DIMENSIONS OF BUSINESS ANALYTICS
Business Analytics begins with the collection, organization, and manipulation of data and
is supported by three major components:
Descriptive Analytics: Most businesses start with Descriptive Analytics—the use of data to
understand past and current business performance and make informed decisions. Descriptive
analytics is the most commonly used and most well-understood type of analytics.
These techniques categorize, characterize, consolidate, and classify data to convert it
into useful information for the purposes of understanding and analyzing business
performance. Descriptive analytics summarizes data into meaningful charts and reports,
for example, about budgets, sales, revenues, or costs.
This process allows managers to obtain standard and customized reports and then drill down
into the data and make queries to understand the impact of an advertising campaign, for example,
review business performance to find problems or areas of opportunity, and identify patterns and
trends in data. Typical questions that Descriptive Analytics help answer are
“How much did we sell in each region?” “What was our revenue and profit last quarter?”
“How many and what types of complaints did we resolve?”
“Which factory has the lowest productivity?”
Descriptive Analytics also helps companies classify customers into different segments, which
enables them to develop specific marketing campaigns and advertising strategies.
Predictive Analytics: Predictive Analytics seeks to predict the future by examining
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historical data, detecting patterns or relationships in these data, and then extrapolating these
relationships forward in time. For example, a marketer might wish to predict the response of
different customer segments to an advertising campaign, a commodities trader might wish to
predict short-term movements in commodities prices, or a skiwear manufacturer might want to
predict the next season’s demand for skiwear of a specific color and size. Predictive Analytics
can predict risk and find relationships in data not readily apparent with traditional
analyses.
Using advanced techniques, predictive analytics can help detect hidden patterns in large
quantities of data to segment and group data into coherent sets to predict behavior and detect
trends. For instance, a bank manager might want to identify the most profitable customers predict
the chances that a loan applicant will default, or alert a credit-card customer to a potentially
fraudulent charge. Predictive Analytics helps to answer questions such as
“What will happen if demand falls by 10% or if supplier prices go up 5%?”
“What do we expect to pay for fuel over the next several months?”
“What is the risk of losing money in a new business venture?”
Prescriptive Analytics: Many problems, such as aircraft or employee scheduling and
supply chain design, for example, simply involve too many choices or alternatives for a
human decision-maker to effectively consider. Prescriptive Analytics uses optimization to
identify the best alternatives to minimize or maximize some objective. Prescriptive
analytics is used in many areas of business, including operations, marketing, and finance.
For example, we may determine the best pricing and advertising strategy to maximize
revenue, the optimal amount of cash to store in ATMs, or the best mix of investments in a
retirement portfolio to manage risk. The mathematical and statistical techniques of
predictive analytics can also be combined with optimization to make decisions that
take into account the uncertainty in the data. Prescriptive Analytics addresses questions
such as ;
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“How much should we produce to maximize profit?”
“What is the best way of shipping goods from our factories to minimize costs?”
“Should we change our plans if a natural disaster closes a supplier’s factory: If so, by how
much?”
Descriptive vs Predictive vs Prescriptive Analytics
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