Polytechnic University of the Philippines
Cabiao, Nueva Ecija Campus
Fundamentals of
BUSINESS ANALYTICS
Chapter I: Introduction to
Business Analytics
Instructor: Rogene Carsola Esguerra
LEARNING TARGETS:
At the end of the discussion, the students should be able to comprehend
and able to demonstrate the mastery of the following:
Describe the motive and functions of a business.
Enumerate the factors of production.
Enumerate the key stakeholders.
Enumerate the types of business environment.
Define business analytics.
Enumerate the three types of decisions relevant to business organization.
Describe the major stages of business analytics.
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GOALS AND MOTIVES OF A
BUSINESS
Businesses are established to serve the needs of consumers by
owners who seek to make profits. The people who create a business
may see an opportunity to produce a product or service that is not
already being offered by other firms. Alternatively, they may believe that
they can produce a product or service that they can sell for a lower price
than existing firms. By providing a product that is desired by customers,
they may be able to make profits for their business.
RESOURCES NEEDED TO PRODUCE
PRODUCTS AND SERVICES
Natural Human Entrepreneur
Capital
resources resources ship
KEY STAKEHOLDERS IN A BUSINESS
Owners Creditors Employees
Suppliers Customers
THE BUSINESS ENVIRONMENT
Political Economic Social
Technological Environmental Legal
KEY TYPES OF BUSINESS DECISIONS
Marketing Management Finance
DECISION-MAKING
It is the responsibility of managers to plan, coordinate, organize, and
lead their organizations to better performance. Ultimately, managers’
responsibilities require that they make strategic, tactical, or operational
decisions.
Strategic Tactical Operational
Decisions Decisions Decisions
STRATEGIC DECISIONS
Strategic decisions involve higher-level issues concerned with the
overall direction of the organization; these decisions define the
organization’s overall goals and aspirations for the future. Strategic
decisions are usually the domain of higher-level executives and have a
time horizon of three to five years.
TACTICAL DECISIONS
Tactical decisions concern how the organization should achieve
the goals and objectives set by its strategy, and they are usually the
responsibility of midlevel management. Tactical decisions usually span a
year and thus are revisited annually or even every six months.
OPERATIONAL DECISIONS
Operational decisions affect how the firm is run from day to day;
they are the domain of operations managers, who are the closest to the
customer. Regardless of the level within the firm, decision-making can
be defined as the following process:
Determine
the criteria
Determine
Identify and that will be
the set of Evaluate the Choose an
define the used to
alternative alternatives. alternative.
problem. evaluate
solutions.
alternative
solutions.
BUSINESS ANALYTICS
Business analytics or simply analytics is the use of data,
information technology, statistical analysis, quantitative methods, and
mathematical or computer-based models to help managers gain
improved insight about their business operations and make better,
fact-based decisions.
BUSINESS ANALYTICS
Business analytics is “a process of transforming data into
actions through analysis and insights in the context of
organizational decision-making and problem-solving.” Business
analytics is supported by various tools such as Microsoft Excel and
various Excel add-ins, commercial statistical software packages such as
SAS or Minitab, and more complex business intelligence suites that
integrate data with analytical software.
BUSINESS ANALYTICS
DATA Tools and
DATA Business
Data
DATA Techniques
DATA Insights
DATA DATA
GOALS OF BUSINESS ANALYTICS
Providing real-time, actionable information aimed at superior business
decision-making.
Providing tools at all levels of an organization to help decision-making
around customer goals and profits while comparing performance.
Providing analysis that helps the business forecast the future with
greater objectivity and accuracy.
Providing the insight and understanding to support informed decisions
and confident actions and providing the feedback that is needed to
create a learning organization.
TYPES OF BUSINESS ANALYTICS
Descriptive Predictive Prescriptive
Analytics Analytics Analytics
DESCRIPTIVE ANALYTICS
The use of data to understand past and current business
performance and make informed decisions. Descriptive analytics is
the most used and 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.
DESCRIPTIVE ANALYTICS
Typical questions that descriptive analytics helps answer are “How
much did we sell in each region?” “What were 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 to 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
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.
PREDICTIVE ANALYTICS
Using advanced techniques, predictive analytics can help to 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 or
predict the chances that a loan applicant will default, or alert a credit-
card customer to a potential 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.
PRESCRIPTIVE ANALYTICS
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 “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?”
QUESTIONS?
CLARIFICATIONS?
QUESTIONS?
CLARIFICATIONS?
