Data Analytics

1
What is Data Analytics?

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 (BI) is a subset of Data Analytics
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What is Business Analytics?

Business Analytics Applications

 Management of customer relationships
 Financial and marketing activities
 Supply chain management
 Human resource planning
 Pricing decisions
 Sport team game strategies

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What is Business Analytics?

Importance of Business Analytics

 There is a strong relationship of BA with:
- profitability of businesses
- revenue of businesses
- shareholder return
 BA enhances understanding of data
 BA is vital for businesses to remain competitive
 BA enables creation of informative reports

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Scope of Business Analytics

 Descriptive analytics
- uses data to understand past and present
 Predictive analytics
- analyzes past performance
 Prescriptive analytics
- uses optimization techniques

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Scope of Business Analytics

Retail Markdown Decisions

 Most department stores clear seasonal inventory by reducing prices.
 The question is:
When to reduce the price and by how much?
 Descriptive analytics: examine historical data for similar products
(prices, units sold, advertising, …)
 Predictive analytics: predict sales based on price
 Prescriptive analytics: find the best sets of pricing and advertising to
maximize sales revenue

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Data for Business Analytics

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

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Data for Business Analytics

 Metrics are used to quantify performance.

 Measures are numerical values of metrics.
 Discrete metrics involve counting
- on time or not on time
- number or proportion of on time deliveries
 Continuous metrics are measured on a continuum
- delivery time
- package weight
- purchase price
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Data for Business Analytics
A Sales Transaction Database File

Records

Figure 1.1

Entities Fields or Attributes

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 What is Big Data?
• Information from multiple internal and external sources:
• Transactions
• Social media
• Enterprise content
• Sensors
• Mobile devices

• Companies leverage data to adapt products and services to:

• Meet customer needs
• Optimize operations
• Optimize infrastructure
• Find new sources of revenue
• Can reveal more patterns and anomalies

• IBM estimates that by 2015 4.4 million jobs will be created globally to support big data
• 1.9 million of these jobs will be in the United States
Types of Data
• When collecting or gathering data we collect data from
individuals cases on particular variables.
• A variable is a unit of data collection whose value can vary.
• Variables can be defined into types according to the level of
mathematical scaling that can be carried out on the data.
• There are four types of data or levels of measurement:
1. Categorical (Nominal) 2. Ordinal
3. Interval 4. Ratio
Data for Business Analytics

Classifying Data Elements in a Purchasing Database

Figure 1.2

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Data for Business Analytics
(continued)
Classifying Data Elements in a Purchasing Database

Figure 1.2

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 Categorical (Nominal) data
• Nominal or categorical data is data that comprises of categories that cannot be
rank ordered – each category is just different.
• The categories available cannot be placed in any order and no judgement can be
made about the relative size or distance from one category to another.
 Categories bear no quantitative relationship to one another
 Examples:
- customer’s location (America, Europe, Asia)
- employee classification (manager, supervisor,
associate)
• What does this mean? No mathematical operations can be performed on the data
relative to each other.
•Therefore, nominal data reflect qualitative differences rather than quantitative
ones.
Nominal data
Examples:

What is your gender? Did you enjoy the

(please tick) film? (please tick)

Male Yes
Female No
Nominal data

•Systems for measuring nominal data must ensure that each

category is mutually exclusive and the system of
measurement needs to be exhaustive.
• Variables that have only two responses i.e. Yes or No, are
known as dichotomies.
 Ordinal data
• Ordinal data is data that comprises of categories that can be rank ordered.
• Similarly with nominal data the distance between each category cannot be
calculated but the categories can be ranked above or below each other.
 No fixed units of measurement
 Examples:
- college football rankings
- survey responses
(poor, average, good, very good, excellent)
• What does this mean? Can make statistical judgements and perform limited
maths.
Ordinal data
Example:

How satisfied are you with the level of

service you have received? (please tick)

Very satisfied
Somewhat satisfied
Neutral
Somewhat dissatisfied
Very dissatisfied
 Interval and ratio data
• Both interval and ratio data are examples of scale data.
• Scale data:
• data is in numeric format ($50, $100, $150)
• data that can be measured on a continuous scale
• the distance between each can be observed and as a result measured
• the data can be placed in rank order.
 Interval data

• Ordinal data but with constant differences between

observations
• Ratios are not meaningful
• Examples:
• Time – moves along a continuous measure or seconds,
minutes and so on and is without a zero point of time.
• Temperature – moves along a continuous measure of
degrees and is without a true zero.
• SAT scores
Ratio data

• Ratio data measured on a continuous scale and does have a

natural zero point.
 Ratios are meaningful
 Examples:
• monthly sales
• delivery times
• Weight
• Height
• Age
Types of Analytics
Decision Models

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

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Decision Models

Figure 1.3

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Decision Models

 A decision model is a model used to understand, analyze, or facilitate

decision making.
 Types of model input
- data
- uncontrollable variables
- decision variables (controllable)

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Decision Models

Descriptive Decision Models

 Simply tell “what is” and describe relationships
 Do not tell managers what to do
An Influence Diagram for Total Cost

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 Descriptive Analytics
• Descriptive analytics, such as reporting/OLAP, dashboards, and
data visualization, have been widely used for some time.
• They are the core of traditional BI.

What has occurred?

