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Copyright Software copyright 1991-2013 by Frontline Systems, Inc. User Guide copyright 2013 by Frontline Systems, Inc. Analytic Solver Platform: Portions 1989 by Optimal Methods, Inc.; portions 2002 by Masakazu Muramatsu. LP/QP Solver: Portions 2000-2010 by International Business Machines Corp. and others. Neither the Software nor this User Guide may be copied, photocopied, reproduced, translated, or reduced to any electronic medium or machine-readable form without the express written consent of Frontline Systems, Inc., except as permitted by the Software License agreement below. Trademarks Analytic Solver Platform, Risk Solver Platform, Premium Solver Platform, Premium Solver Pro, Risk Solver Pro, Risk Solver Engine, Solver SDK Platform and Solver SDK Pro are trademarks of Frontline Systems, Inc. Windows and Excel are trademarks of Microsoft Corp. Gurobi is a trademark of Gurobi Optimization, Inc. KNITRO is a trademark of Ziena Optimization, Inc. MOSEK is a trademark of MOSEK ApS. OptQuest is a trademark of OptTek Systems, Inc. XpressMP is a trademark of FICO, Inc. Acknowledgements Thanks to Dan Fylstra and the Frontline Systems development team for a 20-year cumulative effort to build the best possible optimization and simulation software for Microsoft Excel. Thanks to Frontlines customers who have built many thousands of successful applications, and have given us many suggestions for improvements. Analytic Solver Platform and Risk Solver Platform has benefited from reviews, critiques, and suggestions from several risk analysis experts: Sam Savage (Stanford Univ. and AnalyCorp Inc.) for Probability Management concepts including SIPs, SLURPs, DISTs, and Certified Distributions. Sam Sugiyama (EC Risk USA & Europe LLC) for evaluation of advanced distributions, correlations, and alternate parameters for continuous distributions. Savvakis C. Savvides for global bounds, censor bounds, base case values, the Normal Skewed distribution and new risk measures. How to Order Contact Frontline Systems, Inc., P.O. Box 4288, Incline Village, NV 89450. Tel (775) 831-0300 Fax (775) 831-0314 Email info@solver.com Web http://www.solver.com

Table of Contents

Start Here: Data Mining Essentials in V12.5 13

Getting the Most from This User Guide .................................................................................. 13 Installing the Software ............................................................................................... 13 Upgrading from Earlier Versions .............................................................................. 13 Obtaining a License ................................................................................................... 13 Finding the Examples ................................................................................................ 13 Using Existing Models .............................................................................................. 13 Getting and Interpreting Results ................................................................................ 14 Software License and Limited Warranty ................................................................................. 14

18

What You Need ....................................................................................................................... 18 Installing the Software ............................................................................................................. 18 Uninstalling the Software ........................................................................................................ 23 Activating and Deactivating the Software ............................................................................... 23 Excel 2013, Excel 2010 and 2007 ............................................................................. 23 Excel 2003 ................................................................................................................. 24

26

Introduction ............................................................................................................................. 26 Working with Licenses in V12.5 ............................................................................................. 26 Using the License File Solver.lic ............................................................................... 26 License Codes and Internet Activation ...................................................................... 26 Running Subset Products in V12.5 .......................................................................................... 27 Using the Welcome Screen ...................................................................................................... 29 Using the XLMiner Help Text ................................................................................................. 29

Introduction to XLMiner

32

Introduction ............................................................................................................................. 32 Ribbon Overview ..................................................................................................................... 32 XLMiner Help Ribbon Icon ..................................................................................................... 33 Change Product ......................................................................................................... 33 License Code ............................................................................................................. 34 Examples ................................................................................................................... 36 Help Text ................................................................................................................... 38 Check for Updates ..................................................................................................... 39 About XLMiner ......................................................................................................... 39 Common Dialog Options ......................................................................................................... 40 Worksheet .................................................................................................................. 40 Data Range ................................................................................................................ 40 # Rows, # Columns ................................................................................................... 40 First row contains headers ......................................................................................... 41 Variables in the data source ....................................................................................... 41 Input variables ........................................................................................................... 41 Help ........................................................................................................................... 41 Reset .......................................................................................................................... 41 OK ............................................................................................................................. 41 Cancel ........................................................................................................................ 41

43

Introduction ............................................................................................................................. 43 Sampling from a Worksheet .................................................................................................... 44 Example: Sampling from a Worksheet using Simple Random Sampling ................ 44 Example: Sampling from a Worksheet using Sampling with Replacement ............. 47 Example: Sampling from a Worksheet using Stratified Random Sampling ............. 48 Sample from Worksheet Options ............................................................................................. 53 Data Range ................................................................................................................ 54 First row contains headers ......................................................................................... 54 Variables.................................................................................................................... 54 Sample With replacement .......................................................................................... 55 Set Seed ..................................................................................................................... 55 Desired sample size ................................................................................................... 55 Simple random sampling ........................................................................................... 55 Stratified random sampling ....................................................................................... 55 Stratum Variable ........................................................................................................ 55 Proportionate to stratum size ..................................................................................... 55 Equal from each stratum ............................................................................................ 55 Equal from each stratum, #records = smallest stratum size ....................................... 56 Sampling from a Database ....................................................................................................... 56

59

Introduction ............................................................................................................................. 59 Bar Chart ................................................................................................................... 59 Box Whisker Plot ...................................................................................................... 59 Histogram .................................................................................................................. 61 Line Chart .................................................................................................................. 61 Parallel Coordinates................................................................................................... 62 Scatterplot.................................................................................................................. 62 Scatterplot Matrix ...................................................................................................... 63 Variable Plot .............................................................................................................. 63 Bar Chart Example .................................................................................................................. 64 Box Whisker Plot Example...................................................................................................... 69 Histogram Example ................................................................................................................. 74 Line Chart Example ................................................................................................................. 78 Parallel Coordinates Chart Example ........................................................................................ 81 ScatterPlot Example ................................................................................................................. 85 Scatterplot Matrix Plot Example .............................................................................................. 89 Variable Plot Example ............................................................................................................. 91 Common Chart Options ........................................................................................................... 93

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Introduction ............................................................................................................................. 97 Missing Data Handling Examples ........................................................................................... 97 Options for Missing Data Handling ....................................................................................... 111 Missing Values are represented by this value .......................................................... 111 Overwrite existing worksheet .................................................................................. 112 Variable names in the first Row .............................................................................. 112 Variables.................................................................................................................. 112 How do you want to handle missing values for the selected variable(s)? ............... 112 Apply this option to selected variable(s) ................................................................. 112

113

Introduction ........................................................................................................................... 113 Examples for Binning Continuous Data ................................................................................ 113 Options for Binning Continuous Data ................................................................................... 122 Variable names in the first row................................................................................ 123 Name of the binned variable .................................................................................... 123 Show binning values in the output .......................................................................... 123 Name of binned variable ......................................................................................... 123 #bins for the variable ............................................................................................... 123 Equal count .............................................................................................................. 124 Equal interval .......................................................................................................... 124 Rank of the bin ........................................................................................................ 124 Mean of the bin........................................................................................................ 124 Median of the bin .................................................................................................... 124 Mid Value ................................................................................................................ 124 Apply this option to the selected variable ................................................................ 124

125

Introduction ........................................................................................................................... 125 Transforming Categorical Data Examples ............................................................................. 126 Options for Transforming Categorical Data .......................................................................... 132 Data Range .............................................................................................................. 133 First row contains headers ....................................................................................... 133 Variables.................................................................................................................. 133 Options .................................................................................................................... 133 Category Number .................................................................................................... 133

134

Introduction ........................................................................................................................... 134 Examples for Principal Components ..................................................................................... 136 Options for Principal Components Analysis .......................................................................... 142 Principal Components ............................................................................................. 142 Smallest #components explaining ........................................................................... 143 Method .................................................................................................................... 143 Show principal components score ........................................................................... 144

k-Means Clustering

145

Introduction ........................................................................................................................... 145 Examples for k-Means Clustering ......................................................................................... 145 k-Means Clustering Options .................................................................................................. 151 Clustering Method ................................................................................................... 152 Normalize input data ............................................................................................... 153 # Clusters ................................................................................................................. 153 # Iterations ............................................................................................................... 153 Options .................................................................................................................... 153 Show data summary ................................................................................................ 153 Show distances from each cluster center ................................................................. 153

Hierarchical Clustering

154

Introduction ........................................................................................................................... 154 Agglomerative methods........................................................................................... 154 Single linkage clustering ......................................................................................... 155 Complete linkage clustering .................................................................................... 155 Average linkage clustering ...................................................................................... 156 Average group linkage ............................................................................................ 157 Ward's hierarchical clustering method .................................................................... 157 Examples of Hierarchical Clustering ..................................................................................... 158 Options for Hierarchical Clustering ....................................................................................... 166 Data Type ................................................................................................................ 167 Normalize input data ............................................................................................... 168 Similarity Measures ................................................................................................. 168 Clustering Method ................................................................................................... 168 Draw Dendrogram ................................................................................................... 168 Show cluster membership ........................................................................................ 168 # Clusters ................................................................................................................. 169

170

Introduction ........................................................................................................................... 170 Autocorrelation (ACF) ............................................................................................ 170 Partial Autocorrelation Function (PACF) ................................................................ 171 ARIMA.................................................................................................................... 171 Partitioning .............................................................................................................. 172 Examples for Time Series Analysis ....................................................................................... 172 Options for Exploring Time Series Datasets.......................................................................... 191 Time variable ........................................................................................................... 191 Variables in the partitioned data .............................................................................. 191 Specify Partitioning Options ................................................................................... 191 Specify Percentages for Partitioning ....................................................................... 191 Selected Variable ..................................................................................................... 192 Lags ......................................................................................................................... 192 Plot ACF chart ......................................................................................................... 192 Variables in the input data ....................................................................................... 193 Selected variable...................................................................................................... 193 PACF Parameters for Training Data ....................................................................... 193 PACF Parameters for Validation Data .................................................................... 193 Time Variable .......................................................................................................... 194 Do not fit constant term ........................................................................................... 194 Fit seasonal model ................................................................................................... 194 Period ...................................................................................................................... 194 Nonseasonal Parameters .......................................................................................... 194 Seasonal Parameters ................................................................................................ 195 Maximum number of iterations ............................................................................... 195 Fitted Values and residuals ...................................................................................... 195 Variance-covariance matrix ..................................................................................... 195 Produce forecasts ..................................................................................................... 195 Report confidence intervals for forecasts ................................................................ 195

Smoothing Techniques

196

Introduction ........................................................................................................................... 196 Exponential smoothing ............................................................................................ 196 Moving Average Smoothing ................................................................................... 197 Double exponential smoothing ................................................................................ 197 Holt Winters' smoothing .......................................................................................... 197

Exponential Smoothing Example .......................................................................................... 198 Moving Average Smoothing Example ................................................................................... 204 Double Exponential Smoothing Example .............................................................................. 208 Holt Winters Smoothing Example ......................................................................................... 213 Common Smoothing Options ................................................................................................ 220 Common Options .................................................................................................... 220 First row contains headers ....................................................................................... 220 Variables in input data ............................................................................................. 220 Time Variable .......................................................................................................... 220 Selected Variable ..................................................................................................... 221 Output Options ........................................................................................................ 221 Exponential Smoothing Options ............................................................................................ 221 Optimize .................................................................................................................. 222 Level (Alpha) .......................................................................................................... 222 Moving Average Smoothing Options .................................................................................... 222 Interval .................................................................................................................... 222 Double Exponential Smoothing Options ............................................................................... 223 Optimize .................................................................................................................. 223 Level (Alpha) .......................................................................................................... 223 Trend (Beta) ............................................................................................................ 223 Holt Winter Smoothing Options ............................................................................................ 223 Parameters ............................................................................................................... 224 Level (Alpha) .......................................................................................................... 224 Trend (Beta) ............................................................................................................ 224 Seasonal (Gamma)................................................................................................... 224 Give Forecast ........................................................................................................... 224 Update Estimate Each Time .................................................................................... 225 #Forecasts ................................................................................................................ 225

226

Introduction ........................................................................................................................... 226 Training Set ............................................................................................................. 226 Validation Set .......................................................................................................... 226 Test Set .................................................................................................................... 226 Partition with Oversampling .................................................................................... 227 Standard Partition Example ................................................................................................... 228 Partition with Oversampling Example ................................................................................... 230 Standard Partitioning Options ................................................................................................ 233 Use partition variable .............................................................................................. 233 Set Seed ................................................................................................................... 233 Pick up rows randomly ............................................................................................ 234 Automatic ................................................................................................................ 234 Specify percentages ................................................................................................. 234 Equal # records in training, validation and test set .................................................. 234 Partitioning with Oversampling Options ............................................................................... 234 Set seed .................................................................................................................... 235 Output variable ........................................................................................................ 235 #Classes ................................................................................................................... 235 Specify Success class .............................................................................................. 235 % of success in data set ........................................................................................... 236 Specify % success in training set ............................................................................. 236 Specify % validation data to be taken away as test data .......................................... 236

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Introduction ........................................................................................................................... 237 Discriminant Analysis Example ............................................................................................ 237 Discriminant Analysis Options .............................................................................................. 245 Variables in input data ............................................................................................. 246 Input variables ......................................................................................................... 246 Weight Variables ..................................................................................................... 246 Output variable ........................................................................................................ 246 #Classes ................................................................................................................... 246 Specify Success class (for Lift Chart) .................................................................. 246 Specify initial cutoff probability value for success ................................................. 246 According to relative occurrences in training data .................................................. 247 Use equal prior probabilities.................................................................................... 247 User specified prior probabilities ............................................................................ 247 Misclassification Costs of........................................................................................ 247 Canonical variate loadings ...................................................................................... 248 Score training data ................................................................................................... 248 Score validation data ............................................................................................... 248 Score test data .......................................................................................................... 248 Canonical Scores ..................................................................................................... 249

Logistic Regression

250

Introduction ........................................................................................................................... 250 Logistic Regression Example ................................................................................................ 251 Logistic Regression Options .................................................................................................. 263 Variables in input data ............................................................................................. 264 Input variables ......................................................................................................... 264 Weight variable ....................................................................................................... 264 Output Variable ....................................................................................................... 264 # Classes .................................................................................................................. 264 Specify Success class (necessary) ........................................................................ 265 Specify initial Cutoff Probability value for success ................................................ 265 Force constant term to zero ..................................................................................... 265 Set confidence level for odds................................................................................... 265 Maximum # iterations.............................................................................................. 266 Initial marquardt overshoot factor ........................................................................... 266 Perform Collinearity diagnostics ............................................................................. 266 Number of collinearity components ........................................................................ 266 Perform best subset selection .................................................................................. 266 Maximum size of best subset................................................................................... 267 Number of best subsets ............................................................................................ 267 Selection Procedure ................................................................................................. 267 Covariance matrix of coefficients ............................................................................ 268 Residuals ................................................................................................................. 268 Score training data ................................................................................................... 268 Score validation data ............................................................................................... 268 Score test data .......................................................................................................... 268 Score new data ......................................................................................................... 269

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Introduction ........................................................................................................................... 270 k-Nearest Neighbors Classification Example ........................................................................ 270 k-Nearest Neighbors Options ................................................................................................. 276 Variables in input data ............................................................................................. 277 Input variables ......................................................................................................... 277

Weight variable ....................................................................................................... 277 Output variable ........................................................................................................ 277 Classes in the output variable .................................................................................. 277 Specify Success class (for Lift Charts) .................................................................... 277 Specify Initial Cutoff Probability value for success ................................................ 278 Normalize input data ............................................................................................... 278 Number of nearest neighbors (k) ............................................................................. 278 Scoring Option ........................................................................................................ 279 Score training data ................................................................................................... 279 Score validation data ............................................................................................... 279 Score test data .......................................................................................................... 279 Score new data ......................................................................................................... 279

280

Introduction ........................................................................................................................... 280 Pruning the tree ....................................................................................................... 281 Classification Tree Example .................................................................................................. 281 Classification Tree Options ................................................................................................... 292 Variables in input data ............................................................................................. 293 Input variables ......................................................................................................... 293 Weight variable ....................................................................................................... 293 Output variable ........................................................................................................ 293 # Classes .................................................................................................................. 293 Specify Success class (for Lift Chart) .................................................................. 293 Specify initial cutoff probability value for success ................................................. 294 Normlize input data ................................................................................................. 294 Minimum #records in a terminal node..................................................................... 294 Prune Tree ............................................................................................................... 294 Maximum # levels to be displayed .......................................................................... 295 Full tree (grown using training data) ....................................................................... 295 Best pruned tree (pruned using validation data) ...................................................... 295 Minimum error tree (pruned using validation data) ................................................. 295 Tree with specified number of decision nodes ........................................................ 295 Score training data ................................................................................................... 296 Score validation data ............................................................................................... 296 Score test data .......................................................................................................... 296 Score new data ......................................................................................................... 296

297

Introduction ........................................................................................................................... 297 Bayes Theorem ........................................................................................................ 297 Nave Bayes Classification Example ..................................................................................... 298 Nave Bayes Classification Method Options ......................................................................... 305 Variables in input data ............................................................................................. 305 Input variables ......................................................................................................... 305 Weight variable ....................................................................................................... 306 Output variable ........................................................................................................ 306 # Classes .................................................................................................................. 306 Specify Success class (for Lift Chart) .................................................................. 306 Specify initial cutoff probability value for success ................................................. 306 According to relative occurrences in training data .................................................. 306 Use equal prior probabilities.................................................................................... 307 User specified prior probabilities ............................................................................ 307 Score training data ................................................................................................... 307

Score validation data ............................................................................................... 307 Score test data .......................................................................................................... 307 Score new data ......................................................................................................... 307

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Introduction ........................................................................................................................... 308 Training an Artificial Neural Network .................................................................... 309 The Iterative Learning Process ................................................................................ 309 Feedforward, Back-Propagation .............................................................................. 310 Structuring the Network .......................................................................................... 310 Automated Neural Network Classification Example ............................................................. 311 Manual Neural Network Classification Example .................................................................. 318 NNC with Output Variable Containing 2 Classes.................................................................. 322 Neural Network Classification Method Options .................................................................... 324 Variables in input data ............................................................................................. 325 Input variables ......................................................................................................... 325 Weight variable ....................................................................................................... 325 Output variable ........................................................................................................ 325 # Classes .................................................................................................................. 325 Specify Success class (for Lift Chart) .................................................................. 325 Specify initial cutoff probability value for success ................................................. 326 Normalize input data ............................................................................................... 326 Network Architecture .............................................................................................. 326 # Hidden Layers ...................................................................................................... 326 # Nodes .................................................................................................................... 327 # Epochs .................................................................................................................. 327 Step size for gradient descent .................................................................................. 327 Weight change momentum ...................................................................................... 327 Error tolerance ......................................................................................................... 327 Weight decay ........................................................................................................... 327 Cost Function .......................................................................................................... 327 Hidden Layer Sigmoid ............................................................................................ 327 Output Layer Sigmoid ............................................................................................. 328 Score training data ................................................................................................... 328 Score validation data ............................................................................................... 328 Score test data .......................................................................................................... 328 Score New Data ....................................................................................................... 329

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Introduction ........................................................................................................................... 330 Multiple Linear Regression Example .................................................................................... 330 Multiple Linear Regression Options ...................................................................................... 342 Variables in input data ............................................................................................. 343 Input variables ......................................................................................................... 343 Weight variable ....................................................................................................... 343 Output Variable ....................................................................................................... 343 Force constant to zero .............................................................................................. 344 Fitted values ............................................................................................................ 344 Anova table.............................................................................................................. 344 Standardized ............................................................................................................ 344 Unstandardized ........................................................................................................ 345 Variance covariance matrix .................................................................................. 345 Score training data ................................................................................................... 345 Score validation data ............................................................................................... 345

Score test data .......................................................................................................... 345 Score New Data ....................................................................................................... 345 Studentized .............................................................................................................. 346 Deleted .................................................................................................................... 346 Select Cook's Distance ............................................................................................ 346 DF fits ...................................................................................................................... 346 Covariance Ratios .................................................................................................... 347 Hat matrix Diagonal ................................................................................................ 347 Perform Collinearity diagnostics ............................................................................. 347 Number of Collinearity Components ...................................................................... 347 Multicollinearity Criterion ....................................................................................... 347 Perform best subset selection .................................................................................. 348 Maximum size of best subset................................................................................... 348 Number of best subsets ............................................................................................ 348 Selection Procedure ................................................................................................. 348

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Introduction ........................................................................................................................... 349 k-Nearest Neighbors Prediction Method Example ................................................................ 349 k-Nearest Neighbors Prediction Method Options .................................................................. 357 Variables in input data ............................................................................................. 358 Input variables ......................................................................................................... 358 Output Variable ....................................................................................................... 358 Normalize Input data ............................................................................................... 359 Number of Nearest Neighbors ................................................................................. 359 Scoring Option ........................................................................................................ 359 Score training data ................................................................................................... 359 Score validation data ............................................................................................... 360 Score test data .......................................................................................................... 360 Score New Data ....................................................................................................... 360

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Introduction ........................................................................................................................... 361 Methodology ........................................................................................................... 361 Pruning the tree ....................................................................................................... 361 Regression Tree Example ...................................................................................................... 362 Regression Tree Options ........................................................................................................ 371 Variables in input data ............................................................................................. 372 Input variables ......................................................................................................... 372 Weight Variable ...................................................................................................... 372 Output Variable ....................................................................................................... 372 Normalize input data ............................................................................................... 373 Maximum # splits for input variables ...................................................................... 373 Minimum #records in a terminal node..................................................................... 373 Scoring option ......................................................................................................... 373 Maximum #levels to be displayed ........................................................................... 374 Full tree (grown using training data) ....................................................................... 374 Pruned tree (pruned using validation data) .............................................................. 374 Minimum error tree (pruned using validation data) ................................................. 374 Score training data ................................................................................................... 375 Score validation data ............................................................................................... 375 Score Test Data ....................................................................................................... 375 Score new Data ........................................................................................................ 375

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Introduction ........................................................................................................................... 376 Training an Artificial Neural Network .................................................................... 377 The Iterative Learning Process ................................................................................ 377 Feedforward, Back-Propagation .............................................................................. 378 Structuring the Network .......................................................................................... 378 Neural Network Prediction Method Example ........................................................................ 379 Neural Network Prediction Method Options ......................................................................... 387 Variables in input data ............................................................................................. 387 Input variables ......................................................................................................... 387 Weight Variable ...................................................................................................... 387 Output Variable ....................................................................................................... 388 Normalize input data ............................................................................................... 388 # Hidden Layers ...................................................................................................... 388 # Nodes .................................................................................................................... 388 # Epochs .................................................................................................................. 388 Step size for gradient descent .................................................................................. 388 Weight change momentum ...................................................................................... 389 Error tolerance ......................................................................................................... 389 Weight decay ........................................................................................................... 389 Score training data ................................................................................................... 389 Score validation data ............................................................................................... 389 Score Test Data ....................................................................................................... 390 Score new Data ........................................................................................................ 390

Association Rules

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Introduction ........................................................................................................................... 391 Association Rule Example ..................................................................................................... 392 Association Rule Options ...................................................................................................... 394 Input data format ..................................................................................................... 394 Minimum support (# transactions) .......................................................................... 394 Minimum confidence (%) ........................................................................................ 395

396

Introduction ........................................................................................................................... 396 Scoring to a Database ............................................................................................................ 396 Scoring on New Data ............................................................................................................. 405

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Introduction ........................................................................................................................... 412 Scoring Test Data Example ................................................................................................... 413 Scoring Test Data Options ..................................................................................................... 418 Data to be Scored .................................................................................................... 418 Stored Model ........................................................................................................... 418 Match by Name ....................................................................................................... 419 Match by Sequence.................................................................................................. 419 Manual Match.......................................................................................................... 419

Getting the Most from This User Guide

Installing the Software

Run the SolverSetup program to install the software whether you are using Analytic Solver Platform or XLMiner only. The chapter Installation and AddIns covers installation step-by-step, and explains how to activate and deactivate the Analytic Solver Platform and XLMiner Excel add-ins.

