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The document outlines four main types of business analytics: descriptive, diagnostic, predictive, and prescriptive, each serving a unique purpose in data analysis. Descriptive analytics summarizes existing data, diagnostic analytics investigates past performance to understand causes, predictive analytics forecasts future outcomes, and prescriptive analytics recommends actions based on predictions. While companies often implement these analytics sequentially, they can also directly utilize prescriptive analytics when optimizing key areas.

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6 views5 pages

Discussion Board 2

The document outlines four main types of business analytics: descriptive, diagnostic, predictive, and prescriptive, each serving a unique purpose in data analysis. Descriptive analytics summarizes existing data, diagnostic analytics investigates past performance to understand causes, predictive analytics forecasts future outcomes, and prescriptive analytics recommends actions based on predictions. While companies often implement these analytics sequentially, they can also directly utilize prescriptive analytics when optimizing key areas.

Uploaded by

rsuryakiran2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FOUR TYPES OF BUSINESS

ANALYTICS TO KNOW
BUSINESS ANALYTICS
by Anushka Mehta October 13, 2017

For different stages of business analytics huge amount of data is


processed at various steps. Depending on the stage of the workflow and
the requirement of data analysis, there are four main kinds of analytics –
descriptive, diagnostic, predictive and prescriptive. These four types
together answer everything a company needs to know- from what’s going
on in the company to what solutions to be adopted for optimizing the
functions.

The four types of analytics are usually implemented in stages and no one
type of analytics is said to be better than the other. They are interrelated
and each of these offers a different insight. With data being important to so
many diverse sectors- from manufacturing to energy grids, most of the
companies rely on one or all of these types of analytics. With the right
choice of analytical techniques, big data can deliver richer insights for the
companies

Before diving deeper into each of these, let’s define the four types of
analytics:

1) Descriptive Analytics: Describing or summarizing the existing data


using existing business intelligence tools to better understand what is going
on or what has happened.
2) Diagnostic Analytics: Focus on past performance to determine what
happened and why. The result of the analysis is often an analytic
dashboard.
3) Predictive Analytics: Emphasizes on predicting the possible outcome
using statistical models and machine learning techniques.
4) Prescriptive Analytics: It is a type of predictive analytics that is used to
recommend one or more course of action on analyzing the data.
Let’s understand these in a bit more depth.

1. Descriptive Analytics
This can be termed as the simplest form of analytics. The mighty size of big
data is beyond human comprehension and the first stage hence involves
crunching the data into understandable chunks. The purpose of this
analytics type is just to summarize the findings and understand what is
going on.

Among some frequently used terms, what people call as advanced


analytics or business intelligence is basically usage of descriptive statistics
(arithmetic operations, mean, median, max, percentage, etc.) on existing
data. It is said that 80% of business analytics mainly involves descriptions
based on aggregations of past performance. It is an important step to make
raw data understandable to investors, shareholders and managers. This
way it gets easy to identify and address the areas of strengths and
weaknesses such that it can help in strategizing.
The two main techniques involved are data aggregation and data mining
stating that this method is purely used for understanding the underlying
behavior and not to make any estimations. By mining historical data,
companies can analyze the consumer behaviors and engagements with
their businesses that could be helpful in targeted marketing, service
improvement, etc. The tools used in this phase are MS Excel, MATLAB,
SPSS, STATA, etc.

2. Diagnostic Analytics
Diagnostic analytics is used to determine why something happened in the
past. It is characterized by techniques such as drill-down, data discovery,
data mining and correlations. Diagnostic analytics takes a deeper look at
data to understand the root causes of the events. It is helpful in determining
what factors and events contributed to the outcome. It mostly uses
probabilities, likelihoods, and the distribution of outcomes for the analysis.

In a time series data of sales, diagnostic analytics would help you


understand why the sales have decrease or increase for a specific year or
so. However, this type of analytics has a limited ability to give actionable
insights. It just provides an understanding of causal relationships and
sequences while looking backward.

A few techniques that uses diagnostic analytics include attribute


importance, principle components analysis, sensitivity analysis, and
conjoint analysis. Training algorithms for classification and regression also
fall in this type of analytics

3. Predictive Analytics
As mentioned above, predictive analytics is used to predict future
outcomes. However, it is important to note that it cannot predict if an event
will occur in the future; it merely forecasts what are the probabilities of the
occurrence of the event. A predictive model builds on the preliminary
descriptive analytics stage to derive the possibility of the outcomes.

The essence of predictive analytics is to devise models such that the


existing data is understood to extrapolate the future occurrence or simply,
predict the future data. One of the common applications of predictive
analytics is found in sentiment analysis where all the opinions posted on
social media are collected and analyzed (existing text data) to predict the
person’s sentiment on a particular subject as being- positive, negative or
neutral (future prediction).

Hence, predictive analytics includes building and validation of models that


provide accurate predictions. Predictive analytics relies on machine
learning algorithms like random forests, SVM, etc. and statistics for learning
and testing the data. Usually, companies need trained data scientists and
machine learning experts for building these models. The most popular tools
for predictive analytics include Python, R, RapidMiner, etc.

The prediction of future data relies on the existing data as it cannot be


obtained otherwise. If the model is properly tuned, it can be used to
support complex forecasts in sales and marketing. It goes a step ahead of
the standard BI in giving accurate predictions.

4. Prescriptive Analytics
The basis of this analytics is predictive analytics but it goes beyond the
three mentioned above to suggest the future solutions. It can suggest all
favorable outcomes according to a specified course of action and also
suggest various course of actions to get to a particular outcome. Hence, it
uses a strong feedback system that constantly learns and updates the
relationship between the action and the outcome.

The computations include optimization of some functions that are related to


the desired outcome. For example, while calling for a cab online, the
application uses GPS to connect you to the correct driver from among a
number of drivers found nearby. Hence, it optimizes the distance for faster
arrival time. Recommendation engines also use prescriptive analytics.

The other approach includes simulation where all the key performance
areas are combined to design the correct solutions. It makes sure whether
the key performance metrics are included in the solution. The optimization
model will further work on the impact of the previously made forecasts.
Because of its power to suggest favorable solutions, prescriptive analytics
is the final frontier of advanced analytics or data science, in today’s term.

Conclusion
The four techniques in analytics may make it seem as if they need to be
implemented sequentially. However, in most scenarios, companies can
jump directly to prescriptive analytics. As for most of the companies, they
are aware of or are already implementing descriptive analytics but if one
has identified the key area that needs to be optimized and worked upon,
they must employ prescriptive analytics to reach the desired outcome.

According to research, prescriptive analytics is still at the budding stage


and not many firms have completely used its power. However, the
advancements in predictive analytics will surely pave the way for its
development. Hope this article gave you a better understanding of the
analytics spectrum.

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