
information.
63
 Problem Solving and
Decision Making
6. Implementing the Solution
⦁ Translate the results of the model back to the
real world.
⦁ Make the solution work in the organization by
providing adequate training and resources.

64
THANK YOU

65