If you have our V12, V11.x, V10.x or V9.x Risk Solver Platform software installed, Analytic Solver Platform will be installed into a new folder, C:\Program Files\Frontline Systems\Analytic Solver Platform (recommended). If you have V4.0 or V3.x XLMiner software installed, XLMiner V12.5 will also be installed into C:\Program Files\Frontline Systems\Analytic Solver Platform (recommended). We recommend uninstalling the earlier version. For more information and other options, see Installation and Add-Ins.

Obtaining a License

Use Help License Code on the XLMiner Ribbon. The license manager in V12.5 allows users to obtain and activate a license over the Internet. V9.5 and earlier license codes in your Solver.lic license file will be ignored in V12.5. See the chapter Using Help, Licensing and Product Subsets for details.

Use Help Examples on the XLMiner Ribbon to open example datasets. Some of these examples are used and described in subsequent chapters.

Models created using XLMiner 4.0 and earlier can be used in V12.5 without any required changes.

Learn how to interpret XLMiners result messages, error messages, reports and charts using the Help file imbedded within the software. Simply go to Help Help Text on the XLMiner ribbon.

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What You Need

In order to install Analytic Solver Platform V12.5 software, you must have first installed Microsoft Excel 2013, Excel 2010, Excel 2007, or Excel 2003 on Windows 8, Windows 7, Windows Vista, Windows XP or Windows Server 2008.

To install Analytic Solver Platform to work with any 32-bit version of Microsoft Excel, simply run the program SolverSetup.exe, which contains all of the Solver program, Help, User Guide, and example datasets in compressed form. To install Analytic Solver Platform to work with 64-bit Excel 2010 or 2013, run SolverSetup64.exe. Depending on your Windows security settings, you might be prompted with a message The publisher could not be verified. Are you sure you want to run this software? You may safely click Run in response to this message. Youll first see a dialog like the one below, while the files are decompressed:

Next, youll briefly see the standard Windows Installer dialog. Then a dialog box like the one shown below should appear:

Click Next to proceed. You will then be prompted for an installation password, which Frontline Systems will provide via email to your registered email address. Enter it into the Installation Password field in dialog box. In addition, you have the option to enter a license activation code in that related field. Note: the Setup program looks for a license file that may already exist on your system and checks your license status. If you enter an activation code (you must have Internet access for this to succeed), the Setup program will display a dialog reporting whether your license was successfully activated. But you dont have to do this just click Next.

Next, the Setup program will ask if you accept Frontlines software license agreement. You must click I accept and Next in order to be able to proceed.

The Setup program then displays a dialog box like the one shown below, where you can select or confirm the folder to which files will be copied (normally C:\Program Files\Frontline Systems\Analytic Solver Platform, or if youre installing Analytic Solver Platform for 32-bit Excel on 64-bit Windows, C:\Program Files (x86)\Frontline Systems\Analytic Solver Platform). Click Next to proceed.

If you have an existing license, or youve just activated a license for full Analytic Solver Platform, the Setup program will give you the option to run the XLMiner software as a subset product instead of the full Analytic Solver Platform.

Click Next to proceed. Youll see a dialog confirming that the preliminary steps are complete, and the installation is ready to begin:

After you click Install, the Analytic Solver Platform files will be installed, and the program file RSPAddin.xll will be registered as a COM add-in (which may take some time). A progress dialog appears, as shown below; be patient, since this process takes longer than it has in previous Solver Platform releases.

When the installation is complete, youll see a dialog box like the one below. Click Finish to exit the installation wizard.

Analytic Solver Platform, or a sub-set product if you chose to install a different version of our solvers, is now installed. Simply click Finish and Microsoft Excel will launch with a Welcome workbook containing information to help you get started quickly.

To uninstall Analytic Solver Platform, just run the SolverSetup program as outlined above. Youll be asked to confirm that you want to remove the software. You can also uninstall by choosing Control Panel from the Start menu, and double-clicking the Programs and Features or Add/Remove Programs applet. In the list box below Currently installed programs, scroll down if necessary until you reach the line, Frontline Excel Solvers V12.5, and click the Uninstall/Change or Add/Remove button. Click OK in the confirming dialog box to uninstall the software.

Analytic Solver Platforms main program file RSPAddin.xll is a COM addin, an XLL add-in, and a COM server.

In Excel 2013, 2010 and 2007, you can manage all types of add-ins from one dialog, reached by clicking the File tab in Excel 2013 or 2010, or the upper left corner button in Excel 2007, choosing Excel Options, then choosing Add-Ins in the pane on the left, as shown below.

You can manage add-ins by selecting the type of add-in from the dropdown list at the bottom of this dialog. For example, if you select COM Add-ins from the dropdown list and clock the Go button, the dialog shown below appears.

If you uncheck the box next to Analytic Solver Platform Addin and click OK, you will deactivate the Analytic Solver Platform COM add-in, which will remove the Analytic Solver Platform tab from the Ribbon, and also remove the PSI functions for optimization from the Excel 2013 Function Wizard.

Excel 2003

In earlier versions of Excel, COM add-ins and other add-ins are managed in separate dialogs, and the COM Add-In dialog is available only if you display a toolbar which is hidden by default. To display this toolbar: 1. 2. 3. On the View menu, point to Toolbars, and then click Customize. Click the Commands tab. Under Categories, click Tools.

4.

Under Commands, click COM Add-Ins and drag your selection to the toolbar.

Once you have done this, you can click COM Add-Ins on the toolbar to see a list of the available add-ins in the COM Add-Ins dialog box, as shown above. If you uncheck the box next to Analytic Solver Platform Addin and click OK, you will deactivate the Analytic Solver Platform COM add-in, which will remove Analytic Solver Platform from the main menu bar, and also remove the PSI functions for optimization from the Insert Function dialog.

Introduction

This chapter describes the ways Analytic Solver Platform V12.5 differs from its predecessors in terms of overall operation, including registration, licensing, use of product subsets, and use of the Startup Screen, online Help and examples.

A license is a grant of rights, from Frontline Systems to you, to use our software in specified ways. Information about a license for example, its temporary vs. permanent status and its expiration date is encoded in a license code. The same binary files are used for Analytic Solver Platform and XLMiner. The product features you see depend on the license code you have.

Analytic Solver Platform V12.5 stores license codes in a text file named Solver.lic. If upgrading from V12.0, no new license code will be required. Old license codes for V11.x and earlier have no negative effect in V12.5; they can appear in the Solver.lic file and will be ignored. If you already have a Solver.lic file, SolverSetup adds license codes to this file. If not, SolverSetup creates this file in a default location: Excel 2013, 2010, 2007 or Vista: C:\ProgramData\Frontline Systems XP: C:\Documents and Settings\All Users\Application Data\Frontline Systems In V12.5, V12, V11.x and V10.x, the SolverSetup program creates an environment variable FRONTLIC whose value is the path to the Solver.lic file. The old license manager in V9.x and earlier versions used the environment variable LSERVRC.

You can enter a new license code at any time while youre using Analytic Solver Platform. To do this, choose Help License Code from the Analytic Solver Platform Ribbon. A dialog like the one below will appear.

You have two options to obtain and activate a license, using this dialog: 1. If you contact Frontline Systems at (775) 831-0300 or info@solver.com, and give us the Lock Code shown in the middle of the dialog (click the Email Lock Code button to do this quickly), we can generate a license code for your PC, and email this to you. You can then select and copy (Ctrl+C) the license code, and paste it (Ctrl+V) into the lower edit box in this dialog. Even easier, and available 24x7 if you have Internet access on this PC: If you have a license Activation Code from Frontline Systems, you can copy and paste it into the upper edit box in this dialog. When you click OK, Analytic Solver Platform contacts Frontlines license server over the Internet, sends the Lock Code and receives your license code automatically. Youll see a message confirming the license activation, or reporting any errors.

2.

If you have questions, please contact Frontline Systems at (775) 831-0300 or info@solver.com.

New users often wish to download and evaluate our products for Excel. To accommodate this, we make available downloads of the SolverSetup program with a 15-day trial license, which gives users access to all of the functionality and capacity of Analytic Solver Platform. But some users will ultimately choose to purchase a license for a product that is a subset of Analytic Solver Platform, such as XLMiner. To help users confirm that a subset product will have the capabilities and performance that they want, V12.5 has the ability to quickly switch Analytic Solver Platform to operate as a subset product, without the need to install a new license code. To do this, choose Help Change Product on

the Analytic Solver Platform Ribbon. A dialog like the one below will appear.

In this dialog, you can select the subset product you want, and click OK. The change to a new product takes effect immediately: Youll see the subset product name instead of Analytic Solver Platform as a tab on the Ribbon, and a subset of the Ribbon options

XLMiner

XLMiner includes only the data mining and predictive capabilities of Analytic Solver Platform. No optimization or simulation capabilities are included in the XLMiner subset.

This screen appears automatically only when you click the Analytic Solver Platform tab on the Ribbon in Excel 2013, 2010 or 2007, or use the Analytic Solver Platform menu in Excel 2003 and then only if you are using a trial license. You can display the Welcome Screen manually by choosing Help Welcome Screen from the Analytic Solver Platform Ribbon. You can control whether the screen appears automatically by selecting or clearing the check box in the lower left corner, Show this dialog at first use.

Click Help Help Text on the XLMiner ribbon to open the Help text file.

This Help file contains significant information about the features and capabilities of XLMiner all at the tip of your fingertips. Each topic covered includes an Introduction to the feature, an explanation of the dialogs involved and an example using one of the example datasets. These example datasets can be found on the XLMiner Ribbon under HELP Examples.

Introduction to XLMiner

Introduction

XLMiner is a comprehensive data mining add-in for Excel. Data mining is a discovery-driven data analysis technology used for identifying patterns and relationships in data sets. With overwhelming amounts of data now available from transaction systems and external data sources, organizations are presented with increasing opportunities to understand their data and gain insights into it. Data mining is still an emerging field, and is a convergence of fields like statistics, machine learning, and artificial intelligence. Often, there may be more than one approach to a problem. XLMiner is a tool belt to help you get started quickly offering a variety of methods to analyze your data. It has extensive coverage of statistical and machine learning techniques for classification, prediction, affinity analysis and data exploration and reduction.

Ribbon Overview

To bring up the XLMiner ribbon, click XLMiner on the Excel ribbon.

The XLMiner ribbon is divided into 4 sections: Data Analysis, Time Series, Data Mining, and Tools. Data Analysis This section includes four icons: Sample, Explore, Transform, and Cluster. Click Sample to either sample from the worksheet or a database. Click Explore to create and manage charts. Click Transform to transform datasets with missing date, perform binning, and to transform categorical data. Click the Cluster Icon to perform cluster analysis. Time Series This section includes three icons: Partition, ARIMA, and Smoothing and are used when analyzing a time series. Data Mining This section includes four icons: Partition, Classify, Predict, and Associate and are used to perform data mining activities. Tools This section includes two icons: Score and Help. Click the Score icon to score your test data. Click the Help icon to open

sample datasets, open the Help File, and check for updates. See below for a complete discussion of the Help icon. Click the XLMiner menu item in Excel 2003 to open the XLMiner menu. This menu is arranged a bit differently than the Excel 2007 / 2010 / 2013 ribbon, but all features discussed in this guide can be used in Excel 2003. Note: Menu items appear differently in Excel 2003 but all method dialogs are identical to dialogs in later versions of Excel.

To open XLMiner Help, simply click the Help icon on the XLMiner ribbon. Here you will be able to change the product that you are using (Analytic Solver Platform or a subset such as XLMiner), obtain your lock code and enter your permanent license, open example datasets, search the online help text, and check for updates.

Change Product

Selecting Change Product on the XLMiner Help menu will bring up the Change Product dialog shown below.

If you have a permanent license code for the Analytic Solver Platform, then you can change to any subset and see that subset on the Ribbon. For example, if XLMiner is selected, only XLMiner will appear on the ribbon even if a license for Analytic Solver Platform is in place.

License Code

Selecting License Code from the XLMiner Help menu brings up the Enter License or Activation Code dialog shown below. The top portion of this dialog will always contain the currently licensed product along with the product version number.

To obtain your permanent license, contact Frontline Systems by phone (888-831-0333) or email (info@solver.com) to obtain an activation code.

Enter the activation code into the Activation Code field leaving the License Code field blank. Then click OK. At this point, your permanent license should be activated and no further steps are needed.

If you encounter problems connecting to our license server, then you will need to enter the complete license directly into this dialog. Clicking Email Lock Code will create and send an email to info@solver.com that includes the Lock Code displayed on this dialog. Our license manager will generate a license based on this lock code and email the permanent license code back to you. (Make sure to click Allow on the dialog below.)

Copy and paste the entire contents of the license code into the License Code field as shown on the dialog below, then click OK. At this point, your permanent license should be activated and no further steps are needed.

Examples

Clicking this menu item will open a browser pointing to C:\Program Files\Frontline Systems\ Analytic Solver Platform \Datasets. See the table below for a description of each example dataset.

Model

Used in Example

Notes

Airpass

Time Series

The classic Box & Jenkins airline dataset. Monthly totals of international airline passengers (1949 - 1960) Temperature dataset. Apparel sales from Jan 1988 to Dec 2001. Monthly stereo sales from Jan 1988 to Dec 1998. This dataset is a subset of the Charles Book Club dataset and is used in the Association Rules example.

Associations

Association Rules

AssociationsItemList Binning Example Bin Continuous Data Scoring Test Data, Matrix Plots, Histrogram, Classification Tree, Regression Tree, K-Nearest Neighbors Prediction, Neural Networks Classification, Multiple Linear Regression, Discriminant Analysis Box Plot

This dataset can be used with the Association Rules method. Example dataset used in the Bin Continuous Data example This dataset contains data collected in 1970 by the U.S. Census Service concerning housing in the Boston, MA area. This example dataset is used in the Box Plot example. This dataset contains a response to a direct mail offer, published by DMEF, the Direct Marketing Educational Foundation, and is used in the Partition with Oversampling example. This dataset derived for The Bookbinders Club, a Case Study in Database Marketing. Daily Rate information for years 1955 - 2001. A synthetic database that includes Boston_Housing, Charles_BookClub, Digits, Flying_Fitness, Iris, Utilities, and Wine datasets. A synthetic database. This dataset was used in the book CART by Leo Breiman et. al. and is used in several XLMiner examples. This dataset is used in the Hierarchical Clustering example. Monthly sales figures for years 1988 2001 This dataset is used in the Missing Data Handling example This dataset includes test results of flying fitness tests for 40 pilots (var 1). This dataset is used in the Time Series Example This dataset was introduced by R. A. Fisher and reports four characteristics of three species of iris flower. This dataset is a subset of the Iris dataset.

Boston Housing

Boxplot

Catalog Multi

Dataset.mdb

Demo.mdb

Digits

Discriminant Analysis

Hierarchical Clustering

Missing Data Handling Discriminant Analysis & Nave Bayes Time Series

Iris

Irisfacto

Monthly Rate Retail Trade Sampling Scoring Universal Bank Database Sampling from Worksheet Scoring Test Data

This dataset includes monthly rate information for years 1949 2001. This dataset includes retail sales data for years 1988 2001. This dataset is used in the Sampling from Worksheet example. This dataset is used in the Scoring Test Data example. This synthetic database was created to test Predictive Modeling. This synthetic dataset was created to test Predictive Modeling. This dataset gives corporate data on 22 US public utilities and can be found in Dean W. Wicherns & Richard Arnold Johnsons Applied Multivariate Statistical Analysis, Prentice Hall, 5th Ed (2002). The wine dataset contains properties of wine taken from three different wineries in the same region. This dataset can be found in the UCI Machine Learning Repository. This example file is used in the Standard Data Partition example.

Utilities

Wine

Discriminant Analysis, K-Means Clustering, Manual and Automatic Neural Networks Classification, Standard Data Partition

Wine Partition

Help Text

Clicking Help Text opens the online Help file. This file contains extensive information pertaining to XLMiners features and capabilities. All at the tip of your fingertips!

Analytic Solver Platform will confirm that the latest version is installed when this menu item is selected. If not, you will be instructed to visit our Website at www.solver.com to download the latest version.

About XLMiner

Clicking this menu item will open the About XLMiner dialog as shown below.

These options, fields, and command buttons appear on most XLMiner dialogs.

Worksheet

The active worksheet appears in this field

Data Range

The range of the dataset appears in this field

# Rows, # Columns

The number of rows and columns in the dataset appear in these two fields, respectively.

If this option is selected, variables will be listed according to the first row in the dataset.

All variables contained in the dataset will be listed in this field.

Input variables

Variables listed in this field will be included in the output. Select the desired Variables in the data source then click the > button to shift variables to the Input variables field.

Help

Click this command button to open the XLMiner Help text file.

Reset

Click this command button to reset the options for the selected method.

OK

Click this command button to initiate the desired method and produce the output report.

Cancel

Click this command button to close the open dialog without saving any options or creating an output report.

Help Window

Click this command button to open the Help Text for the selected method.

References

See below for a list of references sited when compiling this guide. Websites 1. 2. The Data & Analysis Center for Software. <https://www.thecsiac.com> NEC Research Institute Research Index: The NECI Scientific Literature Digital Library. <http://www.iicm.tugraz.at/thesis/cguetl_diss/literatur/Kapitel02/URL/NEC /cs.html>. Thearling, Kurt. Data Mining and Analytic Technologies. <http://www.thearling.com>

3.

Books 1. 2. 3. 4. 5. 6. Anderberg, Michael R. Cluster Analysis for Applications. Academic Press (1973). Berry, Michael J. A., Gordon S. Linoff. Mastering Data Mining. Wiley (2000). Breiman, Leo Jerome H. Friedman, Richard A. Olshen, Charles J. Stone. Classification and Regression Trees. Chapman & Hall/CRC (1998). Han, Jiawei, Micheline Kamber. Data Mining: Concepts and Techniques. Morgan Kaufmann Publishers (2000). Hand, David, Heikki Mannila, Padhraic Smyth. Principles of Data Mining. MIT Press, Cambridge (2001). Hastie, Trevor, Robert Tibshirani, Jerome Friedman. The Elements of Statistical Learning: Data Mining, Inference, and Prediction. Springer, New York (2001). Shmueli, Galit, Nitin R. Patel, Peter C. Bruce. Data Mining for Business Intelligence. Wiley, New Jersey (2010).

7.

Introduction

A statistician often comes across huge volumes of information from which he or she wants to draw inferences. Since time and cost limitations make it impossible to go through every entry in these enormous datasets, statisticians must resort to sampling techniques. These sampling techniques choose a reduced sample or subset from the complete dataset. The statistician can then perform his or her statistical procedures on this reduced dataset saving much time and money. Lets review a few statistical terms. The entire dataset is called the population. A sample is the portion of the population that is actually examined. A good sample should be a true representation of the population to avoid forming misleading conclusions. Various methods and techniques have been developed to ensure a representative sample is chosen from the population. A few are discussed here.

Simple Random Sampling This is probably the simplest method for obtaining a good sample. A simple random sample of say, size n, is chosen from the population in such a way that every random set of n items from the population has an equal chance of being chosen to be included in the sample. Thus simple random sampling not only avoids bias in the choice of individual item but also gives every possible sample an equal chance. The Data Sampling utility of XLMiner offers the user the freedom to choose sample size, seed for randomization, and sampling with or without replacement.

Stratified Random Sampling In this technique, the population is first divided into groups of similar items. These groups are called strata. Each stratum, in turn, is sampled using simple random sampling. These samples are then combined to form a stratified random sample. The Data Sampling utility of XLMiner offers the user the freedom to choose a sorting seed for randomization and sampling with or without replacement. The desired sample size can be prefixed by the user depending on which method is being chosen for stratified random sampling.

Below are three examples that illustrate how to perform Simple Random Sampling with and without replacement and Stratified Random Sampling from a worksheet.

Open the dataset Sampling.xlsx by clicking Help Examples (Excel 2003: Open Data Example Files) from the XLMiner ribbon. This dataset contains a variable ID for the record identification and seven variables, v1, v2, v7, v8, v9, v10, v11.

To start, click a cell within the data, say A2, and click Data Utilities -- Sample from Worksheet.

In this example, the default option, Simple Random Sampling, will be used. Select all variables under Variables, click >_ to include them in the sample data then click OK.

The output is a simple random sample without replacement, with a default random seed setting of 12345. The desired sample size is 87 records as shown above. Note that XLMiner has introduced one more variable, Row ID in the sample. Every dataset may not have a number allocated to each record. The variable, Row ID gives IDs to records before sampling, and then sorts the output on those IDs before producing the output. Row ID proves handy when the user wishes to go back to the dataset for crosschecking information.

Click the data tab on the Sampling.xlsx worksheet and again click a cell within the data, say A2, then click Data Utilities -- Sample from Worksheet to bring up the Sampling dialog.

Again, select all variables in the Variables section and click >_ to include each in the sample data. Check Sample with replacement and enter 300 for Desired sample size. Since we are choosing sampling with replacement, XLMiner will generate a sample with a larger number of records than the dataset. Click OK. A portion of the output is shown below.

The output indicates "True" for Sampling with replacement. As a result, the desired sample size is greater than the number of records in the input data. Looking closely, one can see that the second and third entries are the same record, record #3.

Click the data worksheet, click a cell within the data, say A2, and click Data Utilities -- Sample from Worksheet. Select all variables under Variables, click >_ to include them in the sample data, and then click OK. Enter 100 for Desired sample size and 45689 for Set seed. Select Stratified random sampling. Click the down arrow next to Stratum Variable and select v8 (XLMiner allows only those variables which have less than 30 distinct values.) The strata number is automatically displayed once you select v8. Select Proportionate to stratum size. Then click OK.

In order to maintain the proportions of the strata, XLMiner has increased the sample size. This is apparent in the entry for #records actually sampled. Under the Stratum wise details heading, XLMiner has listed all the stratum values v8 assumes with #records in input data for each stratum. On this basis, XLMiner calculated the percentage representation of that value in the dataset and maintained it in the sample. This is evident in the entries since #records in sampled data has the same proportion as in the dataset. XLMiner has added a Row Id to each record before sampling. The output is displayed after sorting the sample on these Row Ids. Lets see what happens to our output when we select a different option for Stratified Sampling. Click back to the data worksheet, click a cell within the data, say A2, and click Data Utilities -- Sample from Worksheet. Select all variables under Variables, click >_ to include them in the sample data, and then click OK. Select Stratified random sampling. Choose v8 as the Stratum variable. The #strata is displayed automatically. Select Equal from each stratum, please specify #records. Enter the #records. Remember, this number should not be greater than the smallest stratum size. In this case the smallest stratum size is 8. (Note: The smallest stratum size appears automatically in a box next to the option, Equal from each stratum, # records = smallest stratum size.). Enter 7, which is less than the limit of 8, and then click OK.

As you can see in the output, the number of records in the sampled data is 56 or 7 records per stratum for 8 strata.

If a sample with an equal number of records for each stratum but of bigger size is desired, use the same options above for sampling with replacement.

Check Sample with replacement. Enter 20 for Equal from each stratum, please specify #records. Though the smallest stratum size is 8 in this dataset, we can acquire more records for our sample since we are Sampling with replacement. Keeping all other options the same, the output is as follows.

Since the output sample has 20 records per stratum, the #records in sampled data is 160 (20 records per stratum for 8 strata).

Please see below for a complete list of each option contained on the Sampling from Worksheet dialog.

Data Range

Either type the address directly into this field, or use the reference button, to enter the data range from the worksheet. If the cell pointer (active cell) is already somewhere in the data range, XLMiner automatically picks up the contiguous data range surrounding the active cell. After the data range is selected, XLMiner displays the number of records in the selected range.

When this box is checked, XLMiner picks up the headings from the first row of the selected data range. When the box is unchecked, XLMiner follows the default naming convention, i.e., the variable in the first column of the selected range will be called "Var1", the second column "Var2," etc.

Variables

This list box contains the names of the variables in the selected data range. If the first row of the range contains the variable names, then these names appear in this list box. If the first row of the dataset does not contain the headers, then XLMiner lists the variable names using its default naming convention. In this case the first column is named Var1; the second column is named Var2 and so on. To select a variable for sampling, select the variable, then click the ">" button. Use the CTRL key to select multiple variables.

If this option is checked the data will be sampled with replacement. The default is sampling without replacement.

Set Seed

Enter the desired sorting seed here. The default seed is 12345.

Enter the desired sample size here. (Note that the actual sample size in the output may vary a little, depending on additional options selected.)

The data is sorted using the simple random sampling technique, taking into account the additional parameter settings.