Descriptive analytics, such as data visualization, is
important in helping users interpret the output from
predictive and predictive analytics.
Decision Models
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

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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.

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 Predictive Analytics
• Algorithms for predictive analytics, such as regression analysis, machine
learning, and neural networks, have also been around for some time.
• Prescriptive analytics are often referred to as advanced analytics.

What will occur?

• Marketing is the target for many predictive analytics applications.
• Descriptive analytics, such as data visualization, is important in helping
users interpret the output from predictive and prescriptive analytics.
Decision Models

A Linear Demand Prediction Model

As price increases, demand falls.

Figure 1.8

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

Figure 1.9

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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.

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 Prescriptive Analytics
• Prescriptive analytics are often referred to as advanced analytics.
• Regression analysis, machine learning, and neural networks
• Often for the allocation of scarce resources

What should occur?

• For example, the use of mathematical programming for revenue management is common for
organizations that have “perishable” goods (e.g., rental cars, hotel rooms, airline seats).
• Harrah’s has been using revenue management for hotel room pricing for some time.
 Organizational Transformation

• Brought about by opportunity or necessity

• The firm adopts a new business model
enabled by analytics
• Analytics are a competitive requirement
 2013 Academic Research
• A 2011 TDWI report on Big Data Analytics found that
85% of respondents indicated that their firms would
be using advanced analytics within three years

• A 2011 IBM/MIT Sloan Management Review

research study found that top performing
companies in their industry are much more likely
to use analytics rather than intuition across the
widest range of possible decisions.
Conditions that Lead to Analytics-based
Organizations

• The nature of the industry

• Seizing an opportunity
• Responding to a problem
Complex Systems
• Tackle complex problems and provide individualized solutions
• Products and services are organized around the needs of individual
customers
• Dollar value of interactions with each customer is high
• There is considerable interaction with each customer
• Examples: IBM, World Bank, Halliburton
Volume Operations
• Serves high-volume markets through standardized products and services
• Each customer interaction has a low dollar value
• Customer interactions are generally conducted through technology
rather than person-to-person
• Are likely to be analytics-based
• Examples: Amazon.com, eBay, Hertz
 The Nature of the Industry: Online Retailers

BI Applications
• Analysis of clickstream data
• Customer profitability analysis
• Customer segmentation analysis
• Product recommendations
• Campaign management
• Pricing
• Forecasting
• Dashboards
 The Nature of the Industry
• Online retailers like Amazon.com and Overstock.com are high
volume operations who rely on analytics to compete.
• When you enter their sites a cookie is placed on your PC and all
clicks are recorded.
• Based on your clicks and any search terms, recommendation
engines decide what products to display.
• After you purchase an item, they have additional information
that is used in marketing campaigns.
• Customer segmentation analysis is used in deciding what
promotions to send you.
• How profitable you are influences how the customer care center
treats you.
• A pricing team helps set prices and decides what prices are
needed to clear out merchandise.
• Forecasting models are used to decide how many items to
order for inventory.
• Dashboards monitor all aspects of organizational performance
 Analytics Help the Cincinnati Zoo Know Its Customers
• What management, organization, and technology factors were
behind the Cincinnati Zoo losing opportunities to increase
revenue?
• Why was replacing legacy point-of-sale systems and
implementing a data warehouse essential to an information
system solution?
• How did the Cincinnati Zoo benefit from business intelligence?
How did it enhance operational performance and decision
making? What role was played by predictive analytics?
• Visit the IBM Cognos Web site and describe the business
intelligence tools that would be the most useful for the
Cincinnati Zoo.
 Application of analytics

• Optimize funnel conversion.

Big data analytics allow companies to track leads, through entire sales
conversion process. From a click on an adword ad to the final transaction
in order to uncover insights on how the conversion process can be
improved.
CREDEM uses data analytics to predict which financial products or service
a customer would appreciate, so it can better target customer during the
sales process. With these insights the bank increased, average revenue by
22%, and reduced cost by 9%
Company Industry
Credem Finance
 Behavioral Analysis

• With access to data on consumer behavior, companies can learn what

prompts a customer to stick around longer, as well as learn more about
their customer characteristics and purchasing habits in order to improve
marketing efforts and boost profits.
• McDONALDs track vast amount of data, in order to improve operation
and boost customer experience. The company looks at factors such as
design of the drive through, information provided on the menu, wait
time, size of the orders and ordering patterns in order to optimize each
restaurant to its particular market.
Company Industry
McDonald Food
 Customer Segmentation

By accessing data about the customer from multiple sources, such as social
media data and transaction history, companies can better segment and target
their customers and start to make personalized offers to those customers.
Walmart combines public data, social data and internal data to monitor what
customer and friends of customer are saying about a particular product
online. The retailer uses this data to send targeted messages about the
product and to share discount offers. Walmart also uses data analysis to
identify the content of an online message, such as a reference to salt is about
a movie or a condiment.

Company Industry
Walmart Retail
 Predictive support

Through sensors and other machine generated data, companies can identify
when a mal function is likely to occur. The company can than pre emptively
order parts and make repairs in order to avoid down time and lost profit.
South west airlines analyze sensor data on their planes in order to identify
patterns that indicate a potential malfunction or safety issue. This allows the
airline to address potential problems and make necessary repairs without
interrupting flights or putting passengers in danger.
Company Industry

South west airlines. Travel