BUSINESS ANALYTICS
MODULE 1
1
TEXT BOOKS
Business Analytics (3rd Edition)
James R. Evans
Syllabus
• Introduction to Business Analytics, evolution and scope,
business analytics process, decision models.
• Introduction to spreadsheets, spreadsheet functions,
spreadsheet modeling overview.
• Datasets, data cleaning, missing data handling,
outliers.
• Data Visualization – charts and graphs, data queries –
sorting and filtering, summarizing data – frequency,
relative frequency, histograms, percentages and
quartiles, cross tabulation, pivots.
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What is Business Analytics?
Using tools and technique to turn data into
meaningful business insight .
Tools and
Data Techniques Business Insight
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What is Business 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.
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What is Business Analytics?
Business Analytics Applications
Management of customer relationships
Supply chain management
Human resource planning
Pricing decisions, financial management
Reputation management
Analytics in education
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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
BA enhances understanding of data
BA is vital for businesses to remain
competitive
BA enables creation of informative reports
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Evolution of Business Analytics
• Operations research:operational research is a
discipline that deals with the application of
advanced analytical methods to help make
better decisions.
• Management science: The discipline of
applying advanced analytical methods to help
make better decisions.
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Evolution of Business Analytics
• Business intelligence: Technologies for gathering
,storing ,analyzing and providing access to data to
help enterprise users make better business
decisions.
• Decision support systems: combining busi-
ness intelligence concepts with OR/MS models to
create analytical-based computer systems to
support decision making.
• Personal computer software: Software is created
with programming languages and related utilities
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Evolution of Business Analytics
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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
Example 1.1 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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Business analytics process
Copyright © 2013 Pearson Education,
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Inc. publishing as Prentice Hall
Step 1. Defining the business needs
• understanding what the business would like to improve
on or the problem it wants solved.
• the goal is broken down into smaller goals.
• Relevant data needed to solve these business goals are
decided upon by the business stakeholders, business
users with the domain knowledge and the business
analyst.
• At this stage, key questions such as,
– “what data is available”,
– “how can we use it”,
– “do we have sufficient data”
must be answered.
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Step 2. Explore the data
• This stage involves cleaning the data, making computations
for missing data, removing outliers.
– outliers affect the accuracy of the model if they are allowed to remain
in the data set.
• The analyst will plot the data using scatter plots
• He will visually check the plots .It will provide a basic
understanding of the data.
• At this stage, the analyst is already looking for general
patterns
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Step 3. Analyze the data
• At this stage, using statistical analysis methods
such as correlation analysis and hypothesis
testing, the analyst will find all factors that are
related to the target variable.
• The analyst will also perform predictions.
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Step 4. Predict what is likely to
happen
• At this stage, the analyst will model the data
using predictive techniques that include decision
trees, neural networks .
• These techniques will uncover insights and
patterns that highlight relationships and ‘hidden
evidences’ of the most influential variables.
• The analyst will then compare the predictive
values with the actual values and compute the
predictive errors.
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Step 5. Optimize (find the best
solution)
• The analyst will select the optimal solution
and model based on the
– lowest error,
– management targets
– and his intuitive recognition.
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Step 6. Make a decision and measure
the outcome
• The analyst will then make decisions and take
action based on the derived insights from the
model and the organizational goals
• An appropriate period of time after this
action has been taken, the outcome of the
action is then measured
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Step 7. Update the system with the
results of the decision
• Finally the results of the decision and action
and the new insights derived from the model
are recorded and updated into the database.
• Information such as,
– ‘was the decision and action effective?’,
– ‘what was the return on investment?’
are uploaded into the database.
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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
A decision model is a model used to understand,
analyze, or facilitate decision making.
Types of model input
- data
• which are assumed to be constant for purposes of the
model. eg.costs, machine capacities.
- uncontrollable variables
• which are quantities that can change but cannot be
directly controlled by the decision maker. Eg .customer
demand, inflation rates.
- decision variables (controllable)
• can be selected by decision maker. eg. production quantities
staffing levels.
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Types of model output
- performance measures
- behavioral measures
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Decision Models
Nature of Decision Models
Figure 1.4
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Copyright © 2013 Pearson Education,
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Inc. publishing as Prentice Hall
• The decision depends on volume of demand (an
uncontrollable variable);
• for high volumes, the cost to manufacture in-
house will be lower than outsourcing, because
the fixed costs can be spread over a large number
of units.
• For small volumes, it would be more economical
to outsource.
• the break-even point would facilitate the
decision.
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