If selected, XLMiner enables the following additional options.

Stratum Variable

Select the variable to be used for stratified random sampling by clicking the down arrow and selecting the desired variable. Note that XLMiner allows only those variables which have less than 30 distinct values. As the user selects the variable name, XLMiner displays the #Strata that variable contains in a box to the left and the smallest stratum size in a box in front of the option Equal from each stratum, #records = smallest stratum size.

XLMiner detects the proportion of each stratum in the dataset and maintains the same in sampling. Due to this, XLMiner sometimes must increase the sample size in order to maintain the proportionate stratum size. XLMiner then displays the actual sample size in the output along with the desired sample size.

On specifying the number of records, XLMiner generates a sample which has the same number of records from each stratum. In this case the number chosen automatically decides the desired sample size. As a result, the option to enter the desired sample size is disabled.

XLMiner detects the smallest stratum size and generates a sample wherein every stratum has a representation of that size. Again, the option for the desired sample size is disabled. XLMiner performs the stratified random sampling with or without replacement. If Sample with replacement is not selected, the desired sample size must be less than the number of records in the dataset. If Sample with replacement is selected, then the number of records in the dataset does not pose any limit on the number of records in the sample. XLMiner can generate a sample having up to 2000 records. Before sampling, XLMiner generates a Row ID for each record (irrespective of whether the dataset already has one). XLMiner sorts the sampled output according to Row ID before displaying it.

Click Data Utilities Sample from Database on the XLMiner ribbon to display the following dialog.

Click the down arrow next to Data Source and select MS-Access, and then click Connect to a database.

Click Browse for database file and browse to C:\Program Files\Frontline Systems\Analytic Solver Platform\Datasets. Select the Demo.mdb Microsoft Access database, and then click Open. Click OK on the MS-Access database file dialog.

Since this database is not password protected, simple click OK. The following dialog will appear.

Select all the fields from Fields in table and click > to move all fields to Selected fields. Click OK. A portion of the output is below.

Refer to the examples above for Sampling from a Worksheet. You can sample from a database using all the methods described in this chapter.

Introduction

XLMiner offers eight different types of charts to visually explore your data: Bar Charts, Line Charts, ScatterPlots, Boxplots, Histograms, Parallel Coordinates, ScatterPlot Matrices and Variable Plots. To create a chart, invoke the Chart Wizard by clicking Explore on the XLMiner ribbon. A description of each chart type follows.

Bar Chart

The bar chart is one of the easiest and effective plots to create and understand. The best application for this type of chart is comparing an individual statistic (i.e. mean, count, etc.) across a group of variables. The bar height represents the statistic while the bars represent the different groups. An example of a bar chart is shown below.

A box plot graph summarizes a dataset and is often used in exploratory data analysis. This type of graph illustrates the shape of the distribution, its central value, and the range of the data. The plot consists of the most extreme values in the data set (maximum and minimum values), the lower and upper quartiles, and the median. Box plots are also very useful when large numbers of observations are involved or when two or more data sets are being compared. In addition, they are also helpful for indicating whether a distribution is skewed and whether there are any unusual observations (outliers) in the data set. The most important trait of the box plot is its failure to be strongly influenced extreme values, or outliers. Lets review the following statistical terms below.

Median: The median value in a dataset is the value that appears in the middle of a sorted dataset. If the dataset has an even number of values then the median is the average of the two middle values in the dataset. Quartiles: Quartiles, by definition, separate a quarter of data points from the rest. This roughly means that the first quartile is the value under which 25% of the data lie and the third quartile is the value over which 25% of the data are found. (Note: This indicates that the second quartile is the median itself.) First Quartile, Q1: Concluding from the definitions above, the first quartile is the median of the lower half of the data. If the number of data points is odd, the lower half includes the median. Third Quartile, Q3: Third quartile is the median of the upper half of the data. If the number of data points is odd, the upper half of the data includes the median. See the following example. Consider the following dataset -52, 57, 60, 63, 71, 72, 73, 76, 98, 110, 120 The dataset has 11 values sorted in ascending order. The median is the middle value, (i.e. 6th value in this case.) Median = 72 Q1 is the median of the first 6 values, (i.e. the mean of 3rd and 4th values) 25th Percentile = 61.5 Q3 is the median of the last 6 values. (i.e. the mean of the 8th and 9th values). 75th Percentile = 87 The mean is the average of all the data values ((52 + 57 + 60 + 63 + 71 + 72 + 73 + 76 + 98 + 110 + 120) / 11). Mean = 77.45 Interquartile Range = 25.5 The Interquartile range is a useful measure of the amount of variation in a set of data and is simply the 75th Percentile 25th Percentile (87 61.5 = 25.5) The box extends from Q1 to Q3 and includes Q2. The extreme points are included the "whiskers". This means the box includes the middle one- half of the data. In XLMiner, the mean is denoted with a dotted line and the median with a solid line. XLMiner completes the box plot by extending its "whiskers" to the most extreme points, 52 and 120. Max: 120 Min: 52

Histogram

A Histogram, or a Frequency Histogram is a bar graph which depicts the range and scale of the observations on the x axis and the number of data points (or frequency) of the various intervals on the y axis. These types of graphs are popular among statisticians. Although these types of graphs do not show the exact values of the data points, they give a very good idea about the spread and shape of the data. Consider the percentages below from a college final exam. 82.5, 78.3, 76.2, 81.2, 72.3, 73.2, 76.3, 77.3, 78.2, 78.5, 75.6, 79.2, 78.3, 80.2, 76.4, 77.9, 75.8, 76.5, 77.3, 78.2 One can immediately see the value of a histogram by taking a quick glance at the graph below. This plot quickly and efficiently illustrates the shape and size of the dataset above. Note: XLMiner determines the number and size of the intervals when drawing the histogram.

Line Chart

A line chart is best suited for time series datasets. In the example below, the line chart plots the number of airline passengers from January 1949 to December 1960. (The X axis is the number of months starting with January 1949 as 1.)

Parallel Coordinates

A Parallel Coordinates plot consists of N number of vertical axes where N is the number of variables selected to be included in the plot. A line is drawn connecting the observations values for each different variable (each different axis) creating a multivariate profile. These types of graphs can be useful for prediction and possible data binning. In addition, these graphs can expose clusters, outliers and variable overlap. Axes can be reordered by simply dragging and axis and moving the axis to the desired location. . An example of a Parallel Coordinates plot is shown below.

Scatterplot

One of the most common, effective and easy to create plots is the scatterplot. These graphs are used to compare the relationships between two variables and are useful in identifying clusters and variable overlap.

Scatterplot Matrix

A Matrix plot combines several scatterplots into one panel enabling the user to see pairwise relationships between variables. Given a set of variables Var1, Var2, Var3, ...., Var N the matrix plot contains all the pairwise scatter plots of the variables on a single page in a matrix format. The names of the variables are on the diagonals. In other words, if there are k variables, there will be k rows and k columns in the matrix and the ith row and jth column will be the plot of Vari versus Varj. The axes titles and the values of the variables appear at the edge of the respective row or column. The comparison of the variables and their interactions with one another can be studied easily and with a simple glance which is why matrix plots are becoming increasingly common in general purpose statistical software programs. An example is shown below.

Variable Plot

XLMiners Variables graph simply plots each selected variables distribution. See below for an example.

This example describes the use of the Bar Chart to illustrate the details of the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the Boston_Housing.xlsx example file. Select a cell within the data (say A2), then click Explore Chart Wizard to bring up the first dialog of the Chart Wizard.

Click Next. On the Y Axis Selection Dialog, select MEDV, and then click Next.

Select CHAS on the X-Axis Selection dialog, then click Finish. Click Next to set Panel and Color options. These options can always be set in the upper right hand corner of the plot.

Click the right pointing arrow next to Count of MEDV and select MEDV from the menu. When the second menu appears (below the first selection of MEDV) select Mean.

This y-axis variable, Mean of MEDV (Median value of owner-occupied homes) is a numerical variable and the CHAS variable is a categorical variable. The two bars represent homes in the Boston area that are located close to the Charles River (1) and homes that are not (0). The first bar (0 bar) shows the average of the median value of owner occupied homes that are not located close to the Charles River. The second bar (1 bar) shows the average of the median value of owner occupied homes that are located close to the Charles River. We can conclude from this graph that homes located next to the Charles River are more expensive than homes that are not located next to the Charles River.

Click the right pointing arrow next to Mean of MEDV and select CAT.MEDV from the first menu. When the second menu appears (below the first selection of CAT.MEDV) select Percentage.

This bar chart includes a categorical variable, CAT. MEDV, on the y-axis. This variable is a 0 if MEDV is less than 30 (MEDV < 30), otherwise the variable value is a 1. A user can quickly see that the majority of houses are located far away from the Charles River. Uncheck the 1 under the CHAS filter to view only homes located far away from the Charles river.

To change the variable on the X-axis, simply click the down arrow and select the desired variable from the menu.

To add a 2nd Bar Chart simply click the Bar Chart icon at the top of the Chart Wizard.

A second chart is added to the Chart Wizard dialog. Click the X in the upper right corner of each plot to remove from the window. Color by and Panel by options are always available in the upper right hand corner of each plot.

The top graph shows the count of all records in each category. Since each category includes the same amount of observations, all bars are set to the same height. Please see the Common Chart Options section (below) for a complete description of each icon on the chart title bar.

To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, enter BarChart for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts BarChart.

This example describes the use of the Boxplot chart to illustrate the characteristics of the dataset. Click Help Examples on the XLMiner ribbon to open the BoxPlot.xlsx example file. Select on a cell within the data (say A2), then click Explore Chart Wizard to bring up the first dialog of the Chart Wizard. Select BoxPlot, and then click Next.

On the Y Axis Selection dialog, select Y1, and then click Next.

Select X-Var on the X-Axis Selection dialog, then click Finish. Click Next to set Panel and Color options. These options can always be set in the upper right hand corner of the plot.

Uncheck class 4 under the X-Var filter to remove this class from the plot.

The dotted line denotes the Mean of 22.49, the solid line denotes the Median of 23.22. The box reaches from the 25th Percentile of 9.07 to the 75th Percentile of 37.87. The lower whisker (or lower bound) reaches to -47.343 and the upper whisker (or upper bound) reaches to 61.454 . To select a different variable on the y-axis, click the right pointing arrow and select the desired variable from the menu.

To change the variable on the X-axis, select the down arrow next to X-Var and select the desired variable.

To add a 2nd boxplot, click the BoxPlot icon on the top of the Chart Wizard dialog.

A second chart is added to the Chart Wizard dialog. Click the X in the upper right corner of each plot to remove from the window. Color by and Panel by options are always available in the upper right hand corner of each plot.

To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

Please see the Common Chart Options section (below) for a complete description of each icon on the chart title bar.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, enter BoxPlot for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts BoxChart. To delete the chart, click Discard.

Histogram Example

The example below illustrates the use of XLMiners chart wizard in drawing a histogram of the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Boston_Housing.xlsx. Select a cell within the dataset, say A2, and then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

The data has been divided into 14 different bins or intervals. Unselect the variables CRIM and ZN under Filters. Notice the graph did not change. This is because removing these variables is, in effect, removing a column from the dataset. Since we are currently not interested in these columns, the plot is not affected. However, now uncheck 0 under the CHAS variable.

Notice the number of bins has been reduced to 7 (down from 13). This is because removing the 0 class from the CHAS variable is, in effect, removing rows from the dataset, which does affect the INDUS variable in the plot. To change the variables included in the plot, simply click the Histogram icon on the title bar of the Chart Wizard,

Select DIS for the X-Axis, then click Next to choose color and panel options. At this point, you could also click Finish to draw the histogram. Color and panel options can be chosen at any time.

Select CAT. MEDV for Color By, then click Finish to draw the histogram.

The two histograms are drawn in the same window. Click the X in the upper right corner of each plot to remove from the window. Color by and Panel by options are always available in the upper right hand corner of each plot.

Please see the section Common Chart Options (below) for a complete description of each icon on the chart title bar. To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, type Histogram for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts Boxplot.

The example below illustrates the use of XLMiners chart wizar d in drawing a Line Chart using the Airpass.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Airpass.xlsx. Select a cell within

the dataset, say A2, and then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

Select Observation#, then select Finish. Click Next to choose Panel and Color options. Both can be selected or changed in the upper right hand corner of the plot.

The y-axis plots the number of passengers and the x-axis plots the month number (starting with 1 for January 1949). The plot shows that as the months progress, the number of airline passengers increases.

Please see the section Common Chart Options (below) for a complete description of each icon on the chart title bar. To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, type LineChart for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts LineChart.

The example below illustrates the use of XLMiners chart wizard in drawing a Parallel Coordinates Plot using the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Boston_Housing.xlsx. Select a cell within the dataset, say A2, then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

Select all variables except MEDV. (The CAT.MEDV variable is used in place of the MEDV variable. CAT.MEDV is a categorical variable where a 1 denotes a MEDV value larger than 30.) Click Finish to draw the plot.

Leaving the Chart Wizard window open, click back to the Data worksheet (within the Boston_Housing workbook), then click Explore Chart Wizard to open a 2nd instance of the Chart Wizard. Select Parallel Coordinates on the first Chart Wizard dialog and then select all variables except MEDV on the Variable Selection dialog. When the 2nd plot is drawn, unselect the 0 class for the CAT.MEDV variable.

The first characteristic that is evident is that there are more houses with a value of 0 for CAT. MEDV (Median value of owner-occupied homes < 30,000) than with a value of 1 (Median value of owner-occupied homes > 30,000). In addition, the more expensive houses (CAT.MEDV = 1) have lower CRIM (Per capita crime rate by town) and LSAT (% Lower status of the population) values and higher RM (Average number of rooms per dwelling) values. Select the 0 CAT. MEDV chart and select 1 under CAT. MEDV. Then select CAT.MEDV for Color By. The chart now displays both classes of CAT.MEDV (0 and 1) on the same chart. However, each class is given a different color, blue for 0 and yellow for 1.

To remove a variable from the matrix, unselect the desired variable under Filters. To add a variable to the matrix, select the desired variable under Filters.

Please see the section Common Chart Options (below) for a complete description of each icon on the chart title bar. To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, type Parallel for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts Parallel.

ScatterPlot Example

The example below illustrates the use of XLMiners chart wizard in drawing a Scatterplot using the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Boston_Housing.xlsx. Select

a cell within the dataset, say A2, and then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

Select MEDV from the X-Axis Selection Dialog. Then click Finish.

Select Color by: CHAS (Charles River dummy variable = 1 if tract bounds river; 0 otherwise) and Panel by: CAT.MEDV (Median value of owneroccupied homes in $1000's > 30). This new graph illustrates that most houses that border the river are higher priced homes.

To remove a variable from the matrix, unselect the desired variable under Filters. To add a variable to the matrix, select the desired variable under Filters.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this

example, type Scatterplot for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts Scatterplot.

The example below illustrates the use of XLMiners chart wizard in drawing a Scatterplot Matrix using the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Boston_Housing.xlsx. Select a cell within the dataset, say A2, then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

Select INDUS, AGE, DIS, and RAD variables, then click Finish.

Histograms of the selected variables appear on the diagonal. Find the plot in the second row (from the top) and third column (from the left) of the matrix.

This plot indicates a pairwise relationship between the variables AGE and DIS. The Y-axis for this plot can be found at the 2nd row, 1st column.

The X-axis for this plot can be found at the last row, 3 rd column.

To remove a variable from the matrix, unselect the desired variable under Filters. To add a variable to the matrix, select the desired variable under Filters.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, type ScatterplotMatrix for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts ScatterplotMatrix.

The example below illustrates the use of XLMiners chart wizard in drawing a Variable plot using the Boston_Housing.xlsx dataset. Click Help Examples on the XLMiner ribbon to open the example dataset, Boston_Housing.xlsx. Select a cell within the dataset, say A2, and then click Explore Chart Wizard on the XLMiner ribbon. The following dialog appears.

All variables are selected by default. Click Finish to draw the chart. The distributions of each variable are shown in bar chart form. To remove a variable from the matrix, unselect the desired variable under Filters. To add a variable to the matrix, select the desired variable under Filters.

Please see the section Common Chart Options (below) for a complete description of each icon on the chart title bar.

To exit the graph, click the red X in the upper right hand corner of the Chart Wizard window.

To save the chart for later viewing, click Save. To delete the chart, click Discard, to cancel the save and return to the chart, click Cancel. For this example, type Variables for the chart name, then click Save. The chart will close. To reopen the chart, click Explore Existing Charts Variables.

The Common Options toolbar is added to the top right corner of each drawn chart.

The first icon (starting from the left) is the Print icon.

Click this icon to see a preview of the chart before it is printed and to change printer and page settings. Click the 2nd icon, the Copy icon, to copy the chart to the clipboard for pasting into a new or existing document. Click the 3rd option, the Chart Options icon, to change chart settings such as Legend and Axis titles, to add lables, or to change chart colors or borders. (Several charts do not support all tabs and options.)

Click the Legend tab to display the chart legend, legend position, and to add a chart title.

Click the Labels tab to change or add either a header or footer to the chart. Use this tab to select the position of the header/footer (center, left, or right), the font, and the backplane style and color.

Click the Colors tab to change the colors used in the chart.

Click the Axes tab to change the X and Y Axis titles, placement and font. (The Formatting menu is enabled only for Variable Plot, Histogram, and Scatterplot Charts.)

Click OK to accept the changes or Cancel to disregard the changes and return to the chart window.

Introduction

XLMiners Missing Data Handling utility allows users to detect missing values in the dataset and handle them in a specified way. XLMiner considers an observation to be missing data if the cell is empty or contains an invalid formula. In addition, it is also possible to treat cells containing specific data as missing. XLMiner offers several different methods for remedying the missing values. Each variable can be assigned a different treatment. For example, the entire record could be deleted if there is a missing value for one variable, while the missing value could be replaced with a specific value for another variable. The available options depend on the variable type. In the following examples, we will explore the various ways in which XLMiner can treat missing or invalid values in a dataset.

Click Help Examples on the XLMiner ribbon and open the dataset Examples.xlsx. This workbook contains six worksheets containing small sample datasets. For this first example, click the EX1 worksheet tab. This dataset contains empty cells (cells B6 and D10), cells containing invalid formulas (B13, C6, & C8), cells containing non numeric characters (C2), etc. XLMiner will treat each of these as missing values.

Select a cell in the dataset, say A2, and click Transform -- Missing Data Handling on the XLMiner ribbon to open the Missing Data Handling dialog. As you can see, No Treatment is currently being applied to each variable.

As you can see, XLMiner has added a Row Id to every record (the highlighted column). This is useful when the dataset does not contain a column for record identification. This added Row Id makes it easier to find which records were deleted or changed as per the instructions in the dialog. In this example, no treatments were applied. If Overwrite Existing Worksheet is selected in the Missing Data Handling dialog, XLMiner will overwrite the existing data with the treatment option specified. Note: you must save the workbook in order for these changes to be saved. Click the Ex2 worksheet tab. This dataset is similar to the dataset on the Ex1 worksheet in that this dataset contains empty cells (cells B6 and D10), cells containing invalid formulas (B13, C8 & D4), cells containing non numeric characters (C2), etc. In this example we will see how the missing values can be replaced by the column Mean and Median.

To start, select cell A2 and click Transform -- Missing Data Handling on the XLMiner ribbon to open the Missing Data Handling dialog.

Select variable_1 in the Variables field then click the down arrow next to No Treatment in the section under How do you want to handle missing values for the selected variable(s) and select Mean.

Click Apply this option to selected variable(s). Now select Variable_3 in the Variables field and again click the down arrow next to Median under How do you want to handle missing values for the selected variable(s). Then click Apply this option to selected variable(s). Click OK.

As you can see, in the Variable_1 column, invalid or missing values have been replaced with the mean calculated from the remaining values in the column. (12.34, 34, 44, -433, 43, 34, 6743, 3, 4 & 3). The cells containing missing values or invalid values in the Variable_3 column have been replaced by the median of the remaining values in that column (12, 33, 44, 66, 33, 66, 22, 88, 55

& 79). The invalid data for Variable_2 remains since No Treatment was selected for this variable. Click the Ex3 worksheet tab. In this dataset, Variable_3 has been replaced with date values.

Select cell A2 and click Transform -- Missing Data Handling on the XLMiner ribbon to open the Missing Data Handling dialog. In this example, we will replace the missing / invalid values for Variable_2 and Variable_3 with the mode of each column. On the Missing Data Handling dialog select Variable_2, click the down arrow next to No Treatment under How do you want to handle values for the selected variable(s), then select Mode. (The options Mean and Median do not appear in the list since Variable_2 contains non-numeric values.) Click on Apply this option to selected variable(s). Repeat these steps for Variable_3. Then click OK.

As shown above, the missing values in the Variable_2 column have been replaced by the mode of the valid values even though, in this instance, the data is non-numeric. (Remember, the mode is the most frequently occurring value in the Variable_2 column.) In the Variable_3 column, the third and ninth records contained missing values. As you can see, they have been replaced by the mode for that column, 2 Feb 01. Click the Ex4 worksheet tab. Again, this dataset contains missing and invalid data for all three variables.

. Select cell A2 and click Transform -- Missing Data Handling on the XLMiner ribbon to open the Missing Data Handling dialog. In this example, we will demonstrate XLMiners ability to replace missing values with User Specified Values. Select Variable_1, then click the down arrow next to No Treatment under How do you want to handle missing values for the selected variable(s), then select User specified value. In the field that appears directly to the right of User specified value, enter 100, then click Apply this option to selected variable(s). Repeat these steps for Variable_2. Then click OK.

As you can see, the missing values for Variable_1 and Variable_2 have replaced by 100 while the values for Variable_3 remain untouched. Click the Ex5 worksheet tab. In this dataset, the value -999 appears in all three columns. This example will illustrate XLMiners ability to detect a given value and replace that value with a user specified value.

Select cell A2 and click Transform -- Missing Data Handling on the XLMiner ribbon to open the Missing Data Handling dialog. Select Missing values are represented by this value and enter -999 in the field that appears directly to the right of the option. Select Variable_1 in the Variables field and instruct XLMiner to replace the contents of the cells containing the value -999 with the mean of the remaining values in the column Next, select Variable_2 in the Variables field and instruct XLMiner to replace the contents of the cells containing -999 in this column with zzz. Finally, select Variable_3 in the Variables field and instruct XLMiner to replace the contents of the cells containing -999 in this column for the mode of the remaining values in the column.

Note that in the Variable_1 column, the specified missing code (-999) is replaced by the mean of the column. In the Variable_2 column, the missing

values have been replaced by the user specified value of zzz and for variable_3 by the mode of the column. Lets take a look at one more dataset, Ex6, of Examples.xls.

Select cell A2 and click Transform -- Missing Data Handling to open the Missing Data Handling dialog then apply the following procedures to the indicated columns. A. Select Missing values are represented by this value and enter 33 in the field that appears directly to the right of the option. B. Select Delete record for Variable_1s treatment. C. Select mode for Variable_2s treatment D. Specify the value 9999 for missing/invalid values for Variable_3. E. Click OK.

As shown above, records 7 and 12 have been deleted since Delete Record was chosen for the treatment of missing values for Variable_1. In the Variable_2 column, the missing values have been replaced by the mode as indicated in the Missing Data Handling dialog (shown above) except for record 7 which was deleted. It is important to note that "Delete record" holds priority over any other instruction in the Missing Data Handling feature. In the Variable_3 column, we instructed XLMiner to treat 33 as a missing value. As a result 33, and the additional missing values in this column (D4 and D10), were replaced by the user specified value of 9999. Note: The value for Variable_3 for record 12 was 33 which should have been replaced by 9999. However, since Variable_1 contained a missing value for this record, the instruction "Delete record" was executed first.

The following options appear on the Missing Data Handling dialog.

If this option is selected, a value (either non-numeric or numeric) must be provided in the field that appears directly to the right of the option. XLMiner will treat this value as missing and will be handled per the instructions applied in the Missing Data Handling dialog. Note: XLMiner treats empty and invalid cells as missing values automatically.

If checked, XLMiner overwrites the data set with the new dataset in which all the missing values are appropriately treated.

When this option is selected, XLMiner will list each variable according to the first row in the selected data range. When the box is unchecked, XLMiner follows the default naming convention, i.e., the variable in the first column of the selected range will be called "Var1", the second column "Var2," etc.

