1

Introduction to
Business Analytics

Business Analytics, 1e
By Sanjiv Jaggia, Alison Kelly, Kevin Lertwachara, and
Leida Chen

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5/13/2020 distribution without the prior written consent of McGraw-Hill Education.
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 Chapter 1 Learning Objectives
(LOs)
LO 1.1 Explain the importance of
business analytics.
LO 1.2 Explain the various types of data.
LO 1.3 Describe variables and types of
measurement scales.
LO 1.4 Describe different data sources
and file formats.

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 Introductory Case: Vacation in
Belize
• After graduating college, Emily is
planning a vacation in Belize.
• She is worried about staying within her
budget, and researches her options for
flights and hotels by looking for deals
and packages.
– Flights: where does she depart from and
arrive at?
– Hotels: location, amenities, activities,
reviews
1. Find a flight that is convenient as well
as affordable.
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 1.1: Overview of Business Analytics
(1/7)
• Data and analytics capabilities have made a leap forward.
– Growing availability of vast amounts of data
– Improved computational power
– Development of sophisticated algorithms
– Colleges/universities have curriculum emphasizing business analytics
• Data and analytics capabilities have changed the way
businesses make decisions.
– Companies need data-savvy professionals
– Turn data into insights and action
• Business analytics (data analytics) involves extracting
information and knowledge from data.
– Improve the bottom line
– Enhance the customer experience
– Develop better marketing strategies
– Deepen customer engagement
– Enhance efficiency and reduce expenses
– Identify emerging markets
– Mitigate risk and fraud
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 1.1: Overview of Business Analytics
(2/7)
• Business analytics is a broad topic.
– Statistics
– Computer Science
– Information Systems
• Business analytics is widely applied.
– Marketing
– Human resource management
– Economics
– Finance
– Health, sports, and politics
• Business analytics combines qualitative reasoning with
quantitative tools.
– Identify key business problems
– Translate data analysis into decisions
– Improve business performance
• Business analytics differs from data science.
– Data science: develop applications for end users
– Business analytics: data analyses for business applications
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 1.1: Overview of Business Analytics
(3/7)
• Business analytics begins with understating the business
context.
– Ask the right questions
– Identify the appropriate analysis
– Communicate information
• Numerical results are not very useful unless they are
accompanied with clearly stated actionable business insights.
• There are three different types of analytics techniques.
– Descriptive analytics: what has happened?
– Predictive analytics: what could happen in the future?
– Prescriptive analytics: what should we do?
• Can be viewed according to the level of sophistication and
business values they offer.
• Turning data-driven recommendations into action also requires
thoughtful consideration and organizational commitment
beyond developing descriptive and predictive analytical
models.
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 1.1: Overview of Business
Analytics (4/7)

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 1.1: Overview of Business Analytics
(5/7)
• Descriptive Analytics: what has happened?
– Gather
– Organize
– Tabulate
– Visualize
– Summarize
• Descriptive information can be presented in a number of formats.
– Written reports
– Tables
– Graphs
– Maps
• Descriptive analytics is referred to as business intelligence (BI).
– Access and manipulate data through reports, dashboards, application and
visualization tools
– Uses past data integrated from multiple sources
– Inform decision-making and identify problems and solutions
• Examples
– A firm’s marketing expenses and sales
– Financial reports
– Crime rates across regions and time
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 1.1: Overview of Business Analytics
(6/7)
• Predictive Analytics: what could happen in the
future?
– Use historical data to make predictions
– Analytical models help identify associations
– Associations used to estimate the likelihood of a
favorable outcome
– Commonly considered advanced predictions
– Build models that help an organization understand what
might happen in the future
– Use statistics and data mining
• Examples
– Identifying customers who are most likely to respond to
specific marketing campaigns
– Transactions that are likely to be fraudulent
– Incidence of crime at certain regions and times
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 1.1: Overview of Business Analytics
(7/7)
• Prescriptive Analytics: what should we do?
– Optimization and simulation algorithms to provide advice
– Explore several possible actions
– Suggest course of action
– Commonly considered advanced predictions
– Build models that help an organization understand what
might happen in the future
– Use statistics and data mining
• Examples
– Scheduling employees’ works hours
– Select a mix of products to manufacture
– Choose an investment portfolio

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 1.2: Types of Data (1/7)

• An important first step for making decisions is

to find the right data and prepare it.
– Compilation of facts, figures, or other content
– Numerical and non-numerical
– All types and formats are generated from multiple
sources
– Often we have a large amount of data
– Even small data can give insights
• Data that have been organized, analyzed, and
processed in a meaningful and purposeful way
become information.
• Use a blend of data, contextual information,
experience, and intuition to derive knowledge.
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 1.2: Types of Data (2/7)
• It is not feasible to collect data that comprise a
population of all elements of interest.
– Too expensive
– It is impossible
• A sample is a subset of the population and is used for
analyses.
• Traditional statistical techniques use sample
information to draw conclusions about the population.
• Cross-sectional data
– Collected by recording a characteristic of many subjects at the same
point in time
– Recording a characteristic of many subjects at the same point in
time
• Time series data
– Collected over several time periods focusing on certain groups of
people, specific events, or objects
– Hourly, daily, weekly, monthly, quarterly, or annual observations
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 1.2: Types of Data (3/7)