Variables

Each variable and its selected treatment option are listed here.

How do you want to handle missing values for the selected variable(s)?

When a variable in the Variables field is selected, this option is enabled. Click the down arrow to display the following options. Delete record - If this option is selected, XLMiner will delete the entire record if a missing or invalid value is found for that variable. Mode - All missing values in the column for the variable specified will be replaced by the mode - the value occurring most frequently in the remainder of the column. Mean - All missing values in the column for the variable specified will be replaced by the mean - the average of the values in the remainder of the column. Median - All missing values in the column for the variable specified will be replaced by the median - the number that would appear in the middle of the remaining column values if all values were written in ascending order. User specified value If selected, a value must be entered in the field that appears directly to the right of this menu. XLMiner will replace all missing / invalid values with this specified value. No treatment - If this option is selected, no treatment will be applied to the missing / invalid values for the selected variable.

Clicking this command button will apply the treatment option selected.

Reset

Resets treatment to No Treatment for all variables listed in the Variables field. Also, deselects the Overwrite Existing Worksheet option if selected.

OK

Click to run the Missing Data Handling feature of XLMiner.

Introduction

Binning a dataset is a process of grouping measured data into data classes. These data classes can be used in various analyses. For example, in certain XLMiner routines, continuous variables are not supported. The Binning utility can be applied to these variables and then this new binned -variable can be chosen as a categorical variable. In XLMiner, the user decides what values the binned variable should take. A variable can be binned in the following ways. Equal count: When using this option, an equal number of bin intervals are created based on the number of records present. Rank: In this option each value in the variable is assigned a rank according to the start and increment value. Users can specify the starting and increment value. Mean: The mean is calculated as the average of the values lying in the bin interval. This mean value is assigned to each value of the variable that lies in that interval. Median: Records with the same binning value are counted and the median is calculated on the input value. The median value is then assigned to the binned variable. Equal Interval: Equal interval is based on bin size. When this method is selected, the whole range is divided into bins with bin sizes specified by the user. The options of Rank and Mid value are available with this method.

Open the Binning_Example.xlsx dataset by clicking Help Examples on the XLMiner ribbon.

Select a cell in the dataset, say A2, and click Transform -- Bin Continuous Data on the XLMiner ribbon to open the Bin Continuous Data dialog shown below.

Select x3 in the Variables field. The options are immediately activated. Under Value in the binned variable is, enter 10 for Start and 3 for Interval, then click Apply this option to the selected variable. The variable, x3, will appear in the field labeled, Name of binned variable.

As specified, 5 bins were created starting with a rank of 10 and an interval of 3: 10, 13 (10 + 3), 16 (13 + 3), 19 (16 + 3), and 22 (19 + 3). The first five smallest values (96, 104, 111, 113, 136) have been assigned to Bin 10. The next four values in ascending order (148, 150, 151, 164) have been assigned to Bin 13. The next five values in ascending order (168, 168, 173, 174, 175) have been assigned to Bin 16. The next four values in ascending order (178, 192, 197, 199) have been assigned to Bin 19 and the last four values (202, 204, 245, 252) have been assigned to Bin 22. Though Bins to be with is set to Equal Count, the number of records in each interval may not be essentially the same. Factors such as border values, total number of records, etc. influence the number of records assigned to each bin. XLMiner reports the binning intervals in the report as shown below.

The next example pins the value of the variable to the mean of the bin rather than the rank of the bin. Click back to Sheet1 and select cell A2, then click Transform Bin Continuous Data. Select Mean of the bin, rather than Rank of the bin for

Value in the binned variable. Leaving all remaining options at their defaults, click Apply this option to the selected variable then click OK.

In the output, the Binned_x3 variable is equal to the mean of all the x3 variables assigned to that bin. Lets take the first record for an example. Recall, from the previous example, the values from Bin 13: 148, 150, 151, 164. The mean of these values is 153.25 ((148 + 150 + 151 + 164) / 4) which is the value for the Binned_x3 variable for the first record. Similarly, if we were to select the Median of the bin option, the Binned_x3 variable would equal the median of all x3 variables assigned to each bin. The next example explores the Equal interval option. Click back to Sheet1 and select any cell in the dataset, say, A2, then click Transform Bin Continuous Data on the XLMiner ribbon. Select x3 in the Variables field, enter 4 for #bins for the variable, select Equal interval under Bins to be made with, enter 12 for Start and 3 for Interval under Value in the binned variable is, then click Apply this option to the selected variable.

XLMiner calculates the interval as the Maximum value for the x3 variable Minimum value for the x3 variable) / #bins specified by the user or in this

instance (252 96) / 4 which equals 39. This means that the bins will be assigned x3 variables in accordance to the following rules. Bin 12: Values 96 < 136 Bin 15: Values 136 < 174 Bin 18: Values 174 213 Bin 21: Values 214 252 In the first record, x4 has a value of 151. As a result, this record has been assigned to Bin 15 since 151 lies in the interval of Bin 15. Click back to Sheet1 and select any cell in the dataset, say, A2, then click Transform Bin Continuous Data on the XLMiner ribbon. Select x3 in the Variables field, enter 4 for #bins for the variable, select Equal interval under Bins to be made with, select Mid Value for Value in the binned variable is, then click Apply this option to the selected variable.

As shown in the output above, XLMiner created 4 bins with intervals from 90 to 130 (Bin 1), 130 170 (Bin 2), 170 210 (Bin 3), and 210 253 (Bin 4). The value of the binned variable is the midpoint of each interval: 110 for Bin 1, 150 for Bin 2, 190 for Bin 3 and 210 for Bin 4. In the first record, x3s value is 151. Since this value lies in the interval for Bin 2 (130 170) the mid value of this interval is reported for the Binned_x3 variable, 150. In the last record, x3s value is 174. Since this value lies in the interval for Bin 3 (170 210), the mid value of this interval is reported for the Binned_x3 variable, 190.

The following options appear on the Bin Continuous Data dialog.

If this option is selected, the list of variables in the Variables field will be listed according to titles appearing in the first row of the dataset.

Variable appearing here will be binned.

Select this option to include the binning variables in the output report.

The name displayed here will appear for the binned variable in the output report.

Enter the number of desired bins here.

Equal count

When this option is selected, the binning procedure will assign an equal number of records to each bin. Note: There is a possibility that the number of records in a bin may not be equal due to factors such as border values, the number of records being divisible by the number of bins, etc. The options for Value of the binned variable for this process are Rank, Mean, and Median. See below for explanations of each.

Equal interval

When this option is selected, the binning procedure will assign records to bins if the records value falls in the interval of the bin. Bin intervals are calculated by subtracting the Minimum variable value from the Maximum variable value and dividing by the number of bins ((Max Value Min Value) / # bins). The options for Value of the binned variable for this process are Rank and Mid value. See below for explanations of each.

When either the Equal count or the Equal interval option is selected, Rank of the bin is enabled. When selected, the User has the option to specify the Start value of the first bin and the Interval of each bin. Subsequent bin values will be calculated as the previous bin + interval value.

When the Equal count option is selected, Mean of the bin is enabled. XLMiner calculates the mean of all values in the bin and assigns that value to the binned variable.

When the Equal count option is selected, Median of the bin is enabled. XLMiner finds the median of all values in the bin and assigns that value to the binned variable.

Mid Value

When the Equal Interval option is selected, this option is enabled. The mid value of the interval will be displayed on the output report for the assigned bin.

Click this command button to apply the selected options to the selected variable.

Introduction

Analysts often deal with data that is not numeric. Non numeric data values could be text, alphanumeric (mix of text and numbers), or numeric values with no numerical significance (such as a postal code). Such variables are called 'Categorical' variables, where every unique value of the variable is a separate 'category'. Dealing with categorical data poses some limitations. For example, if your data contained too many categories there would be a need to combine several categories into one. In addition, perhaps you may desire to use a data mining technique that requires numeric data rather than categorical data. The features included in the Transform group address these requirements. XLMiner provides options to transform data in the following ways:

variable is transformed into a dummy variable. XLMiner can handle string variables with up to 30 distinct values. Imagine a variable called Language which has data values English, French, German and Spanish. Running this transformation will result in the creation of four new variables: Language_English, Language_French, Language_German, and Language_Spanish. Each of these variables will take on values of either 0 or 1 depending on the value of the Language variable in the record. For instance, if a particular record has a German data value then among the dummy variables created, Language_German will be 1 and others will be zero. In XLMiner, this procedure can be applied to all non-numeric categorical variables in a dataset provided that each variable has less than 30 distinct values.

a new numeric, categorical variable.

variable, this utility helps you create a new categorical variable that reduces the number of categories to 30. There are two different options to choose from.

occurring categories, and assigns category 30 to all remaining categories

to a new category variable between 1 and 30.

Open the IrisFacto.xlsx example database by clicking Help -- Examples on the XLMiner ribbon. (This dataset is derived from the example dataset, Iris.xls.) This example will illustrate how to create dummy variables and category scores. Note that in this dataset, Species_Name is a string variable. Select a cell within the dataset, say A2, and click Transform -- Transform Categorical Data -- Create Dummies to bring up the following Create Dummies dialog.

Select Species_name in the Variables field and then > to move the variable to the Variables to be factored field.

Click OK and view the output on the CategoryVar1 worksheet (inserted directly after Sheet1.)

As shown in the output above, the variable, Species_name, is expressed as three dummy variables: Species_name_Setosa, Species_name_Verginica and Species_name_Versicolor. These new dummy variables are assigned values of either 1, to indicate that the record belongs, or 0, to indicate that the record does not belong. For example, Species_name_Setosa is assigned a value of 1 only when the value of Species_name="Setosa" is in the dataset. Otherwise, Species_name_Setosa = 0. The same is true for the two remaining dummy variables i.e. Species_name_Verginica and Species_name_Versicolor. In this example, XLMiner converted the string variable into three categorical variables which resulted in a completely numeric dataset. Click back to the dataset on Sheet1, select cell A2, and click Transform -Transform Categorical Data -- Create Category Scores to open the XLMiner Create category scores dialog shown below.

Select Species_name in the Variables field and click > to move the variable to the Variables to be factored field. Keep the default option of Assign numbers 1,2,3....

Click OK and view the results on the CategoryVar2 worksheet which is inserted directly to the right of Sheet 1 and the CategoryVar1 worksheets.

XLMiner has sorted the values of the Species_name variable alphabetically and then assigned values of 1, 2 or 3 to each record depending on the species type. (Starting from 1 because we selected Assign numbers 1,2,3.... To have XLMiner start from 0, select the option Assign numbers 0, 1, 2, on the Create Category Scores dialog.) A variable, Species_name_ord is created to store these assigned numbers. Again, XLMiner has converted this dataset to an entirely numeric dataset. Open the Iris.xls example dataset by clicking Help Examples on the XLMiner ribbon. Select a cell within the dataset, say cell A2, then click Transform -Transform Categorical Data --> Reduce Categories to open the XLMiner Reduce Categories dialog. Select Petal_length as the variable, then select the Manually radio button under Limit to 30 categories heading. In the Categories in selected variable box on the right, all unique values of this variable are listed. Select all categories with values less than 2; choose 1 for Category Number (Under Assign Category ID), then click Apply. Repeat these steps for categories with values from 3 to 3.9 and apply a Category Number of 2. Continue repeating these steps until category numbers from 4 thru 4.9 are assigned a Category Number of 3, categories from 5 thru 5.9 are assigned a Category Number of 4, and categories 6 thru 6.9 are assigned a Category Number of 5. Note: XLMiner is limited to 30 categories. If you pick By Frequency, XLMiner assigns category numbers 1 through 29 to the most frequent 29 unique values; and category number 30 to all other unique values. If you pick Manually, XLMiner lets you map unique values to categories. You can pick multiple unique values and map them to a single new category.

Click OK to produce the following output on the ReduceCat1 worksheet that is inserted directly to the right of the Description worksheet.

In the output XLMiner has assigned new categories as shown in the column, Petal_length CatNo, based on the choices made in the Reduce Categories dialog.

Click back to the Data worksheet and click Transform Transform Categorical Data Reduce Categories. Again select Petal_length in the Variables field, but this time leave the default setting of By Frequency, then click OK.

As you can see on the ReduceCat2 worksheet, XLMiner has classified the Petal_length variable using 30 different categories. The values of 1.4 and 1.5 appear the most frequently (13 occurrences each) and have thus been labeled as categories 1 and 2, respectively. The values of 4.5 and 5.1 each occur 8 times and have thus been assigned to categories 3 and 4, respectively. The values of 1.3 and 1.6 occur seven times and, as a result, have been assigned to categories 5 and 6, respectively. Incremental category numbers are assigned to each decreasing block of values until the 29th category is assigned. All remaining values are then lumped into the last category, 30.

Explanations for options that appear on one of the three Transform Categorical Data dialogs appear below.

Data Range

Either type the cell address directly into this field, or using the reference button; select the required data range from the worksheet. If the cell pointer (active cell) is already somewhere in the data range, XLMiner automatically picks up the contiguous data range surrounding the active cell. When the data range is selected XLMiner displays the number of records in the selected range.

When this box is checked, XLMiner lists the variables according to the first row of the selected data range. When the box is unchecked, XLMiner follows the default naming convention, i.e., the variable in the first column of the selected range will be called "Var1", the second column "Var2," etc.

Variables

This list box contains the names of the variables in the selected data range. To select a variable, simply click to highlight, then click the > button. Use the CTRL key to select multiple variables.

Options

The user can specify the number with which to start categorization 0 or 1. Select the appropriate option.

Category Number

After manually selecting values from the list box, pick the category number to assign. Click Apply to apply this mapping, or Reset to start over.

Introduction

In the data mining field, databases with large amounts of variables are routinely encountered. In most cases, the size of the database can be reduced by removing highly correlated or superfluous variables. The accuracy and reliability of a classification or prediction model produced from this resultant database will be improved by the removal of these redundant and unnecessary variables. In addition, superfluous variables increase the data-collection and data-processing costs of deploying a model on a large database. As a result, one of the first steps in data mining should be finding ways to reduce the number of independent or input variables used in the model (otherwise known as dimensionality) without sacrificing accuracy. Principal component analysis (PCA) is a mathematical procedure that transforms a number of (possibly) correlated variables into a smaller number of uncorrelated variables called principal components. The objective of principal component analysis is to reduce the dimensionality (number of variables) of the dataset but retain as much of the original variability in the data as possible. The first principal component accounts for the majority of the variability in the data, the second principal component accounts for the majority of the remaining variability, and so on. A principal component analysis is concerned with explaining the variance covariance structure of a high dimensional random vector through a few linear combinations of the original component variables. Consider a database X with m rows and n columns (X4x3) X11 X21 X31 X41 1. X12 X22 X32 X42 X13 X23 X33 X43

The first step in reducing the number of columns (variables) in the X matrix using the Principal Components Analysis algorithm is to find the mean of each column. (X11 + X21 + X31 + X41)/4 = Mu1 (X12 + X22 + X32 + X42)/4 = Mu2 (X13 + X23 + X33 + X43)/4 = Mu3

2.

Next, the algorithm subtracts each element in the database by the mean (Mu) thereby obtaining a new matrix, , which also contains 4 rows and 3 columns. X11 Mu1 = 11 X21 Mu1 = 21 X12 Mu2 = 12 X22 Mu2 = 22 X13 Mu3 = 13 X23 Mu3 = 23

Next, the PCA algorithm calculates the covariance or correlation matrix (depending on the users preference) of the new matrix. Afterwards the algorithm calculates eigenvalues and eigenvectors from the covariance matrix for each variable and lists these eigenvalues in order from largest to smallest. Larger eigenvalues denote that the variable should remain in the database. Variables with smaller eigenvalues will be removed according to the user s preference.

5.

XLMiner allows users to choose between selecting a fixed number of components (variables) to be included in the reduced matrix (we will refer to this new matrix as the Y matrix) or the smallest subset of variables that explains or accounts for a certain percentage variance in the database. Variables with eigenvalues below the chosen threshold will not be included in the Y matrix. Assume that the user has chosen a fixed number of variables (2) to be included in the Y matrix. A new matrix V (containing eigenvectors based on the selected eigenvalues) is formed. The original matrix X which has 4 rows and 3 columns will be multiplied by the V matrix, containing 4 rows and 2 columns. This matrix multiplication results in the new reduced Y matrix, containing 4 rows and 2 columns.

6. 7.

In algebraic form, consider a p-dimensional random vector X = ( X1, X2, ..., Xp ) where p principal components of X are k univariate random variables Y1, Y2, ..., Yk which are defined by the following formulae:

where the coefficient vectors l1, l2 ,..etc. are chosen such that they satisfy the following conditions: First Principal Component = Linear combination l1'X that maximizes Var(l1'X) and || l1 || =1 Second Principal Component = Linear combination l2'X that maximizes Var(l2'X) and || l2 || =1 and Cov(l1'X , l2'X) =0 jth Principal Component = Linear combination lj'X that maximizes Var(lj'X) and || lj || =1 and Cov(lk'X , lj'X) =0 for all k < j These functions indicate that the principal components are those linear combinations of the original variables which maximize the variance of the linear combination and which have zero covariance (and hence zero correlation) with the previous principal components.

It can be proved that there are exactly p such linear combinations. However, typically, the first few principal components explain most of the variance in the original data. As a result, instead of working with all the original variables X1, X2, ..., Xp, you would typically first perform PCA and then use only the first two or three principal components, say Y1 and Y2, in a subsequent analysis.

Click Help Examples on the XLMiner ribbon to open the example file Utilities.xlsx. This example dataset gives data on 22 public utilities in the US.

Select a cell within the dataset, say A2, then click Transform Principal Components on the XLMiner ribbon to open the Principal Components dialog shown below.

Select variables x1 to x8, then click the > command button to move them to the Input variables field. (Perform error based clustering is not supported in the PCA algorithm and is disabled). The figure below shows the first dialog box of the Principal Components Analysis method. Click Next.

XLMiner provides two routines for specifying the number of principal components: Fixed #components and Smallest # components explaining. The Fixed # components method allows the user to specify a fixed number of components, or variables, to be included in the reduced model . The Smallest #components explaining method allows the user to specify a percentage of the variance. When this method is selected XLMiner will calculate the minimum number of principal components required to account for that percentage of the variance. In addition, XLMiner provides two methods for calculating the principal components: using the covariance or the correlation matrix. When using the correlation matrix method, the data will be normalized first before the method is applied. (The dataset is normalized by dividing each variable by its standard deviation.) Normalizing gives all variables equal importance in terms of variability.1 If the covariance method is selected, the data will not be normalized. Select Use Correlation Matrix (Uses Standardized Variables). Then click Next.

Shmueli, Galit, Nitin R. Patel, and Peter C. Bruce. Data Mining for Business Intelligence. 2nd ed. New Jersey: Wiley, 2010

On the Step 3 of 3 dialog, confirm Show principal components score is selected, and then click Finish. This option displays an output matrix where the columns are the principal components, the rows are the individual data records and the value in each cell is the calculated score for that record on the relevant principal component.

Two worksheets are inserted immediately after the Description worksheet: PCA_Output1 and PCA_Scores1. The output from PCA_Output1 is shown below.

The top section of the PCA_Output1 spreadsheet simply displays the number of principal components created (as selected in the Step 2 of 3 dialog above), the number of records in the dataset and the method chosen, Correlation matrix (also selected in the Step 2 of 3 dialog).

The bottom portion of the PCA_Output worksheet displays the principal component table. The maximum value for Component 1 corresponds to x2 (.5712). This signifies that the first principal component is measuring the effect of x2 on the utility companies. Likewise, the second component appears to be measuring the effect of x4 on the utility companies (.4091). The first component accounts for 27.16% of the variance while the second component accounts for 23.75%. Together, these two components account for more than 50% of the total variation. The output from the PCA_Scores1 worksheet is below. This table holds the weighted averages of the normalized variables (after each variables mean is subtracted). (This matrix is described in the 2nd step of the PCA algorithm - see Introduction above.)

Click back to the Data worksheet, select any cell in the dataset, and then click Transform Principal Components. Cells x1 through x8 are already selected so simply click Next on this dialog to advance to the Step 2 of 3 dialog.

This time, select Smallest # of components explaining, enter 50 for % of variance, select Use Correlation Matrix, and then click Finish.

As you can see from the output worksheet PCA_Output2, only the first two components are included in the output file since these two components account for over 50% of the variation.

After applying the Principal Components Analysis algorithm, users may proceed to analyze their dataset by applying additional data mining algorithms featured in XLMiner.

Options for Principal Components Analysis appear on the Step 2 of 3 and Step 3 of 3 dialogs. For more information on the Step1 of 3 dialog, please see the Common Dialog Options section in the Introduction to XLMiner chapter.

Principal Components

Select the number of principal components displayed in the output.

Fixed # of components Specify a fixed number of components by selecting this option and entering an integer value from 1 to n where n is the number of Input variables selected in the Step 1 of 3 dialog. Smallest #components explaining Select this option to specify a percentage. XLMiner will calculate the minimum number of principal components required to account for that percentage of variance.

Method

To compute Principal Components the data is matrix multiplied by a transformation matrix. This option lets you specify the choice of calculating this transformation matrix. Use Covariance matrix The covariance matrix is a square, symmetric matrix of size n x n (number of variables by number of variables). The diagonal elements are variances and the off-diagonals are covariances. The eigenvalues and eigenvectors of the covariance matrix are computed and the transformation matrix is defined as the transpose of this eigenvector matrix. If the covariance method is selected, the dataset should first be normalized. One way to organize the data is to divide each variable by its standard deviation. Normalizing gives all variables equal importance in terms of variability.2 Use Correlation matrix An alternative method is to derive the transformation matrix on the eigenvectors of the correlation matrix instead of the covariance matrix. The correlation matrix is equivalent to a covariance matrix for the data where each variable has been standardized to zero mean and unit variance. This method tends to equalize the influence of each variable, inflating the influence of variables with relatively small variance and reducing the influence of variables with high variance.

Shmueli, Galit, Nitin R. Patel, and Peter C. Bruce. Data Mining for Business Intelligence. 2 nd ed. New Jersey: Wiley, 2010

This option results in the display of a matrix in which the columns are the principal components, the rows are the individual data records, and the value in each cell is the calculated score for that record on the relevant principal component.

k-Means Clustering

Introduction

Cluster Analysis, also called data segmentation, has a variety of goals which all relate to grouping or segmenting a collection of objects (also called observations, individuals, cases, or data rows) into subsets or "clusters". These clusters are grouped in such a way that the observations included in each cluster are more closely related to one another than objects assigned to different clusters. The most important goal of cluster analysis is the notion of the degree of similarity (or dissimilarity) between the individual objects being clustered. There are two major methods of clustering -- hierarchical clustering and kmeans clustering. (See the k-means clustering chapter for information on this type of clustering analysis.) This chapter explains the k-Means Clustering algorithm. The goal of this process is to divide the data into a set number of clusters (k) and to assign each record to a cluster while minimizing the distribution within each cluster. A nonhierarchical approach to forming good clusters is to specify a desired number of clusters, say, k, then assign each case (object) to one of k clusters so as to minimize a measure of dispersion within the clusters. A very common measure is the sum of distances or sum of squared Euclidean distances from the mean of each cluster. The problem can be set up as an integer programming problem but because solving integer programs with a large number of variables is time consuming, clusters are often computed using a fast, heuristic method that generally produces good (but not necessarily optimal) solutions. The k-means algorithm is one such method.

Click Help Examples on the XLMiner ribbon and open the example file Wine.xlsx. As shown in the figure below, each row in this example dataset represents a sample of wine taken from one of three wineries (A, B or C). In this example, the Type variable representing the winery is ignored and the clustering is performed simply on the basis of the properties of the wine samples (the remaining variables).

Select a cell within the dataset, say A2, and then click XLMiner Cluster kMeans Clustering. The following dialog box will appear.

Select all variables under Variables in data source except Type, then click the > button to shift the selected variables to the Input variables field.

Afterwards, click Next to advance to the Step 2 of 3 dialog. Enter 8 for # Clusters to be formed. This is the parameter k in the k-means clustering algorithm. The number of clusters should be at least 2 and at most the number of observations in the data range. It is a good idea to set k to several different values and evaluate the output from each. Enter 10 for # Iterations. The value for this option determines how many times the program will start with an initial partition and complete the clustering algorithm. The configuration of clusters (and how good a job they do of separating the data) may differ from one starting partition to another. The program will go through the specified number of iterations, and select the cluster configuration that minimizes the distance measure. Select the Random Starts option. When this option is selected, the algorithm will start building the model from any random point. Enter 5 for No. of starts. XLMiner will generate five cluster sets and will generate the output based on the best cluster. Enter 12345 for Fixed Seed. A value specified here will ensure the same starting points each time the algorithm is run. If Fixed start were to be selected, XLMiner would build the model with a single fixed starting point.

Click Next. On the Step 3 of 3 dialog, select Show data summary (default) and Show distances from each cluster center (default). Then click Finish.

The K-Means Clustering method will start with k initial clusters as specified by the user. At each iteration, the records are assigned to the cluster with the closest centroid, or center. After each iteration, the distance from each record to the center of the cluster is calculated. These two steps are repeated (the record assignment and distance calculation) until the redistribution of a record results in an increased distance value. When the user specifies a random start, the algorithm generates the k cluster centers randomly and fits the data points in those clusters. This process is repeated for as many random starts as the user specifies. The output will be based on the clusters that exhibit the best fit. The worksheet, KM_Output1 is inserted immediately after the Description worksheet. In the top section of the output worksheet, the options that were selected are listed.

In the middle section of the output worksheet, XLMiner has calculated the sum of the squared distances and has determined the start with the lowest Sum of Square Distance as the Best Start (#3). After the Best Start is determined, XLMiner generates the remaining output using the Best Start as the starting point.

In the bottom portion of the output worksheet, XLMiner has listed the "cluster centers" (shown below). The upper box shows the variable values at the cluster centers. As you can see, the first cluster has the highest average Nonflavanoid_Phenol and Ash_Alcalinity, and a very high Magnesium average. Compare this cluster to Cluster 5 which has the highest average Proline, Flavanoids, and Color_Intensity, and a very high Malic_Acid average. The lower box shows the distance between the cluster centers. From the values in this table, we can discern that cluster 5 is very different from cluster 6 due to the high distance value of 1,484.51 and cluster 7 is very close to cluster 3 (low distance value of 31.27). It is possible that these two clusters could be merged into one cluster.

The Data Summary displays the number of records (observations) included in each cluster and the average distance from cluster members to the center of each cluster. As you can see, cluster 2 has the highest average distance and includes 78 records. Compare this cluster to cluster 6 which has 0 members.

Click the KM_Clusters1 worksheet. This worksheet displays the cluster to which each record is assigned and the distance to each of the clusters. Note that, for record 5, the distance to cluster 1 is the minimum distance, so record 5 is assigned to cluster 1.

See the Common Dialog Options section in the Introduction to XLMiner chapter for an explanation of options present on the k-Means Clustering Step 1 of 3 dialog. See below for an explanation of options on the k-Means Clustering Step 2 of 3 and Step 3 of 3 dialogs.

Clustering Method

At this time, XLMiner supports standard clustering only.

If this option is selected, XLMiner will normalize the input data before applying the k-Means Clustering algorithm. Normalizing the data is important to ensure that the distance measure accords equal weight to each variable. Without normalization, the variable with the largest scale will dominate the measure.

# Clusters

Enter the number of final clusters (k) to be formed here. The number of clusters should be at least 2 and at most the number of observations in the data range. This value should be based on your knowledge of the data and the number of projected clusters. It is a good idea to repeat the procedure with several different k values.

# Iterations

Enter the number of times the program will perform the clustering algorithm. The configuration of clusters (and how good a job they do of separating the data) may differ from one starting partition to another. The algorithm will complete the specified number of iterations and select the cluster configuration that minimizes the distance measure.

Options

If Fixed start is selected, XLMiner will start building the model with a single fixed starting point. If Random starts is selected, the algorithm will start at any random point. If Random starts is selected, two additional options are enabled: No. of Starts and Seed. Enter the number of desired clusters for No. of Starts. XLMiner will complete the desired number of clusters and generate the output for the best cluster set. To enter a fixed seed, select Fixed and then enter an integer value.

Select this option to display the data summary in the k-Means Clustering output.

Select this option to display the distances from each cluster center in the kMeans Clustering output.

Hierarchical Clustering

Introduction

Cluster Analysis, also called data segmentation, has a variety of goals. All relate to grouping or segmenting a collection of objects (also called observations, individuals, cases, or data rows) into subsets or "clusters", such that those within each cluster are more closely related to one another than objects assigned to different clusters. The most important goal of cluster analysis is the notion of degree of similarity (or dissimilarity) between the individual objects being clustered. There are two major methods of clustering -- hierarchical clustering and k-means clustering. (See the k-means clustering chapter for information on this type of clustering analysis.) In hierarchical clustering the data are not partitioned into a particular cluster in a single step. Instead, a series of partitions takes place, which may run from a single cluster containing all objects to n clusters each containing a single object. Hierarchical Clustering is subdivided into agglomerative methods, which proceed by a series of fusions of the n objects into groups, and divisive methods, which separate n objects successively into finer groupings. The hierarchical clustering technique employed by XLMiner is an Agglomerative technique. Hierarchical clustering may be represented by a two dimensional diagram known as a dendrogram which illustrates the fusions or divisions made at each successive stage of analysis. An example of such a dendrogram is given below:

Agglomerative methods

An agglomerative hierarchical clustering procedure produces a series of partitions of the data, Pn, Pn-1, ....... , P1. The first Pn consists of n single object 'clusters', the last P1, consists of a single group containing all n cases. At each particular stage the method joins the two clusters which are closest together (most similar). (At the first stage, this amounts to joining together the two objects that are closest together, since at the initial stage each cluster has one object.)

Differences between methods arise because of the different methods of defining distance (or similarity) between clusters. Several agglomerative techniques will now be described in detail.

One of the simplest agglomerative hierarchical clustering method is single linkage, also known as the nearest neighbor technique. The defining feature of this method is that distance between groups is defined as the distance between the closest pair of objects, where only pairs consisting of one object from each group are considered. In the single linkage method, D(r,s) is computed as D(r,s) = Min { d(i,j) : Where object i is in cluster r and object j is cluster s } Here the distance between every possible object pair (i,j) is computed, where object i is in cluster r and object j is in cluster s. The minimum value of these distances is said to be the distance between clusters r and s. In other words, the distance between two clusters is given by the value of the shortest link between the clusters. At each stage of hierarchical clustering, the clusters r and s, for which D(r,s) is minimum, are merged. This measure of inter-group distance is illustrated in the figure below:

The complete linkage, also called farthest neighbor, clustering method is the opposite of single linkage. In this clustering method, the distance between

groups is defined as the distance between the most distant pair of objects, one from each group. In the complete linkage method, D(r,s) is computed as D(r,s) = Max { d(i,j) : Where object i is in cluster r and object j is cluster s } Here the distance between every possible object pair (i,j) is computed, where object i is in cluster r and object j is in cluster s and the maximum value of these distances is said to be the distance between clusters r and s. In other words, the distance between two clusters is given by the value of the longest link between the clusters. At each stage of hierarchical clustering, the clusters r and s, for which D(r,s) is minimum, are merged. The measure is illustrated in the figure below:

Here the distance between two clusters is defined as the average of distances between all pairs of objects, where each pair is made up of one object from each group. In the average linkage method, D(r,s) is computed as D(r,s) = Trs / ( Nr * Ns) Where Trs is the sum of all pairwise distances between cluster r and cluster s. Nr and Ns are the sizes of the clusters r and s respectively. At each stage of hierarchical clustering, the clusters r and s, for which D(r,s) is the minimum, are merged. The figure below illustrates average linkage clustering:

With this method, groups once formed are represented by their mean values for each variable, that is, their mean vector, and inter-group distance is now defined in terms of distance between two such mean vectors. In the average group linkage method, the two clusters r and s are merged such that, after merging, the average pairwise distance within the newly formed cluster, is minimized. Suppose we label the new cluster formed by merging clusters r and s, as t. Then D(r,s) , the distance between clusters r and s is computed as D(r,s) = Average { d(i,j) : Where observations i and j are in cluster t, the cluster formed by merging clusters r and s } At each stage of hierarchical clustering, the clusters r and s, for which D(r,s) is minimized, are merged. In this case, those two clusters are merged such that the newly formed cluster, on average, will have minimum pairwise distances between the points.

Ward (1963) proposed a clustering procedure seeking to form the partitions P n, P n-1,........, P1 in a manner that minimizes the loss associated with each grouping, and to quantify that loss in a form that is readily interpretable. At each step in the analysis, the union of every possible cluster pair is considered and the two clusters whose fusion results in minimum increase in 'information loss' are combined. Information loss is defined by Ward in terms of an error sum-ofsquares criterion, ESS. The rationale behind Ward's proposal can be illustrated most simply by considering univariate data. Suppose for example, 10 objects have scores (2, 6, 5, 6, 2, 2, 2, 2, 0, 0, 0) on some particular variable. The loss of information that

would result from treating the ten scores as one group with a mean of 2.5 is represented by ESS given by, ESS One group = (2 -2.5)2 + (6 -2.5)2 + ....... + (0 -2.5)2 = 50.5 On the other hand, if the 10 objects are classified according to their scores into four sets, {0,0,0}, {2,2,2,2}, {5}, {6,6} The ESS can be evaluated as the sum of squares of four separate error sums of squares ESS One group = ESS group1 + ESSgroup2 + ESSgroup3 + ESSgroup4 = 0.0 Clustering the 10 scores into 4 clusters results in no loss of information.

The utilities.xlsx example dataset (shown below) holds corporate data on 22 US public utilities. This example will illustrate how a user would use XLMiner to perform a cluster analysis using hierarchical clustering. An example where clustering would be useful is a study to predict the cost impact of deregulation. To perform the requisite analysis, economists would be required to build a detailed cost model of the various utilities. It would save a considerable amount of time and effort if we could cluster similar types of utilities, build a detailed cost model for just one typical utility in each cluster, then scale up from these models to estimate results for all utilities. Each record includes 8 observations. Before we can use a clustering technique, the data must be normalized or standardized. A popular method for normalizing continuous variables is to divide each variable by its standard deviation. After the variables are standardized, the distance can be computed between clusters using the Euclidean metric. Open the Utilities.xlsx example dataset by clicking Help Examples on the XLMiner ribbon.

Select any cell in the dataset, for example A2, then click Cluster -Hierarchical Clustering to bring up the Hierarchical Clustering dialog.

Select variables x1 through x8 in the Variables field, then click > to move the selected variables to the Selected variables field.

At the top of the dialog, select Normalize input data. When this option is selected, XLMiner will normalize the data by subtracting the variables mean from each observation and dividing by the standard deviation. Normalizing the data is important to ensure that the distance measure accords equal weight to each variable -- without normalization, the variable with the largest scale will dominate the measure.

Under Similarity measure, Euclidean distance is selected by default. The Hierarchical clustering method uses the Euclidean Distance as the similarity measure for raw numeric data. When the data is binary the remaining two options, Jaccard's coefficients and Matching coefficients are enabled. Under Clustering method, select Average group linkage. Recall from the Introduction to this chapter, the average group linkage method calculates the average distance of all possible distances between each record in each cluster. Click Next.

On the Step 3 of 3 dialog, select Draw dendrogram and Show cluster membership. Enter 4 for the # Clusters. Then click Finish. XLMiner will create four clusters using the Average group linkage method. The output worksheet HC_Output1 is inserted immediately after the Description worksheet.

This output details the history of the cluster formation. Initially, each individual case is considered its own cluster (single member in each cluster). Since there are 21 records, XLMiner begins the method with # clusters = # cases. At stage

1, above, clusters (i.e. cases) 10 and 13 were found to be closer together than any other two clusters (i.e. cases), so they are joined together in a cluster called Cluster 10. At this point there is one cluster with two cases (cases 10 and 13), and 19 additional clusters that still have just one case in each. At stage 2, clusters 7 and 12 are found to be closer together than any other two clusters, so they are joined together into cluster 7. This process continues until there is just one cluster. At various stages of the clustering process, there are different numbers of clusters. A graph called a dendrogram illustrates these steps.

In the above dendrogram, the Sub Cluster IDs are listed along the x-axis (in an order convenient for showing the cluster structure). The y-axis measures intercluster distance. Consider cases 10 and 13 -- they have an inter-cluster distance of 1.51. No other cases have a smaller inter-cluster distance, so 10 and 13 are joined into one cluster, indicated by the horizontal line linking them. Next, we see that cases 7 and 12 have the next smallest inter-cluster distance, so they are joined into one cluster. The next smallest inter-cluster distance is between clusters 14 and 19 and so on. If we draw a horizontal line through the diagram at any level on the y-axis (the distance measure), the vertical cluster lines that intersect the horizontal line indicate clusters whose members are at least that close to each other. If we draw a horizontal line at distance = 2.3, for example, we see that there are 11 clusters. In addition, we can see that a case can belong to multiple clusters, depending on where we draw the line (i.e. how close we require the cluster members to be to each other). For purposes of assigning cases to clusters, we must specify the number of clusters in advance. In this example, we specified a limit of 4. If the number of training rows exceeds 30 then the dendrogram also displays Cluster Legends. The HC_Clusters1 output worksheet includes the following table.

This table displays the assignment of each record to the four clusters. This next example illustrates k-Means Clustering when the data represents the distance between the ith and jth records. (When applied to raw data, Hierarchical clustering converts the data into the distance matrix format before proceeding with the clustering algorithm. Providing the distance measures in the data requires one less step for the Hierarchical clustering algorithm.) Select a cell in the database, say A2, click XLMiner Help Examples and open the file, DistMatrix.xls. Then, click XLMiner Cluster Hierarchical Clustering to open the following dialog.

Click the down arrow next to Data Type and select Distance Matrix.

Again, select Average group linkage as the Clustering method. Then click Next. Select Draw dendrogram (default) and Show cluster membership (default) and enter 4 for # Clusters.

Then click Finish. Output worksheets, HC_Output1, HC_Clusters1, and HC_Dendrogram1 are inserted immediately after Sheet1. The Clustering Stages output (included on the HC_Output1 worksheet) is shown below.

One of the reasons why Hierarchical Clustering is so attractive to statisticians is that it is not necessary to specify the number of clusters desired. In addition, the clustering process can be easily illustrated with a dendrogram. However, there are a few limitations. 1. Hierarchical clustering requires computing and storing an n x n distance matrix. If using a large dataset, this requirement can be very slow and require large amounts of memory. The algorithm makes only one pass through the dataset. As a result, records that are assigned erroneously will not be reassigned later in the process. Clusters created through Hierarchical clustering are not very stable. If records are eliminated, the results can be very different. Outliers in the data can impact the results negatively.

2. 3. 4.

The following options appear on the Hierarchical Clustering Step 2 of 3 and Step 3 of 3 dialogs. See the Common options section of the chapter, Introduction to XLMiner, for options appearing on the Step 1 of 3 dialog.

Data Type

The Hierarchical clustering method can be used on raw data as well as the data in Distance Matrix format. Choose the appropriate option to fit your dataset.

Normalizing the data is important to ensure that the distance measure accords equal weight to each variable -- without normalization, the variable with the largest scale will dominate the measure.

Similarity Measures

The Hierarchical clustering uses the Euclidean Distance as the similarity measure for working on raw numeric data. When the data is binary, the remaining two options, Jaccard's coefficients and Matching coefficient are enabled. Suppose we have binary values for all the xij s. See the table below for individual is and js.

The most useful similarity measures in this situation are: Jaccards coefficient = d/(b+c+d). This coefficient ignores zero matches. The matching coefficient = (a + d)/p.

Clustering Method

See the introduction to this chapter for descriptions of each method.

Draw Dendrogram

Select this option to have XLMiner create a dendrogram to illustrate the clustering process.

Select this option to display the cluster number (ID) to which each record is assigned by the routine.

# Clusters

Recall that the agglomerative method of hierarchical clustering continues to form clusters until only one cluster is left. This option lets you stop the process at a given number of clusters.

Introduction

Time series datasets contain a set of observations generated sequentially in time. Organizations of all types and sizes utilize time series datasets for analysis and forecasting for predicting next years sales figures, raw material demand, monthly airline bookings, etc. .

A time series model is first used to obtain an understanding of the underlying forces and structure that produced the data and then secondly, to fit a model that will predict future behavior. In the first step, the analysis of the data, a model is created to uncover seasonal patterns or trends in the data, for example bathing suit sales in June. In the second step, forecasting, the model is used to predict the value of the data in the future, for example, next years bathing suit sales. Separate modeling methods are required to create each type of model. XLMiner features two techniques for exploring trends in a dataset, ACF (Autocorrelation function) and PACF (Partial autocorrelation function). These techniques help the user to explore various patterns in the data which can be used in the creation of the model. After the data is analyzed, a model can be fit to the data using XLMiners ARIMA method.

Autocorrelation (ACF)

Autocorrelation (ACF) is the correlation between neighboring observations in a time series. When determining if an autocorrelation exists, the original time series is compared to the lagged series. This lagged series is simply the original series moved one time period forward (xn vs xn+1). Suppose there are 5 time based observations: 10, 20, 30, 40, and 50. When lag = 1, the original series is moved forward one time period. When lag = 2, the original series is moved forward two time periods.

Day 1 2 3 4 5

Observed Value 10 20 30 40 50 10 20 30 40

Lag-1

Lag-2

10 20 30

The autocorrelation is computed between the original series and the lag-1 series using the Excel CORREL function. In a similar manner, the lag-2 autocorrelation is computed between the original series and the lag-2 series. XLMiners ACF utility directly computes the autocorrelations of the series at different lags.

The two red horizontal lines on the graph above delineate the Upper confidence level (UCL) and the Lower confidence level (LCL). If the data is random, then the plot should be within the UCL and LCL. If the plot exceeds either of these two levels, as seen in the plot above, then it can be presumed that some correlation exists in the data.

This technique is used to compute and plot the partial autocorrelations between the original series and the lags. However, PACF eliminates all linear dependence in the time series beyond the specified lag.

ARIMA

An ARIMA (autoregressive integrated moving-average models) model is a regression-type model that includes autocorrelation. The basic assumption in estimating the ARIMA coefficients is that the data are stationary, that is, the trend or seasonality cannot affect the variance. This is generally not true. To achieve the stationary data, XLMiner will first apply differencing: ordinary, seasonal or both. After XLMiner fits the model, various results will be available. The quality of the model can be evaluated by comparing the time plot of the actual values with the forecasted values. If both curves are close, then it can be assumed that the model is a good fit. The model should expose any trends and seasonality, if any exist. If the residuals are random then the model can be assumed a good fit. However, if the residuals exhibit a trend, then the model should be refined. Fitting an ARIMA model with parameters (0,1,1) will give the same results as

exponential smoothing. Fitting an ARIMA model with parameters (0,2,2) will give the same results as double exponential smoothing.

Partitioning

To avoid over fitting of the data and to be able to evaluate the predictive performance of the model on new data, we must first partition the data into training and validation sets, and possibly a test set, using XLMiners time series partitioning utility. After the data is partitioned, ACF, PACF, and ARIMA can be applied to the dataset.

The examples below illustrate how XLMiner can be used to explore the data to uncover trends and seasonalities. Click Help Examples on the XLMiner ribbon and open the example dataset, Income.xlsx. This dataset contains the average income of tax payers by state. Typically the following steps are performed in a time series analysis. 1. 2. The data is first partitioned into two sets with 60% of the data assigned to the training set and 40% of the data assigned to validation. Exploratory techniques are applied to both the training and validation sets. If the results are in synch then the model can be fit. If the ACF and PACF plots are the same, then the same model can be used for both sets. The model is fit using the ARIMA method. When we fit a model using the ARIMA method, XLMiner displays the ACF and PACF plots for residuals. If these plots are in the band of UCL and LCL then it indicates that the residuals are random and the model is adequate. If the residuals are not within the bands, then some correlation exists, and the model should be improved.

3. 4.

5.

First we must perform a partition on the data. Select a cell within the dataset, such as A2, then click Partition within the Time Series group on the XLMiner ribbon to open the following dialog.

Select Year under Variables and click > to define the variable as the Time Variable. Select the remaining variables under Variables and click > to include them in the partitioned data. Select Specify #Records under Specify Partitioning Options. Then select Specify Percentages under Specify Percentages for Partitioning. Enter 50 for the number of Training Set records and 21 for the number of Validation Set records.

Click OK. The Data_PartitionTS1 worksheet will be inserted directly behind the Description worksheet.

Note in the output above, the partitioning method is sequential (rather than random). The first 50 observations have been assigned to the training set and the remaining 21 observations have been assigned to the validation set. Select a cell on the Data_PartitionTS1 worksheet then click ARIMA Autocorrelations on the XLMiner ribbon to display the ACF dialog.

Select CA as the Selected variable, enter 10 for both ACF Parameters for Training Data and ACF Parameters for Validation Data. Then select Plot ACF chart.

Click OK. The worksheet ACF_Output1 will be inserted directly after the Data_PartitionTS1 worksheet.

Both ACF functions show a definite pattern where the autocorrelation decreases as the number of lags increases. Since the pattern does not repeat, it can be assumed that no seasonality is included in the data. In addition, since both charts exhibit a similar pattern, we can fit the same model to both the validation and training sets. Click back to the Data_PartitionTS1 worksheet and click ARIMA -- Partial Autocorrelations to open the PACF dialog as shown below.

Select CA under Variables in input data, then click > to move the variable to Selected variable. Enter 40 for Maximum Lag for PACF Parameters for Training Data and 15 PACF Parameters for Validation Data. Select Plot PACF chart.

Click OK. The worksheet, PACF_Output1, is inserted directly after the ACF_Output1 worksheet. Both PACF plots show similar patterns in both the

validation and training sets. As a result, we can use the same model for both sets.

The PACF function shows a definite pattern which means there is a trend in the data. However, since the pattern does not repeat, we can conclude that the data does not show any seasonality. The ARIMA model accepts three parameters: p the number of autoregressive terms, d the number of non-seasonal differences, and q the number of lagged errors (moving averages). Recall that the ACF plot showed no seasonality in the data which means that autocorrelation is almost static, decreasing with the number of lags increasing. This suggests setting q = 0 since there appears to be no lagged errors. The PACF plot displayed a large value for the first lag but minimal plots for successive lags. This suggest setting p =1. With most datasets, setting d =1 is sufficient or can at least be a starting point. Click back to the Data_PartitionTS1 worksheet and click ARIMA ARIMA model to bring up the ARIMA dialog shown below.

Select CA under Variables in input data then click > to move the variable to the Selected Variable field. Under Nonseasonal Parameters set Autoregressive (p) to 1, Difference (d) to 1 and Moving Average (q) to 0.

Select Fitted Values and residuals, Variance-covariance matrix, Produce forecasts, and Report Confidence Intervals for forecasts, then enter 95 for the Confidence-level.

Click OK on the ARIMA-Advanced dialog and again on the Time Series ARIMA dialog. XLMiner calculates and displays various parameters and charts in two output sheets, ARIMA_Output1 and ARIMA_Residuals1. The ARIMA_Output1 worksheet contains the ARIMA model, shown below.

On this same worksheet, XLMiner has calculated the constant term and the AR1 term for our model, as seen above. These are the constant and f1 terms of our forecasting equation. See the following output of the Chi - square test.

Since the p-Value is small, we can conclude that the model is a good fit. Now open the worksheet ARIMA_Residuals1. This table plots the actual and fitted values and the resulting residuals. As shown in the graph below, the Actual and Forecasted values match up fairly well. The usefulness of the model in forecasting will depend upon how close the actual and forecasted values are in the Time plot of validation set which we will inspect later.

Let us take a look at the ACF and PACF plots for residuals.

Most of the correlations are within the UCL and LCL band. This indicates that the residuals are random, they are not correlated and is the first indication that the model parameters are adequate for this data. Open the sheet ARIMA_Output1. See the Forecast table.

The table shows the actual and forecasted value. The "Lower" and "Upper" values represent the lower and upper bounds of the confidence interval. There is a 95% chance that the forecasted value will fall into this range. Let us take a look at the Time Plot below. It is plotted with the values in the table above. It indicates how the model which we fitted using the Training data performs on the validation data.