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 1.2: Types of Data (4/7)

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 1.2: Types of Data (5/7)
• Structured data
– Reside in a pre-defined, row-column format
– Spreadsheet or database applications
– Enter, store, query, and analyze
– Numerical information that is objective and not open to interpretation
• Historically, companies relied mostly on structured data.
– High cost to store and process
– Performance limitations
• Unstructured data
– Do not conform to a pre-defined, row-column format
– Textual
– Multimedia content
– Do not conform to database structures
• Human- or machine-generated
– Structured human: price, income, retail sales
– Structured machine: sensors, speed cameras, web server logs
– Unstructured human: email, text, social media, presentations
– Unstructured machine: satellite images, video data, camera images
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 1.2: Types of Data (6/7)
• Businesses generate and gather more and more
data at an increasing pace: Big Data.
– A massive volume of structured and unstructured data
– Extremely difficult to manage, process, and analyze using
traditional data processing tools
– Present great opportunities to gain knowledge and game-
changing intelligence
• “[H]igh-volume, high-velocity and/or high-variety
information assets that demand cost-effective,
innovative forms of information processing that
enable enhanced insight, decision making, and
process automation.”
• Does not imply complete (population) data
• Big data may not be used when available
– Inconvenient and computationally burdensome
– Benefits may not justify costs
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 1.2: Types of Data (7/7)
• There are three characteristics of big data.
– Volume: immense amount of data compiled for a single
or multiple sources
– Velocity: generated at a rapid speed, management is a
critical issue
– Variety: all types, forms, granularity, structure or
unstructured
• Additional characteristics
– Veracity: credibility and quality of the data, reliability
– Values: methodological plan for formulating questions,
curating the right data, and unlocking hidden potential
• Having a plethora of data does not guarantee
that useful insights or measurable improvements
will be generated.
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 1.3: Variables and Scales of
Measurement (1/3)
• A variable is a characteristic of interest that differs in kind or
degree among various observations (records).
• There are two types of variables: categorical and numerical
• Categorical
– Also called qualitative
– Represent categories
– Labels or names to identify distinguishing characteristics
– Arithmetic operations on the labels/values are not meaningful
– Coded into numbers for data processing
– Example: marital status
• Numerical
– Also called quantitative
– Represent meaningful numbers
– Arithmetic operations are meaningful
– Discrete: assumes a countable number of values
– Example: number of children in a family
– Continuous: assumes an uncountable number of values within an interval
– Example: investment returns

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 1.3: Variables and Scales of
•
Measurement (2/3)
Analysis techniques depend on the type of data.
• There are four major scales: nominal, ordinal, interval, ratio
• Nominal
– Categorical
– Least sophisticated
– Values differ by label or name
– Example: marital status
• Ordinal
– Categorical
– Reflect labels or name, but can be ranked
– Cannot interpret the difference between the ranked values
– Example: reviews from 1 star (poor) to 5 stars (outstanding)
• Interval
– Numerical
– Categorize and rank, differences are meaningful
– Zero value is arbitrary and does not reflect absence of characteristic
– Ratios are not meaningful
– Example: temperature
• Ratio (numerical)
– Numerical
– Most sophisticated
– A true zero point, reflects absence of characteristic
– Ratios are meaningful
– Example: profits
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 1.3: Variables and Scales of
Measurement (3/3)
• Example: The owner of a ski resort gathers
data on tweens.

• Music: nominal
• Food quality: ordinal
• Closing time: interval
• Own money spent: ratio

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1.4: Data Sources and File Formats (1/1)
• 90% of the data in the world today was created in the last two
years.
• Data sources for this book mostly come from Google.
– Bureau of Economic Analysis
– Bureau of Labor Statistics
– Federal Research Economic Data
– U.S. Census Bureau
– National Climatic Data Center
– Yahoo Finance
– Zillow
• There are standard file formats.
– Fixed-width format: each column starts and ends in the same place in every row
– Delimited format: a delimiter separates fields, typically a comma (csv file)
– Extensible Markup Language (XML): structured data, each piece enclosed in a
pair of tags, gives information on what the data are
– HyperText Markup Language (HTML): structured data with tags, gives
information on how to display the data
– JavaScript Object Notation (JSON): alternative to XML, transmit human-readable
data in compact files, not as verbose as XML, supports wide range of data types,
parsing is faster
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