The actual and forecasted values are fairly close. This is a confirmation that our model is good for forecasting. To plot the values under the "Lower" and "Upper" column in the same chart (using the EXCEL chart facility), select the graph and then click Design Select Data to open the Select Data Source dialog.

Click Add to open the Edit Series dialog. Enter Lower for Series name and G52:G72 for the Series values.

Click OK and repeat these steps entering Upper for the Series name and H52:H72 for the Series values. Then click OK on the Edit Series dialog and OK again on the Select Data Source dialog to produce the graph below.

The plot shows that the Actual values lie well within the bands created by the Upper and Lower values in the table. In fact, for the majority of the graph, the Actual and Forecasted values are located in the center, or very close to the center, of the two bands. As a result, it can be assumed that we have fitted an adequate model. Now lets fit a model to a dataset containing seasonality. Click XLMiner Help Examples and open the Airpass.xlsx example dataset. This is the classic Box & Jenkins dataset containing monthly totals of international airline

passengers from 1949 to 1960. Clearly, this dataset will contain some seasonality as air traffic increases each year during the summer and holiday season. A portion of the dataset is shown below.

First, the data must be partitioned. Click XLMiner Partition in the Time Series group. Select Month as the time variable and Passengers as the Variable in the Partitioned Data. Select Specify #Records under both Specify Partitioning Options and Specify #Records for Partitioning. Then enter 120 for the number of records in the Training set. XLMiner will automatically enter the remaining number of records for the Validation set. Finally, click OK.

The worksheet containing the partition, Data_PartitionTS1, is inserted immediately after the Data worksheet. Select a cell on this worksheet, then click XLMiner ARIMA Autocorrelations. Select Passengers as the Selected Variable. Enter 40 for the ACF Parameters for Training Data Lags and 20 for ACF Parameters for Validation Data Lags. Then click OK.

The output worksheet, ACF_Output1, is inserted immediately after the Data_PartitionTS1 output.

Both plots clearly show a repetition in the pattern indicating that the data does contain seasonality. Now lets create the PACF chart. Click back to the Data_PartitionTS1, then click XLMiner ARIMA Partial Autocorrelations. Select Passengers as the Selected variable. Enter 40 for PACF Parameters for Training Data Maximum Lag and 20 for PACF Parameters for Validation Data Maximum Lag. Select Plot PACF chart, then click OK.

The output worksheet, PACF_Output1, is inserted immediately after the ACF_Output1 worksheet.

Both plots are similar and both show seasonality. As a result, it can be assumed that the same model can be applied to both the Training and Validation sets. Lets try fitting an ARIMA model with the following parameters p = 1, d = 1 and q = 0 or (1, 1, 0)12. This means that we are applying a seasonal model with period =12. Selection of the value of period depends on the nature of data. In this case we can make a fair guess that the # passengers increases during the holidays, or every 12 months. Click back to the Data_PartitionTS1 worksheet, then click XLMiner ARIMA ARIMA Model. Select Passengers for the Selected variable, select Fit Seasonal Model, and enter 12 for Period. Under Nonseasonal Parameters, enter 1 for Autoregressive (p), 1 for Difference (d), and 0 for Moving Average (q). Under Seasonal Parameters, enter 1 for Autoregressive (P), 1 for Difference (D), and 0 for Moving Average (Q). Then click Advanced.

Select Fitted Value and residuals, Variance-covariance matrix, Produce forecasts, and Report Confidence Intervals for forecasts, then enter 95 for the Confidence-level. Select OK on the ARIMA-Advanced dialog and OK on the ARIMA dialog.

Two worksheets, ARIMA_Output1 and ARIMA_Residuals1, containing the output are inserted immediately after PACF_Output1. Click the Output1 worksheet to display the following results.

The small p-values are our first indication that our model is a good fit to the data. Scroll down to the Forecast table. This table holds the actual and forecasted values as predicted by the model. The "Lower" and "Upper" values represent the 95% confidence interval in which the forecasted values lie.

The time plot below graphs the values in the Forecast table above and indicates how well the model performs. The actual and forecasted values are fairly close, though not as close as in the earlier example. Still, this is a second indication that this model fits well.

Click the graph and select Design Select Data. Click Add, then enter Lower for Series name and select cells G59:G82 for Series values.

Then click OK. Repeat the steps above using Upper as the Series name and cells H59:H82 as the Series values. Click OK on the Edit Series dialog and OK again on the Select Data Source dialog. The updated graph is shown below.

The plot shows that the Actual values lie well inside the band created by the upper and lower values of the 95% percentile. In fact, the Actual and Forecasted values appear in the center of the range in the majority of the graph. This is our third indication that our model is a good fit. Now open the worksheet ARIMA_Residuals1. This table plots the actual and fitted values and the resulting residuals. As you can see in the graph below, the Actual and Forecasted values match up fairly well. This is yet another indication that our model is performing well.

Scrolling down, we find the ACF and PACF plots. In both plots, most of the residuals are within the UCL and LCL range which indicates that the residuals are random and not correlated which, once more, suggests a good fit.

To conclude, our ARIMA model of (1,1,0)(1,1,0) 12 has been shown to adequately fit the data.

The options described below appear on one of the five Time Series dialogs.

The options below appear on the Time Series Partition Data dialog.

Time variable

Select a time variable from the available variables and click the > button. If a Time Variable is not selected, XLMiner will assign one to the partitioned data.

Select one or more variables from the Variables field by clicking on the corresponding selection button.

Select Specify Percentages to specify the percentage of the total number of records desired in the Validation and Training sets. Select Specify # Records to enter the desired number of records in the Validation and Training sets.

Select Automatic to have XLMiner automatically use 60% of the records in the Training set and 40% of the records in the Validation set. Select Specify # Records under Specify Partitioning Options, to manually select the number of

records to include in the Validation and Training sets. If Specify Percentages is selected under Specify Partitioning Options, then select Specify Percentages to specify the percentage of the total number of records to be included in the Validation and Training sets. The options below appear on the Autocorrelations (ACF) dialog.

Selected Variable

Select a variable under Variables in input data.

Lags

Specify the number of desired lags here. XLMiner will display the ACF output for all lags between 0 and the specified number.

If this option is selected, ACF plots the autocorrelations for the selected variable. The options below appear on the Partial Autocorrelations (PACF) dialog.

Select one or more variables from the Variables field by clicking on the corresponding selection button.

Selected variable

The selected variable appears here.

Enter the minimum and maximum lags for the Training Data here.

Enter the minimum and maximum lags for the Validation Data here.

Time Variable

Select the desired Time Variable by clicking the > button.

Select this option to remove the constant term from the series.

Select this option to specify a seasonal model. The seasonal parameters are enabled when this option is selected.

Period

Seasonality in a dataset appears as patterns at specific periods in the time series. Enter 12 if the seasonality only appears once in a year. Enter 6 if the seasonality appears twice in one year.

Nonseasonal Parameters

Enter the nonseasonal parameters here for Autoregressive (p), Difference (d), and Moving Average (q).

Seasonal Parameters

Enter the Seasonal parameters here for Autoregressive (p), Difference (d), and Moving Average (q).

Enter the maximum number of iterations here.

XLMiner will include the fitted values and residuals in the output if this option is selected.

Variance-covariance matrix

XLMiner will include the variance-covariance matrix in the output if this option is selected.

Produce forecasts

If this option is selected, XLMiner will display the desired number of forecasts. If the data has been partitioned, XLMiner will display the forecasts on the validation data.

If this option is selected, enter the desired confidence level here. (The default level is 95%.) The Lower and Upper values of the computed confidence levels will be included in the output. The forecasted value will be guaranteed to fall within this range for the specified confidence level.

Smoothing Techniques

Introduction

Data collected over time is likely to show some form of random variation. "Smoothing techniques" can be used to reduce or cancel the effect of these variations. These techniques, when properly applied, will smooth out the random variation in the time series data to reveal any underlying trends that may exist. XLMiner features four different smoothing techniques: Exponential, Moving Average, Double Exponential, and Holt Winters. The first two techniques, Exponential and Moving Average, are relatively simple smoothing techniques and should not be performed on datasets involving seasonality. The last two techniques are more advanced techniques which can be used on datasets involving seasonality.

Exponential smoothing

Exponential smoothing is one of the more popular smoothing techniques due to its flexibility, ease in calculation and good performance. As in Moving Average Smoothing, a simple average calculation is used. Exponential Smoothing, however, assigns exponentially decreasing weights starting with the most recent observations. In other words, new observations are given relatively more weight in the average calculation than older observations. In this smoothing technique, a calculated Si stands for a smoothed observation for the original observation, xi. The subscripts refer to the time periods, 1, 2, ..., n. For the third period, S3 = a x3 + (1-a) S2; and so on. The smoothed series starts with the smoothed version of the second observation, S2. For any time period t, the smoothed value St is found by computing St = a xt + (1-a) St-1 0< a <= 1 ; t >= 3 where a is the smoothing constant. The value of this constant determines the weights assigned to the observations. This formula can be rewritten as Ft = Ft-1+aEt-1 where F is the forecast and E is the distance from the forecast to the actual observed value or the residual. Since the previous forecast and the previous forecasts residual is included in the current periods forecast, if the previous periods forecast was too high, the current periods forecast will be adjusted downward. Vice versa, if the previous periods forecast was too low, the current periods forecast will be adjusted upward. The smoothing parameter, a, determines the magnitude of the adjustment. As with Moving Average Smoothing, Exponential Smoothing should only be used when the dataset contains no seasonality. The forecast will be a constant value which is the smoothed value of the last observation.

In this simple technique each observation is assigned an equal weight. Additional observations are forecasted by using the average of the previous observations. If we have the time series X1, X2, X3, ....., Xt, then this technique will predict Xt+k as follows : St = Average (xt-k+1, xt-k+2, ....., xt), t= k, k+1, k+2, ...N where k is the smoothing parameter. XLMiner allows a parameter value between 2 and t-1 where t is the number of observations in the dataset. Care should be taken when choosing this parameter as a large parameter value will oversmooth the data while a small parameter value will undersmooth the data. Using the past three observations are enough to predict the next observations. As with Exponential Smoothing, this technique should not be applied when seasonality is present in the dataset.

Double exponential smoothing can be defined as Exponential smoothing of Exponential smoothing. As stated above, Exponential smoothing should not be used when the data includes seasonality. However, Double Exponential smoothing introduces a 2nd equation which includes a trend parameter. Therefore, this technique can and should be used when a trend is inherent in the dataset, but not used when seasonality is present. Double exponential smoothing is defined in the following manner: St = At + Bt , t = 1,2,3,..., N Where, At = aXt + (1- a) St-1 0< a <= 1 Bt = b (At - At-1) + (1 - b ) Bt-1 0< b <= 1 The forecast equation is: Xt+k = At + K Bt , K = 1, 2, 3, ... where a denotes the Alpha parameter and b denotes the Trend parameters. XLMiner allows these two parameters to be entered manually. In addition, XLMiner includes an optimize feature which will chose the best values for Alpha and Trend based on the Forecasting Mean Squared Error. If the trend parameter is 0, then this technique is equal to the Exponential Smoothing technique.

What happens if the data exhibits trends as well as seasonality? We now introduce a third parameter, g to account for seasonality (sometimes called periodicity) in a dataset. The resulting set of equations is called the Holt-Winters method after the names of the inventors. The Holt Winters method can be used on datasets involving trend and seasonality (a, b , g). Values for all three parameters can range between 0 and 1. There are three models associated with this method: Multiplicative: Xt = (A+ Bt)* St +et A and B are previously calculated initial estimates. St is the average seasonal factor for the tth season. Additive: Xt = (A+ Bt) +SNt + et No Trend: b = 0, so, Xt = A * SNt +et Holt Winters' smoothing is similar to exponential smoothing if b and g = 0 and is similar to double exponential smoothing if g = 0.

This example illustrates how to use XLMiner s Exponential Smoothing technique to uncover trends in a time series. Click Help Examples on the XLMiner ribbon and open the example dataset, Airpass.xlsx. This dataset contains the monthly totals of international airline passengers from 1949 - 1960. After the example dataset opens, click a cell in the dataset, say cell A2, then click Partition in the Time Series group on the XLMiner ribbon to open the Time Series Partition Data dialog, as shown below.

Select Month as the Time Variable and Passengers as the Variables in the partitioned data. Then click OK to partition the data into training and validation sets. Click the Data_PartitionTS1 worksheet, then click Smoothing Exponential to open the Exponential Smoothing dialog, as shown below.

Month has already been selected as the Time Variable. Select Passengers as the Selected variable and also Give Forecast on validation.

Click OK to apply the smoothing technique. The worksheet ExponentialOutput1 will be inserted immediately after the Data_PartitionTS1 worksheet. The output on this worksheet shows that the moving average smoothing technique does not result in a good fit as the model does not effectively capture the seasonality in the dataset. As a result, the summer months where the number of airline passengers are typically high appear to be under forecasted (i.e. too low) and the forecasts for months with low passenger numbers are too high. Consequently, an exponential smoothing forecast should never be used when the dataset includes seasonality. An alternative would be perform a regression on the model and then apply this technique to the residuals.

Now lets take a look at an example that does not include seasonality. Open the Income.xlsx example dataset. This dataset contains the average income of tax payers by state. First partition the dataset into training and validation sets using Year as the Time Variable and CA as the Variables in the partitioned data.

Then click OK to accept the partitioning defaults and create the two sets (Training and Validation). The worksheet, Data_PartitionTS, will be inserted immediately following the Description worksheet. Click the Data_PartitionTS1 worksheet, then click Smoothing Exponential from the XLMiner ribbon to open the Exponential Smoothing dialog.

Select Year as the Time Variable and CA as the Selected variable. The smoothing parameter (Alpha) determines the magnitude of weights assigned to the observations. For example, a value close to 1 would result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights. A value close to 0 would result in the earliest observations being assigned the largest weights and the latest observations being assigned the smallest weights. As a result, the value of Alpha depends on how much influence the most recent observations should have on the model. XLMiner includes the Optimize feature that will choose the Alpha parameter value that results in the minimum residual mean squared error. It is recommended that this feature be used carefully as it can often lead to a model that is overfitted to the training set. An overfit model rarely exhibits high predictive accuracy in the validation set. If we click OK to accept the default Alpha value of 0.2, the worksheet ExponentialOutput1 will be inserted immediately after the Data_PartitionTS1 worksheet. The plot shows a fitted model with a MSE of 264,349.93 for the Training set and a MSE of 215,569,436 for the Validation set.

If we instead select Optimize, then click OK, XLMiner will choose an Alpha of 1 which results in a MSE of 22,548.69 for the Training Set and a MSE of 193,113,481 for the Validation Set. Using the Optimize algorithm results in a better model in this instance.

This example illustrates how to use XLMiners Moving Average Smoothing technique to uncover trends in a time series. Click Help Examples on the XLMiner ribbon and open the example dataset, Airpass.xlsx. This dataset contains the monthly totals of international airline passengers from 1949 - 1960. After the example dataset opens, click a cell in the dataset, say cell A2, then click Partition in the Time Series group on the XLMiner ribbon to open the Time Series Partition Data dialog, as shown below.

Select Month as the Time Variable and Passengers as the Variables in the partitioned data. Then click OK to partition the data into training and validation sets. Click the Data_PartitionTS1 worksheet, then click Smoothing Moving Average to open the Moving Average Smoothing dialog, as shown below.

Click the down arrow next to Worksheet in the Data source section at the top of the dialog and select Data_PartitionTS1. Month has already been selected as the Time Variable. Select Passengers as the Selected variable. Since this dataset is expected to include some seasonality (i.e. airline passenger numbers increase during the holidays and summer months), the value for the Interval parameter should be the length of one seasonal cycle, i.e. 12 months. As a result, enter 12 for Interval. Partitioning the data is optional. If you choose to not partition before running the smoothing technique, then you will be given the option to specify the number of desired forecasts on the Moving Average Smoothing dialog.

Afterwards, click OK to apply the smoothing technique to this dataset. The worksheet, MASmoothingOutput1, will be inserted immediately after the Data_PartitionTS1 worksheet. The output on this worksheet shows that the moving average smoothing technique does not result in a good fit as the model does not effectively capture the seasonality in the dataset. As a result, the summer months where the number of airline passengers are typically high, appear to be under forecasted. In addition, in the months where the number of airline passengers are low, the model results in a forecast that is too high. As you can see, a moving average forecast should never be used when the dataset includes seasonality. An alternative would be perform a regression on the model and then apply this technique to the residuals.

Now lets take a look at an example that does not include seasonality. Open the Income.xlsx example dataset. This dataset contains the average income of tax payers by state. First partition the dataset into training and validation sets using Year as the Time Variable and CA as the Variables in the partitioned data.

Then click OK to accept the partitioning defaults and create the two sets (Training and Validation). The worksheet, Data_PartitionTS1 will be inserted immediately following the Description worksheet. Click the Data_PartitionTS1 worksheet, then click Smoothing Moving Average from the XLMiner ribbon to open the Moving Average Smoothing dialog. Select Year as the Time Variable and CA as the Selected variable.

Click OK to run the Moving Average Smoothing technique. The worksheet MASmoothingOutput1 will be inserted immediately after the Data_PartitionTS1 worksheet. The results of the Moving Average Smoothing technique on this dataset indicate a much better fit.

This example illustrates how to use XLMiners Double Exponential Smoothing technique to uncover trends in a time series that contains seasonality. Click Help Examples on the XLMiner ribbon and open the example dataset,

Airpass.xlsx. This dataset contains the monthly totals of international airline passengers from 1949 - 1960. After the example dataset opens, click a cell in the dataset, say cell A2, then click Partition in the Time Series group on the XLMiner ribbon to open the Time Series Partition Data dialog, as shown below.

Select Month as the Time Variable and Passengers as the Variables in the partitioned data. Then click OK to partition the data into training and validation sets. The Data_PartitionTS1 worksheet will be inserted immediately after the Data worksheet. Click the Data_PartitionTS1 worksheet, then click Smoothing Double Exponential to open the Double Exponential Smoothing dialog, as shown below.

Month is already selected as the Time Variable, select Passengers as the Selected variable, then check Give Forecast on validation to test the forecast on the validation set. This example uses the defaults for both the Alpha and Trend parameters. However, XLMiner includes a feature that will choose the Alpha and Trend parameter values that result in the minimum residual mean squared error. It is recommended that this feature be used carefully as this feature most often leads to a model that is overfitted to the training set. An overfitt model rarely exhibits high predictive accuracy in the validation set.

Click OK to run the Double Exponential Smoothing algorithm. The worksheet, DoubleExponentialOutput1, will be inserted immediately after the Data_PartitionTS1 worksheet. Click on the ExponentialOutput1 tab to view the results of the smoothing. As you can see, this smoothing technique results in an improved model with an MSE of 877.8575 for the Training Set and an MSE of 8,043.03 for the Validation Set.

If instead, the Optimize feature is used, an Alpha of 1 is chosen along with a Trend of 0. These parameters result in a MSE of 438.39 for the Training set and a MSE of 7670.83 for the Validation Set. Again the model created with the parameters from the Optimize algorithm resulted in a model with a better fit than a model created with the default parameters.

This example illustrates how to use XLMiners Holt Winters Smoothing technique to uncover trends in a time series that contains seasonality. Click Help Examples on the XLMiner ribbon and open the example dataset, Airpass.xlsx. This dataset contains the monthly totals of international airline passengers from 1949 - 1960. After the example dataset opens, click a cell in the dataset, say cell A2, then click Partition in the Time Series group on the XLMiner ribbon to open the Time Series Partition Data dialog, as shown below.

Select Month as the Time Variable and Passengers as the Variables in the partitioned data. Then click OK to partition the data into training and

validation sets. The Data_PartitionTS1 worksheet will be inserted immediately after the Data worksheet. Click the Data_PartitionTS1 worksheet, then click Smoothing Holt Winters. Three additional menu items will appear, Multiplicative, Additive, and No Trend. This example will create three different forecasts, one for each Holt Winters model type, beginning with Multiplicative. Select Multiplicative to open the Holt Winters Smoothing (Multiplicative Model) dialog, as shown below.

Month has already been selected for the Time Variable. Select Passengers as the Selected variable. Since the seasonality in this dataset appears every 12 months, enter 12 for Period, # Complete seasons is automatically entered with the number 7. This example will use the defaults for the three parameters: Alpha, Beta, and Gamma. Values between 0 and 1 can be entered for each parameter. As with Exponential Smoothing, values close to 1 will result in the most recent observations being weighted more than earlier observations. In the Multiplicative model, it is assumed that the values for the different seasons differ by percentage amounts.

Select Give Forecast on validation and click OK. The worksheet HoltWinterOutput1 is inserted immediately after the Data_PartitionTS1 worksheet and includes the following results.

Now lets create a new model using the Additive model. This technique assumes the values for the different seasons differ by a constant amount. Click back to the Data_PartitionTS1 tab and then click Smoothing Holt Winters Additive to open the Holt Winters Smoothing (Additive Model) dialog.

Month has already been selected for the Time Variable, select Passengers for Selected variable. Again, enter 12 for Period and select Give Forecast on validation.

Click OK to run the smoothing technique. The worksheet HoltWinterOutput2 will be inserted at the end of the workbook. This tab contains the following results. Although the MSE for the Training Data is larger (718.24 vs 84.59) when compared to the Multiplicative model, the MSE for the Validation set is significantly smaller (3247.39 vs 25,280.27).

The last Holt Winters model should be used with time series that contain seasonality, but no trends. Click back to the Data_PartitionTS1 worksheet and click Smoothing Holt Winters No Trend to open the Holt Winters Smoothing (No trend Model) dialog.

Month has already been selected as the Time Variable, select Passengers as the Selected variable. Enter 12 for Period and select Give Forecast on validation. Notice that the trend parameter is missing. Values for Alpha and Gamma can

range from 0 to 1. A value of 1 for each parameter will assign higher weights to the most recent observations and lower weights to the earliers observations. This example will accept the default values.

Click OK to run the smoothing technique. The worksheet HoltWinterOutput3 will be inserted at the end of the workbook. Click this tab to view the results.

Taking into account all three methods, the best MSE for the validation set is from the Additive model (3,247.49).

Common Options

The following options are common to each of the Smoothing techniques.

When this option is selected, variables will be listed in the Variables in input data list box according to the first row in the dataset. If this option is not checked, variables will appear as VarX where X = 1,2,3,4, etc.

All variables in the dataset will be listed here.

Time Variable

Select a variable associated with time from the Variables in input data list box.

Selected Variable

Select a variable to apply the smoothing technique.

Output Options

If applying this smoothing technique to raw data, rather than partitioned data, the Output Options will contain two options, Give Forecast and #forecasts.

Give Forecast

If this option is selected, XLMiner will include a forecast on the output results.

#Forecasts

If Give Forecast is selected, enter the desired number of forecasts here.

If applying this smoothing technique to partitioned data, only this option will appear. If this option is selected, XLMiner will test the model on the validation set.

This section explains the options included in the Weights section on the Exponential Smoothing dialog.

Optimize

Select this option if you want XLMiner to select the Alpha Level that minimizes the residual mean squared errors in the training and validation sets. Take care when using this feature as this option can result in an over fitted model. This option is not selected by default.

Level (Alpha)

Enter the smoothing parameter here. This parameter is used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights. The default value is 0.2.

The section describes the options included in the Weights section of the Moving Average Smoothing dialog.

Interval

Enter the window width of the moving average here. This parameter accepts a value of 2 up to N -1(where N is the number of observations in the dataset). If a value of 5 is entered for the Interval, then XLMiner will use the average of the last five observations for the last smoothed point or Ft = (Yt + Yt-1 + Yt-2 + Yt 3 + Yt-4) / 5. The default value is 2.

This section describes the options appearing in the Weights section on the Double Exponential Smoothing dialog.

Optimize

Select this option if you want XLMiner to select the Alpha and Beta values that minimize the residual mean squared errors in the training and validation sets. Take care when using this feature as this option can result in an over fitted model. This option is not selected by default.

Level (Alpha)

Enter the smoothing parameter here. This parameter is used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights in the weighted average calculation. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights in the weighted average calculation. The default is 0.2.

Trend (Beta)

The Double Exponential Smoothing technique includes an additional parameter, Beta, to contend with trends in the data. This parameter is also used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights in the weighted average calculation. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights in the weighted average calculation. The default is 0.15.

The options in this section appear in the Parameters and Weights section of the Holt Winters Smoothing dialogs.

Parameters

Enter the number of periods that make up one season. The value for # Complete seasons will be automatically filled.

Level (Alpha)

Enter the smoothing parameter here. This parameter is used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights in the weighted average calculation. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights in the weighted average calculation. The default is 0.2.

Trend (Beta)

The Holt Winters Smoothing also utilizes the Trend parameter, Beta, to contend with trends in the data. This parameter is also used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights in the weighted average calculation. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights in the weighted average calculation. The default is 0.15. This option is not included on the No Trend Model dialog.

Seasonal (Gamma)

The Holt Winters Smoothing technique utilizes an additional seasonal parameter, Gamma, to manage the presence of seasonality in the data. This parameter is also used in the weighted average calculation and can be from 0 to 1. A value of 1 or close to 1 will result in the most recent observations being assigned the largest weights and the earliest observations being assigned the smallest weights in the weighted average calculation. A value of 0 or close to 0 will result in the most recent observations being assigned the smallest weights and the earliest observations being assigned the largest weights in the weighted average calculation. The default is 0.05.

Give Forecast

XLMiner will generate a forecast if this option is selected.

Select this option to create an updated forecast each time that a forecast is generated.

#Forecasts

Enter the desired number of forecasts here.

Introduction

One very important issue when fitting a model is how well the newly created model will behave when applied to new data. To address this issue, the dataset can be divided into multiple partitions: a training partition used to create the model, a validation partition to test the performance of the model and, if desired, a third test partition. Partitioning is performed randomly, to protect against a biased partition, according to proportions specified by the user or according to rules concerning the dataset type. For example, when creating a time series forecast, data is partitioned by chronological order.

Training Set

The training dataset is used to train or build a model. For example, in a linear regression, the training dataset is used to fit the linear regression model, i.e. to compute the regression coefficients. In a neural network model, the training dataset is used to obtain the network weights. After fitting the model on the training dataset, the performance of the model should be tested on the validation dataset.

Validation Set

Once a model is built using the training dataset, the performance of the model must be validated using new data. If the training data itself was utilized to compute the accuracy of the model fit, the result would be an overly optimistic estimate of the accuracy of the model. This is because the training or model fitting process ensures that the accuracy of the model for the training data is as high as possible -- the model is specifically suited to the training data. To obtain a more realistic estimate of how the model would perform with unseen data, we must set aside a part of the original data and not include this set in the training process. This dataset is known as the validation dataset. To validate the performance of the model, XLMiner measures the discrepancy between the actual observed values and the predicted value of the observation. This discrepancy is known as the error in prediction and is used to measure the overall accuracy of the model.

Test Set

The validation dataset is often used to fine-tune models. For example, you might try out neural network models with various architectures and test the accuracy of each on the validation dataset to choose the best performer among the competing architectures. In such a case, when a model is finally chosen, its accuracy with the validation dataset is still an optimistic estimate of how it would perform with unseen data. This is because the final model has come out as the winner among the competing models based on the fact that its accuracy with the validation

dataset is highest. As a result, it is a good idea to set aside yet another portion of data which is used neither in training nor in validation. This set is known as the test dataset. The accuracy of the model on the test data gives a realistic estimate of the performance of the model on completely unseen data. XLMiner provides two methods of partitioning: Standard Partitioning and Partitioning with Oversampling. XLMiner provides two approaches to standard partitioning: random partitioning and user-defined partitioning.

Random Partitioning

In simple random sampling, every observation in the main dataset has equal probability of being selected for the partition dataset. For example, if you specify 60% for the training dataset, then 60% of the total observations are randomly selected for the training dataset. In other words, each observation has a 60% chance of being selected. Random partitioning uses the system clock as a default to initialize the random number seed. Alternatively, the random seed can be manually set which will result in the same observations being chosen for the training/validation/test sets each time a standard partition is created.

In user-defined partitioning, the partition variable specified is used to partition the dataset. This is useful when you have already predetermined the observations to be used in the training, validation, and/or test sets. This partition variable takes the value: "t" for training, "v" for validation and "s" for test. Rows with any other values in the Partition Variable column are ignored. The partition variable serves as a flag for writing each observation to the appropriate partition(s).

This method of partitioning is used when the percentage of successes in the output variable is very low, e.g. callers who opt in to a short survey at the end of a customer service call. Typically, the number of successes, in this case, the number of people who finish the survey, is very low so information connected with these callers is minimal. As a result, it would be almost impossible to formulate a model based on these callers. In these types of cases, we must use Oversampling (also called weighted sampling). Oversampling can be used when there are only two classes, one of much greater importance than the other, i.e. callers who finish the survey as compared to callers who simply hang up. XLMiner takes the following steps when partitioning with oversampling. 1. The data is partitioned by randomly allocating 50% of the success values for the output variable to the training set. The output variable must be limited to two classes which can either be numbers or strings. XLMiner maintains the % success in training set specified by the user in the training set by randomly selecting the required records with failures. The remaining 50% of successes are randomly allocated to the validation set. If % validation data to be taken away as test data is selected, then XLMiner will create an appropriate test set from the validation set.

2. 3. 4.

The example in this section illustrates how to use XLMiner s partition utility to partition the example dataset, Wine.xlsx. Click Help Examples and open the Wine.xlsx example dataset. Select a cell within this dataset, say cell A2, then click Partition Standard Partition in the Data Mining section of the XLMiner ribbon. The following dialog will open.

Highlight all variables in the Variables listbox, then click > to include them in the partitioned data. Then click OK to accept the remainder of the default settings. Sixty percent of the observations will be assigned to the Training set and forty percent of the observations will be assigned to the Validation set. The worksheet Data_Partition1 will be inserted immediately after the Description workbook.

From the figure above, taken from the Data_Partition1 worksheet, 107 observations were assigned to the training set and 71 observations were assigned to the validation set, or roughly 60% and 40% of the observations, respectively.

It is also possible for the user to specify which sets each observation should be assigned. In column 0, enter a t, v or s for each record, as shown below.

Then click Partition Standard Partition on the XLMiner ribbon to open the Standard Partition dialog. Select Use Partition Variable in the Partitioning options section, select Partition Variable in the Variables listbox, then click > next to Use Partition Variable. XLMiner will use the values in the Partition Variable column to create the training, validation, and test sets. Records with a t in the O column will be designated as training records. Records with a v in the O column will be designated as validating records and records with a c in this column will be designated as testing records. Now highlight all remaining variables in the listbox and click > to include them in the partitioned data.

Click OK to create the partitions. The workbook Data_Partition2 will be inserted at the end of the workbook. If you inspect the results, you will find that all records assigned a t now belong to the training set, all records assigned a

v now belong to the validation set, and all records assigned an s no w belong to the test set.

This example illustrates the use of partitioning with oversampling using XLMiner. Click Help Examples on the XLMiner ribbon to open the example model, Catalog_multi.xlsx. This sample dataset contains information associated with the response of a direct mail offer, published by DMEF, the Direct Marketing Educational Foundation. The output variable is Target dependent variable:buyer(yes=1). Since the success rate for the target variable (Target dependent variable:buyer(yes=1)) is less than 1%, the data will be trained with a 50% success rate using XLMiners oversampling utility. Click any cell within the dataset, say cell A2, then click Partition Partition with Oversampling (in the Data Mining section of the XLMiner ribbon) to open the dialog shown below. Its possible XLMiner may alert you with the following message at this point, even though you have a professional license for XLMiner. If this message box appears, simply click OK.

First confirm that Data Range at the top of the dialog is showing as $A$1:$V$58206. If not, simply click in the Data Range field and type the correct range. Select all variables in the Variables list box then click > to move all variables to the Variables in the partitioned data listbox. Afterwards, highlight Target dependent variable: buyer(yes = 1) in the Variables in the partitioned data listbox then click the > immediately to the left of Output variable to designate this variable as the output variable. Reminder: this output variable is limited to two classes, e.g. 0/1 or yes/no. Enter 50 for the Specify % validation data to be taken away as test data .

Click OK to partition the data. The Data_Partition1 worksheet will be inserted immediately after the Data worksheet.

The output variable (Target dependent variable: buyer (yes = 1)) contains 576 successes or 1s. All of these records have been allocated to the Training set. The percentage of success records in the original data set is 0.9896 or 576/58204 (number of successes / number of total rows in original dataset). 50% was specified for both % Success in Training data and % Validation data taken away as test in the Partition with Oversampling dialog. As a result, XLMiner has randomly allocated 50% of the successes (the 1s) to the training set and the remaining 50% to the validation set. This means that there are 288 successes in the training set and 288 successes in the validation set. To complete the training set, XLMiner randomly selected 288 non successes (0s). The training set has 561 rows (288 1s + 288 0s). The output above shows that the % Success in original data set is .9896. XLMiner will maintain this percentage in the validation set as well by allocating

as many 0s as needed. Since 288 successes (1s) have already been allocated to the validation set, 14,263 non successes (0s) must be added to the validation set to maintain the .98% ratio. Since we specified 50% of validation data should be taken as test data, XLMiner has allocated 50% of the validation records to the test set. Each set contains 14,551 rows.

The options below appear on the Standard Partitioning dialog, shown below.

Select this option when assigning each record to a specific set using an added variable in the dataset. Each observation should be assigned a t, v or s to delineate training, validation or test, respectively. Select this variable from the Variables in the partitioned data list box then click >, to the right of the Use partition variable radio button, to add the appropriate variable as the output variable.

Set Seed

Random partitioning uses the system clock as a default to initialize the random number seed. By default this option is selected to specify a non-negative seed for random number generation for the partitioning. Setting this option will result

in the same records being assigned to the same set on successive runs. The default seed entry is 12345.

When this option is selected, XLMiner will randomly select observations to be included in the training, validation, and test sets.

Automatic

If Pick up rows randomly is selected under Partitioning options, this option will be enabled. Select this option to accept the defaults of 60% and 40% for the percentages of records to be included in the training and validation sets. This is the default selection.

Specify percentages

If Pick up rows randomly is selected under Partitioning options, this option will be enabled. Select this option to manually enter percentages for training set, validation set and test sets. Records will be randomly allocated to each set according to these percentages.

If Pick up rows randomly is selected under Partitioning options, this option will be enabled. If this option is selected, XLMiner will allocate 33.33% of the records in the database to each set: training, validation, and test.

The following options appear on the Partitioning with Oversampling dialog, as shown below.

Set seed

Random partitioning uses the system clock as a default to initialize the random number seed. By default this option is selected to specify a non-negative seed for random number generation for the partition. Setting this option will result in the same records being assigned to the same set on successive runs. The default seed entry is 12345.

Output variable

Select the output variable from the variables listed in the Variables in the partitioned data listbox.

#Classes

After the output variable is chosen, the number of classes (distinct values) for the output variable will be displayed here. XLMiner supports a class size of 2.

After the output variable is chosen, you can select the success value for the output variable here (i.e. 0 or 1 or yes or no).

After the output variable is selected, the percentage of the number of successes in the dataset is listed here.

Enter the percentage of successes to be assigned to the training set here. The default is 50%. With this setting, 50% of the successes will be assigned to the training set and 50% will be assigned to the validation set.

If a test set is desired, specify the percentage of the validation set that should be allocated to the test set here.

Introduction

Discriminant analysis is a technique for classifying a set of observations into predefined classes in order to determine the class of an observation based on a set of variables. These variables are known as predictors or input variables. The model is built based on a set of observations for which the classes are known. This set of observations is sometimes referred to as the training set. Based on the training set, the technique constructs a set of linear functions of the predictors, known as discriminant functions, such that L = b1x1 + b2x2 + + bnxn + c, where the b's are discriminant coefficients, the x's are the input variables or predictors and c is a constant. These discriminant functions are used to predict the class of a new observation with an unknown class. For a k class problem k discriminant functions are constructed. Given a new observation, all the k discriminant functions are evaluated and the observation is assigned to class i if the ith discriminant function has the highest value.

The example below illustrates how to use the Discriminant Analysis classification algorithm. Click Help Examples and open the example dataset Boston_Housing.xlsx.

First, well need to perform a standard partition, as explained in the previous chapter, using percentages of 80% training and 20% validation. The Data_Partition1 worksheet will be inserted at the end of the workbook.

Select a cell on the Data_Partition1 worksheet then click Classify Discriminant Analysis to open the Discriminant Analysis dialog as shown below.

Select the CAT. MEDV variable in the Variables in input data listbox then click > to select as the Output variable. Afterwards, select CRIM, ZN, INDUS, NOX, RM, AGE, DIS, RAD, TAX, PTRATIO, & B in the Variables in input data listbox then click > to move to the Input variables listbox. (CHAS, LSTAT, & MEDV should remain in the Variables in input data listbox as shown below.)

Three options appear in the Prior class probabilities group: According to relative occurrences in training data, Use equal prior probabilities, and User specified prior probabilities. If the first option is selected, According to relative occurrences in training data , XLMiner will calculate according to the relative occurrences, the discriminant analysis procedure will incorporate prior assumptions about how frequently the different classes occur. XLMiner will assume that the probability of encountering a particular class in the large data set is the same as the frequency with which it occurs in the training data.

If the second option is selected, Use equal prior probabilities, XLMiner will assume that all classes occur with equal probability. The third option, User specified prior probabilities, is only available when the output variable handles two classes. Select this option to manually enter the desired class and probability value. We will select this option, then enter 1 for Class and enter 0.7 for Probability.

XLMiner gives the option of specifying the cost of misclassification when there are two classes; where the success class is judged as failure and the nonsuccess as a success. XLMiner takes into consideration the relative costs of misclassification, and attempts to fit a model that minimizes the total cost. Leave these options at their defaults of 1. Click OK to advance to the 3rd Discriminant Analysis dialog.

Select Canonical variate loadings. When this option is selected, XLMiner produces the canonical variates for the data based on an orthogonal representation of the original variates. This has the effect of choosing a representation which maximizes the distance between the different groups. For a k class problem there are k-1 Canonical variates. Typically, only a subset of the canonical variates is sufficient to discriminate between the classes. For this example, we have two canonical variates which means that if we replace the four original predictors by just two predictors, X1 and X2, (which are actually linear combinations of the four original predictors) the discrimination based on these two predictors will perform just as well as the discrimination based on the original predictors. Check all four options for Score Training/Validation data. When Detailed report is selected, XLMiner will create a detailed report of the Discriminant Analysis output. When Summary report is selected, XLMiner will create a report summarizing the Discriminant Analysis output. The values of the variables X1 and X2 for the ith observation are known as the canonical scores for that observation. In this example, the pair of canonical scores for each observation represents the observation in a two dimensional space. The purpose of the canonical score is to separate the classes as much as possible. Thus, when the observations are plotted with the canonical scores as the coordinates, the observations belonging to the same class are grouped together. When this option is selected, XLMiner reports the scores of the first few observations. See the Scoring chapter for more information on the options located in the Score Test Data and Score New Data groups.

Click Finish to view the output. The output worksheets will be inserted at the end of the workbook. The first output worksheet, DA_Output1, contains the Output Navigator which can be used to navigate to various sections of the output.

Click the Train.Score Detailed Rep. link to view the Classification of training data on the DA_TrainScore1 worksheet. This section of the output shows how each training data observation was classified. (Alternatively, the Classification of validation data on the DA_ValidScore1 worksheet displays how each validation data observation was classified.) The probability values for success in each record are shown after the predicted class and actual class columns.

Click the Class Funs link to view the Classification Function table. In this example, there are 2 functions -- one for each class. Each variable is assigned to the class that contains the higher value.

Click the Canonical Variate Loadings link to navigate to the Canonical Variate Loadings section. Canonical Variate Loadings are a second set of functions that give a representation of the data that maximizes the separation between the classes. The number of functions is one less than the number of classes (so in this case there is one function). If we were to plot the cases in this example on a line where xi is the ith case's value for variate1, you would see a clear separation of the data. This output is useful in illustrating the inner workings of the discriminant analysis procedure, but is not typically needed by the end-user analyst.

Click the Training Lift Charts link to navigate to the Training Data Lift Charts. In a Lift Chart, the x axis is the cumulative number of cases and the y axis is the cumulative number of true positives. The red line originating from the origin and connecting to the point (400, 65) is a reference line that represents the expected number of CAT MEDV predictions if XLMiner simply selected random cases i.e. no model was used. This reference line provides a yardstick against which the user can compare the model performance. From the Lift Chart below we can infer that if we assigned 200 cases to class 1, 62 1s would be included. If 200 cases were selected at random, we could expect 33 1s (200 * 65/400 = 32.5).

Click the Training Canonical Scores link to navigate to the DA_TrainCanSco1 worksheet. Canonical Scores are the values of each case for the function. Again, these are intermediate values useful for illustration but not required by the enduser analyst.

For information on Stored Model Sheets, in this example DA_Stored_1, please refer to the Scoring chapter.

The options below appear on the Discriminant Analysis dialogs.

The variables present in the dataset are listed here.

Input variables

The variables to be included in the Discriminant Analysis algorithm are listed here.

Weight Variables

This option is not used for Discriminant Analysis.

Output variable

The selected output variable is displayed here. XLMiner supports a maximum of 30 classes in the output variable.

#Classes

This value is the number of classes in the output variable.

This option is selected by default. Select the class to be considered a success or the significant class in the Lift Chart. This option is enabled when the number of classes in the output variable is equal to 2.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

If this option is selected, XLMiner will calculate according to the relative occurrences, the discriminant analysis procedure will incorporate prior assumptions about how frequently the different classes occur. XLMiner will assume that the probability of encountering a particular class in the large data set is the same as the frequency with which it occurs in the training data .

If this option is selected, XLMiner will assume that all classes occur with equal probability.

This option is only available when the output variable handles two classes. Select this option to manually enter the desired class and probability value.

Misclassification Costs of

XLMiner allows the option of specifying the cost of misclassification when there are two classes; where the success class is judged as a failure and the nonsuccess as a success. XLMiner takes into consideration the relative costs of misclassification, and attempts to fit a model that minimizes the total cost.

When this option is selected, XLMiner produces the canonical variates for the data based on an orthogonal representation of the original variates. This has the effect of choosing a representation which maximizes the distance between the different groups. For a k class problem there are k-1 Canonical variates. Typically, only a subset of the canonical variates is sufficient to discriminate between the classes. For this example, we have two canonical variates which means that if we replace the four original predictors by just two predictors, X1 and X2, (which are actually linear combinations of the four original predictors) the discrimination based on these two predictors will perform just as well as the discrimination based on the original predictors.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Canonical Scores

The values of the variables X1 and X2 for the ith observation are known as the canonical scores for that observation. In this example, the pair of canonical scores for each observation represents the observation in a two dimensional space. The purpose of the canonical score is to separate the classes as much as possible. Thus, when the observations are plotted with the canonical scores as the coordinates, the observations belonging to the same class are grouped together. When this option is selected for either the Training, Validation or Test sets, XLMiner reports the scores of the first few observations. See the Scoring chapter for more information on the options located in the Score Test Data and Score New Data groups.

Logistic Regression

Introduction

Logistic regression is a variation of ordinary regression which is used when the dependent (response) variable is a dichotomous variable. A dichotomous variable takes only two values, which typically represent the occurrence or nonoccurrence of some outcome event and are usually coded as 0 or 1 (success). The independent (input) variables are continuous, categorical, or both. An example of a categorical variable in a medical study would be a patients status after five years - the patient can either survive (1) or die (0). Unlike ordinary linear regression, logistic regression does not assume that the relationship between the independent variables and the dependent variable is a linear one. Nor does it assume that the dependent variable or the error terms are distributed normally. The form of the model is

where p is the probability that Y=1 and X1, X2,.. .,Xk are the independent variables (predictors). b0 , b1, b2, .... bk are known as the regression coefficients, which have to be estimated from the data. Logistic regression estimates the probability of a certain event occurring. Logistic regression thus forms a predictor variable (log (p/(1-p)) which is a linear combination of the explanatory variables. The values of this predictor variable are then transformed into probabilities by a logistic function. Such a function has the shape of an S. On the horizontal axis we have the values of the predictor variable, and on the vertical axis we have the probabilities.

Logistic regression also produces Odds Ratios (O.R.) associated with each predictor value. The "odds" of an event is defined as the probability of the outcome event occurring divided by the probability of the event not occurring. In general, the "odds ratio" is one set of odds divided by another. The odds ratio for a predictor is defined as the relative amount by which the odds of the outcome increase (O.R. greater than 1.0) or decrease (O.R. less than 1.0) when the value of the predictor variable is increased by 1.0 units. In other words, (odds for PV+1)/(odds for PV) where PV is the value of the predictor variable.

This example illustrates XLMiners Logistic Regression algorithm. Click Help Examples on the XLMiner ribbon and open the example file, Charles_Bookclub.xlsx. This file contains information associated with individuals who are members of a book club. This example develops a model for predicting whether a person will purchase a book about the city of Florence based on previous purchases.

First, we partition the data using a standard partition with percentages of 70% training and 30% validation. (For more information on how to partition a dataset, please see the previous Data Mining Partitioning chapter.)

Select a cell on the Data_Partition1 output worksheet, then click Classify Logistic Regression on the XLMiner ribbon. The Logistic Regression dialog appears.

Since we are interested in predicting if a customer will purchase a book about the city of Florence, we will choose Florence as our output variable. In the dataset, if a customer purchased a book about the city of Florence, the variable value equals 1. If a customer did not purchase a book about the city of Florence, the value equals 0. Select all remaining variables except Seq# and ID# as Input variables. These two variables are unique identifiers and should not be included as neither have any significance in the classification method.

Choose the value that will be the indicator of Success by clicking the down arrow next to Specify Success class (necessary). In this example, we will use the default of 1. Enter a value between 0 and 1 for Specify the initial cutoff probability for success. If the Probability of success (probability of the output variable = 1) is less than this value, then a 0 will be entered for the class value, otherwise a 1 will be entered for the class value. In this example, we will keep the default of 0.5. Click Next to advance to Step 2 of 3 of the Logistic Regression algorithm.

Selecting Set confidence level for odds alters the level of confidence for the confidence levels displayed in the results for the odds ratio. Selecting Force constant term to zero omits the constant term in the regression. For this example, select Set confidence level for odds leaving the percentage at 95%.

Keep the default of 50 for the Maximum # iterations. Estimating the coefficients in the Logistic Regression algorithm requires an iterative non-linear maximization procedure. You can specify a maximum number of iterations to prevent the program from getting lost in very lengthy iterative loops. This value must be an integer greater than 0 or less than or equal to 100 (1< value <= 100). Keep the default of 1 for the Initial marquardt overshoot factor. This overshoot factor is used in the iterative non-linear maximization procedure. Reducing this value speeds the operation by reducing the number of iterations required but increases the chances that the maximization procedure will fail due to overshoot. This value must be an integer greater than 0 or less than or equal to 50 (0 < value <=50). At times, variables can be highly correlated with one another which can result in large standard errors for the affected coefficients. XLMiner will display information useful in dealing with this problem if Perform Collinearity diagnostics is selected. For this example, select Perform Collinearity diagnostics and enter 2 for the Number of collinearity components. This option can take on integer values from 2 to 15 (2 <= value <= 15).

Select Perform best subset selection. Often a subset of variables (rather than all of the variables) performs the best job of classification. Selecting Perform best subset selection enables the Best Subset options. Using the spinner controls, specify 15 for the Maximum size of best subset. Its possible that XLMiner could find a smaller subset of variables. This option can take on values of 1 up to N where N is the number of input variables. The default setting is 15. Using the spinner controls, specify 15 for the Number of best subsets. XLMiner can provide up to 20 different subsets. The default setting is 1. XLMiner offers five different selection procedures for selecting the best subset of variables. Backward elimination in which variables are eliminated one at a time, starting with the least significant. Forward selection in which variables are added one at a time, starting with the most significant. Exhaustive search where searches of all combinations of variables are performed to observe which combination has the best fit. (This option can become quite time consuming depending on the number of input variables.)

Sequential replacement in which variables are sequentially replaced and replacements that improve performance are retained. Stepwise selection is similar to Forward selection except that at each stage, XLMiner considers dropping variables that are not statistically significant. When this procedure is selected, the Stepwise selection options FIN and FOUT are enabled. In the stepwise selection procedure a statistic is calculated when variables are added or eliminated. For a variable to come into the regression, the statistics value must be greater than the value for FIN (default = 3.84). For a variable to leave the regression, the statistics value must be less than the value of FOUT (default = 2.71). The value for FIN must be greater than the value for FOUT. For this example, select Backward elimination.

Click OK to return to the Step 2 of 3 dialog. Click Next to advance to the Step 3 of 3 dialog.

Select Covariance matrix of coefficieints. When this option is selected, XLMiner will display the coefficient covariance matrix in the output. Entries in the matrix are the covariances between the indicated coefficients. The on diagonal values are the estimated variances of the corresponding coefficients. Select Residuals. When this option is selected, XLMiner will produce a twocolumn array of fitted values and their residuals in the output. Select Detailed report under both Score training data and Score validation data. XLMiner will create a detailed report, complete with an Output Navigator, for ease in routing to specific areas in the output worksheets. Select Summary report under both Score training data and Score validation data. XLMiner will create a report that summarizes the regression output for both datasets. Select Lift charts under both Score training data and Score validation data. XLMiner will create a lift chart for both datasets. For information on scoring in a worksheet or database, please see the Scoring chapter.

Click Finish. The logistic regression output worksheets are inserted at the end of the workbook. Use the Output Navigator on the first output worksheet, LR_Output 1. A number of sections of output are available, including Classification of the Training Data as shown below. Note that XLMiner has not, strictly speaking, classified the data -- it has assigned a "predicted probability of success" to each case. This is the predicted probability, based on the input (independent) variable values for a case, that the output (dependent) variable for the case will be a "1". Since the logistic regression procedure works not with the actual values of the variable but with the logs of the odds ratios, this value is shown in the output (the predicted probability of success is derived from it). To classify each record as a "1" or a "0," we would simply assign a "1" to the record if the predicted probability of success exceeds a certain value. In this example the initial cutoff probability was set to 0.5 on the first Logistic Regression dialog. A value of "0" will be assigned if the prediction probability of success is less than the cutoff probability.

Since we selected Perform best subset selection on the Best Subset dialog, XLMiner has produced the following output which displays the variables that are included in the subsets. Since we selected 15 as the size of the subset, we are shown the best subset of 1 variable (plus the constant), up to the best subset for 15 variables (plus the constant). This list comprises several different models XLMiner generated using the Backward Elimination Selection Procedure as chosen on the Best Subset dialog.

Refer to the Best Subset output above. In this section, every model includes a constant term (since Force constant term to zero was not selected in Step 2 of 2) and one or more variables as the additional coefficients. We can use any of these models for further analysis by clicking on the respective link Choose Subset. The choice of model depends on the calculated values of various error values and the probability. RSS is the residual sum of squares, or the sum of squared deviations between the predicted probability of success and the actual value (1 or 0). Cp is "Mallows Cp" and is a measure of the error in the best subset model, relative to the error incorporating all variables. Adequate models are those for which Cp is roughly equal to the number of parameters in the model (including the constant), and/or Cp is at a minimum. "Probability" is a quasi hypothesis test of the proposition that a given subset is acceptable; if Probability < .05 we can rule out that subset. When hoving over Choose Subset, the mouse icon will change to a grabber hand. If Choose Subset is clicked, XLMiner opens the Logistic Regression Step 1 of 1 dialog displaying the input variables included in that particular subset. Scroll down to the end of the table.

The considerations about RSS, Cp and Probability would lead us to believe that the subsets with 10 or 11 coefficients are the best models in this example. Model terms are shown in the Regression Model output shown below.

This table contains the coefficient, the standard error of the coefficient, the pvalue and the odds ratio for each variable (which is simply ex where x is the value of the coefficient) and confidence interval for the odds.

Summary statistics to the right (above) show the residual degrees of freedom (#observations - #predictors), a standard deviation type measure for the model (which typically has a chi-square distribution), the percentage of successes (1's) in the training data, the number of iterations required to fit the model, and the Multiple R-squared value. The multiple R-squared value shown here is the r-squared value for a logistic regression model , defined as R2 = (D0-D)/D0 , where D is the Deviance based on the fitted model and D0 is the deviance based on the null model. The null model is defined as the model containing no predictor variables apart from the constant. Collinearity Diagnostics help assess whether two or more variables so closely track one another as to provide essentially the same information.

The columns represent the variance components (related to principal components in multivariate analysis), while the rows represent the variance proportion decomposition explained by each variable in the model. The eigenvalues are those associated with the singular value decomposition of the variance-covariance matrix of the coefficients, while the condition numbers are the ratios of the square root of the largest eigenvalue to all the rest. In general, multicollinearity is likely to be a problem with a high condition number (more than 20 or 30), and high variance decomposition proportions (say more than 0.5) for two or more variables. Lift charts (on the LR_TrainLiftChart and LR_ValidLiftChart, respectively) are visual aids for measuring model performance. They consist of a lift curve and a baseline. The greater the area between the lift curve and the baseline, the better the model.

After the model is built using the training data set, the model is used to score on the training data set and the validation data set (if one exists). Then the data set(s) are sorted using the predicted output variable value (or predicted probability of success in the logistic regression case). After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the number of cases versus the cumulated value. The baseline (red line connecting the origin to the end point of the blue line) is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value. See the chapter on Stored Model Sheets for more information on the LR_Stored_1 worksheet.

The following options appear on one of the five Logistic Regression dialogs.

All variables in the dataset are listed here.

Input variables

Variables listed here will be utilized in the XLMiner output.

Weight variable

One major assumption of Logistic Regression is that each observation provides equal information. XLMiner offers an opportunity to provide a Weight variable. Using a Weight variable allows the user to allocate a weight to each record. A record with a large weight will influence the model more than a record with a smaller weight.

Output Variable

Select the variable whose outcome is to be predicted.

# Classes

Displays the number of classes in the Output variable.

This option is selected by default. Select the class to be considered a success or the significant class in the Lift Chart. This option is enabled when the number of classes in the output variable is equal to 2Specify initial cutoff probability value for success.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

Select this option to omit the constant term in the regression

Select this option to alter the level of confidence for the confidence levels displayed in the results for the odds ratio.

Maximum # iterations

Estimating the coefficients in the Logistic Regression algorithm requires an iterative non-linear maximization procedure. You can specify a maximum number of iterations to prevent the program from getting lost in very lengthy iterative loops. This value must be an integer greater than 0 or less than or equal to 100 (1< value <= 100). The default value is 50.

This overshoot factor is used in the iterative non-linear maximization procedure. Reducing this value speeds the operation by reducing the number of iterations required but increases the chances that the maximiation procedure will fail due to overshoot. This value must be an integer greater than 0 or less than or equal to 50 (0 < value <=50). The default value is 1.

At times, variables can be highly correlated with one another which can result in large standard errors for the affected coefficients. XLMiner will display information useful in dealing with this problem if Perform Collinearity diagnostics is selected. This option is not selected by default.

This option is enabled when Perform Collinearity diagnostics is selected and determines the number of collinearity components included in the Collinearity diagnostic output. Enter an integer value greater than or equal to 2 and less than or equal to the number of predictors in the model (input variables) (2 <= value <= Number of predictors (input variables)). The default value is the number of predictors (or input variables) included in the model.

Often a subset of variables (rather than all of the variables) performs the best job of classification. Selecting Perform best subset selection enables the Best Subset options. This option is not selected by default.

Use the spinner controls to specify the number of best subsets generated by XLMiner. Its possible that XLMiner could find a smaller subset of variables. This option can take on values of 1 up to N where N is the number of input variables. The default setting is 15.

Using the spinner controls, specify the Number of best subsets. XLMiner can provide up to 20 different subsets. The default setting is 1.

Selection Procedure

XLMiner offers five different selection procedures for selecting the best subset of variables. Backward elimination in which variables are eliminated one at a time, starting with the least significant. Forward selection in which variables are added one at a time, starting with the most significant. Exhaustive search where searches of all combinations of variables are performed to observe which combination has the best fit. (This option can become quite time consuming depending on the number of input variables.) Sequential replacement in which variables are sequentially replaced and replacements that improve performance are retained. Stepwise selection is similar to Forward selection except that at each stage, XLMiner considers dropping variables that are not statistically significant. When this procedure is selected, the Stepwise selection options FIN and FOUT are enabled. In the stepwise selection procedure a statistic is calculated when variables are added or eliminated. For a variable to come into the regression, the statistics value must be greater than the value for FIN (default = 3.84). For a variable to leave the regression, the statistics value must be less than the value of FOUT (default = 2.71). The value for FIN must be greater than the value for FOUT.

When this option is selected, XLMiner will display the coefficient covariance matrix in the output. Entries in the matrix are the covariances between the indicated coefficients. The on-diagonal values are the estimated variances of the corresponding coefficients.

Residuals

When this option is selected, XLMiner will produce a two-column array of fitted values and their residuals in the output.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

For information on scoring in a worksheet or database, please see the Scoring chapter.

Introduction

In the k-nearest-neighbor classification method, the training dataset is used to classify each member of a "target" dataset. The structure of the data is that there is a classification (categorical) variable ("buyer," or "non-buyer," for example), and a number of additional predictor variables (age, income, location, etc.). 1. For each row (case) in the target dataset (the set to be classified), the k closest members (the k nearest neighbors) of the training dataset are located. A Euclidean Distance measure is used to calculate how close each member of the training set is to the target row that is being examined. Examine the k nearest neighbors - which classification (category) do most of them belong to? Assign this category to the row being examined. Repeat this procedure for the remaining rows (cases) in the target set. XLMiner allows the user to select a maximum value for k and builds models in parallel on all values of k up to the maximum specified value. Additional scoring can be performed on the best of these models.

2. 3. 4.

As k increases, the computing time increases. However a larger k will reduce the vulnerability of the training data to outside variability which might offset the increased time requirement. In most applications, k is in units of tens rather than in hundreds or thousands.

The example below illustrates the use of XLMiners k-Nearest Neighbors classification method. Click Help Examples on the XLMiner ribbon and open the example dataset Iris.xlsx. This dataset was introduced by R. A. Fisher and reports four characteristics of three species of the Iris flower.

First, we partition the data using a standard partition with percentages of 60% training and 40% validation (the default settings for the Automatic choice). For more information on how to partition a dataset, please see the previous Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, then click Classify k-Nearest Neighbors on the XLMiner ribbon to open the k-Nearest Neighbors Step 1 of 2 dialog, as shown below.

Select Petal_width, Petal_length, Sepal_width, and Sepal_length under Variables in input data then click > to select as input variables. Select Species_name as the output variable or the variable to be classified. Once the Output variable is selected, # Classes (3) will be filled automatically. Since our output variable contains more than 2 classes, Specify Success class and Specify initial cutoff value fields are disabled.

Select Normalize input data. When this option is selected, XLMiner will normalize the data by expressing the entire dataset in terms of standard deviations. This is done so that the distance measure is not dominated by a large

magnitude variable. In this example, the values for Petal_width are between .1 and 2.5 while the values for Sepal_length are between 4.3 and 7.9. When the data is normalized the actual variable value (say 4.3) is replaced with the standard deviation from the mean of that variable. This option is not selected by default. Enter 10 for Number of nearest neighbors (k). (This number is based on standard practice from the literature.) This is the parameter k in the k-Nearest Neighbor algorithm. The value of k should be between 1 and the total number of observations (rows). Note that if k is chosen as the total number of observations in the training set, then for any new observation, all the observations in the training set become nearest neighbors. The default value for this option is 1. Select Score on best k between 1 and specified value under Scoring option. When this option is selected, XLMiner will display the output for the best k between 1 and the value entered for Number of nearest neighbors (k). If Score on specified value of k as above is selected, the output will be displayed for the specified value of k. Select Detailed scoring and Summary report under both Score training data and Score validation data. XLMiner will create detailed and summary reports for both the training and validation sets. For more information on the Score new data options, please see the Scoring chapter.

Click Finish. Click the KNNC_Output1 worksheet, the Output Navigator is located at the top of this worksheet. Clink the links to navigate to other areas of

the output. Scroll down on the Output1 worksheet to view the Validation error log.

The Validation error log for the different k's lists the % Errors for all values of k for both the training and validation data sets. The k with the smallest % Error is selected as the Best k. Scoring is performed later using this best value of k. A little further down on the Output1 worksheet, is the Validation Data scoring table.

This Summary report tallies the actual and predicted classifications. (Predicted classifications were generated by applying the model to the validation data.) Correct classification counts are along the diagonal from the upper left to the lower right. In this example, there were three misclassification errors (3 cases where Verginicas were misclassified as Versicolors). Click the Valid. Score Detailed Rep. link on the Output Navigator to be routed to the ValidScore1 worksheet. This table shows the predicted class for each record, the percent of the nearest neighbors belonging to that class and the actual class. The class with the highest probability is highlighted in yellow. Mismatches between Predicted and Actual class are highlighted in green.

Scroll down to view record 107 which is one of the three misclassified records. The additional two misclassified records are 120 and 134.

The following options appear on one of the two k-Nearest Neighbors dialogs.

The variables in the dataset appear here.

Input variables

The variables selected as input variables appear here

Weight variable

This option is not used in the k-Nearest Neighbors classification method.

Output variable

The variable to be classified is entered here.

The number of classes in the output variable appear here.

This option is selected by default. Select the class to be considered a success or the significant class in the Lift Chart. This option is enabled when the number of classes in the output variable is equal to 2Specify initial cutoff probability value for success.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

When this option is selected, XLMiner will normalize the data by expressing the entire dataset in terms of standard deviations. This is done so that the distance measure is not dominated by a large magnitude variable. In this example, the values for Petal_width are between .1 and 2.5 while the values for Sepal_length are between 4.3 and 7.9. When the data is normalized the actual variable value is replaced with the standard deviation from the mean of that variable.

This is the parameter k in the k-Nearest Neighbor algorithm. The value of k should be between 1 and the total number of observations (rows). Note that if k is chosen as the total number of observations in the training set, then for any new observation, all the observations in the training set become nearest neighbors. The default value for this option is 1.

Scoring Option

If Score on best k between 1 and specified value is selected, XLMiner will display the output for the best k between 1 and the value entered for Number of nearest neighbors (k). If Score on specified value of k as above is selected, the output will be displayed for the specified value of k.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

For more information on the Score new data options, please see the Scoring chapter.

Introduction

Classification tree methods (also known as decision tree methods) are a good choice when the data mining task is classification or prediction of outcomes and the goal is to generate rules that can be easily understood, explained, and translated into SQL or a natural query language. A Classification tree labels, records and assigns variables to discrete classes. A Classification tree can also provide a measure of confidence that the classification is correct. A Classification tree is built through a process known as binary recursive partitioning. This is an iterative process of splitting the data into partitions, and then splitting it up further on each of the branches. Initially, a training set is created where the classification label (say, "purchaser" or "non-purchaser") is known (pre-classified) for each record. In the next step, the algorithm systematically assigns each record to one of two subsets on the some basis, for example income > $75,000 or income <= $75,000). The object is to attain as homogeneous set of labels (say, "purchaser" or "non-purchaser") as possible in each partition. This splitting (or partitioning) is then applied to each of the new partitions. The process continues until no more useful splits can be found. The heart of the algorithm is the rule that determines the initial split rule (see figure below).

As explained above, the process starts with a training set consisting of preclassified records (target field or dependent variable with a known class or label such as "purchaser" or "non-purchaser"). The goal is to build a tree that distinguishes among the classes. For simplicity, assume that there are only two target classes and that each split is a binary partition. The splitting criterion easily generalizes to multiple classes, and any multi-way partitioning can be achieved through repeated binary splits. To choose the best splitter at a node, the algorithm considers each input field in turn. In essence, each field is sorted. Then, every possible split is tried and considered, and the best split is the one which produces the largest decrease in diversity of the classification label within each partition (this is just another way of saying "the increase in homogeneity"). This is repeated for all fields, and the winner is chosen as the best splitter for that node. The process is continued at subsequent nodes until a full tree is generated. XLMiner uses a modified twoing splitting rule, as described on page 316 of Classification and Regression Trees by Breiman, et al (1984, Chapman and Hall). Please refer to this book for details. It maximizes the value of which is calculated as given in the last formula on this page:

Pruning is the process of removing leaves and branches to improve the performance of the decision tree when moving from the training data (where the classification is known) to real-world applications (where the classification is unknown). The tree-building algorithm makes the best split at the root node where there are the largest number of records and, hence, considerable information. Each subsequent split has a smaller and less representative population with which to work. Towards the end, idiosyncrasies of training records at a particular node display patterns that are peculiar only to those records. These patterns can become meaningless and sometimes harmful for prediction if you try to extend rules based on them to larger populations. For example, say the classification tree is trying to predict height and it comes to a node containing one tall person X and several other shorter people. The algorithm can decrease diversity at that node by a new rule imposing "people named X are tall" and thus classify the training data. In the real world this rule is obviously inappropriate. Pruning methods solve this problem -- they let the tree grow to maximum size, then remove smaller branches that fail to generalize. (Note: In practice, we do not include irrelevant fields such as "name", this is simply used an illustration.) Since the tree is grown from the training data set, when it has reached full structure it usually suffers from over-fitting (i.e. it is "explaining" random elements of the training data that are not likely to be features of the larger population of data). This results in poor performance on real life data. Therefore, trees must be pruned using the validation data set.

This example illustrates the use of XLMiners Classification Tree algorithm on the Boston_Housing.xlsx dataset.

CRIM ZN INDUS CHAS NOX RM AGE DIS RAD TAX PTRATIO B LSTAT MEDV

Click Help Examples to open the Boston_Housing.xlsx dataset. This dataset includes fourteen variables pertaining to hosing prices from the Boston area collected by the US Census Bureau. Per capita crime rate by town Proportion of residential land zoned for lots over 25,000 sq.ft. Proportion of non-retail business acres per town Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) Nitric oxides concentration (parts per 10 million) Average number of rooms per dwelling Proportion of owner-occupied units built prior to 1940 Weighted distances to five Boston employment centers Index of accessibility to radial highways Full-value property-tax rate per $10,000 Pupil-teacher ratio by town 1000(Bk - 0.63)^2 where Bk is the proportion of African-Americans by town % Lower status of the population Median value of owner-occupied homes in $1000's The figure below displays a portion of the data; observe the last column (CAT. MEDV). This variable has been derived from the MEDV variable by assigning a 1 for MEDV levels above 30 (>= 30) and a 0 for levels below 30 (<30).

First, we partition the data into training and validation sets using the Standard Data Partition defaults of 60% of the data randomly allocated to the Training Set and 40% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, inserted after clicking OK on the Standard Data Partition dialog above, then click Classify Classification Tree on the XLMiner ribbon. The following dialog opens.

Select CAT. MEDV as the Output variable. Then select all remaining variables except MEDV as Input variables. The MEDV variable is not included in the Input since the CAT. MEDV variable is derived from the MEDV variable. Keep the default settings for Specify Success class and Specify initial cutoff probability.

In the Classification Tree Step 2 of 3 dialog, select Normalize input data, Minimum #records in a terminal node, and Prune tree. Enter 2 for Minimum #records in a terminal node. XLMiner will normalize the data when Normalize input data is selected. Normalization helps only if linear combinations of the input variables are used when splitting the tree. Select Minimum #records in a terminal node to stop the training data as soon as the number of records in a node reaches the specified minimum value. Enter 2 for the minimum value. The default value is 30. XLMiner will prune the tree using the validation set when Prune Tree is selected. (Pruning the tree using the validation set will reduce the error from over-fitting the tree using the training data.)

XLMiner provides the option to provide maximum #levels in the tree. Set Maximum # levels to be displayed to 4 to indicate to XLMiner only four levels in the tree are desired. Select Full tree (grown using training data) to grow a complete tree using the training data. Select Best pruned tree (pruned using validation data). Selecting this option will result in a tree with the fewest number of nodes, subject to the constraint that the error be kept below a specified level (minimum error rate plus the standard error of that error rate). Select Minimum error tree (pruned using validation data) to produce a tree that yields the minimum classification error rate when tested on the validation data.

To create a tree with a specified number of decision nodes select Tree with specified number of decision nodes and enter the desired number of nodes. Leave this option unselected for this example. Select the three options under both Score training data and Score validation data to produce an assessment of the performance of the tree in both sets. Please see the Scoring chapter for information on the Score new data options.

Click Finish. Worksheets containing the output of the Classification Tree algorithm will be inserted at the end of the workbook. Click the CT_Output1 worksheet to view the Output Navigator. Click any link in this section to navigate to various sections of the output.

Recall that the objective of this example is to classify each case as a 0 (low median value) or a 1 (high median value). Consider the top decision node (denoted by a circle). The label beneath this node indicates the variable represented at this node (i.e. the variable selected for the first split) in this case, RM = average number of rooms per dwelling. The value inside the node indicates the split threshold. (Hover over the decision node to read the decision

rule.) If the RM value for a specific record is greater than 6.733 (RM > 6.733), the record will be assigned to the right. If the RM value for the record is less than or equal to 6.733, the value will be assigned to the left. 63 records contained RM values greater than 6.733 while 241 records contained RM values of less than or equal to 6.733. We can think of records with an RM value less than or equal to 6.733 (RM <= 6.733) as tentatively classified as "0" (low median value). Any record where RM > 6.733 can be tentatively classified as a "1" (high median value). The 241 records with RM values less than 6.733 are further split as we move down the tree. The second split on this branch occurs with the LSTAT variable (percent of the population that is of lower socioeconomic status). The LSTAT values for 74 records (out of 241) fall below the split value of 9.535. These records are tentatively classified as a 1 meaning these records have low percentages of the population with lower socioeconomic status. The LSTAT values for the remaining 167 records are greater than 9.535, and are tentatively classified as 0". A square node indicates a terminal node, after which there are no further splits. For example, the 167 coming from the right of LSTAT are classified as 0's. There are no further splits for this group. The path of their classification is: If few rooms, and if a high percentage of the population is of lower socioeconomic status, then classify as 0 (low median value). The terminal nodes at the bottom of the tree displaying Sub Tree beneath indicate that the full tree has not been drawn due to its size. The structure of the full tree will be clear by reading the Full Tree Rules. Click the Full Tree Rules link on the Output Navigator to open the Full Tree Rules table, shown below.

The first entry in this table shows a split on the RM variable with a split value of 6.733. The 304 total cases were split between nodes 1( LeftChild column) and 2(Rightchild column). Moving to NodeID1 we find that 241 cases were assigned to this node (from node 0) which has a 0 value (Class column). From here, the 241 cases were split on the LSTAT variable using a value of 9.535 between nodes 3 (LeftChild column) and 4 (RightChild column). Moving to NodeID3 we find that 74 cases were assigned to this node (from node 1) which has a 0 value. From here, the 74 cases were split on the DIS variable using a value of 3.4351 between nodes 7 and 8. Moving to NodeID7, we find that 18 cases were assigned to this node (from node 3) which has a 0 value. From here, the 18 cases were split on the RAD variable using a value of 7.5 between nodes 11 and 12.

Moving to NodeID11, we find that 12 cases were assigned to this node (from node 7) which as a 0 value. From here, the 12 cases were split on the TAX variable using a value of 207.4998 between nodes 15 and 16. The user can follow this table in a likewise fashion until a terminal node is reached. Click the Minimum Error Tree link on the Output Navigator to view the Minimum Error Tree on the CT_MinErrTree1 worksheet.

The "minimum error tree" is the tree that yields a minimum classification error rate when tested on the validation data. The misclassification (error) rate is measured as the tree is pruned. The tree that produces the lowest error rate is selected. Click the Best Pruned Tree link on the Output Navigator to view the Best Pruned Tree.

Note: The Best Pruned Tree is based on the validation data set, and is the smallest tree whose misclassification rate is within one standard error of the misclassification rate of the Minimum Error Tree. In this example the Best Pruned tree and the Minimum Error Tree happen to be the same because the #Decision Nodes for them is the same. (Please refer to the Prune Log). However, you will often find that the Best Pruned Tree has less number of decision nodes than the Minimum Error Tree. Click the Train Log link in the Output Navigator to navigate to the Training Log.

The training log, above, shows the misclassification (error) rate as each additional node is added to the tree. Starting off at 0 nodes with the full data set, all records would be classified as "low median value" (0). Click the Train. Score Summary link to navigate to the Classification Confusion Matrix.

The confusion matrix, above, displays counts for cases that were correctly and incorrectly classified in the validation data set. The 1 in the lower left cell, for example, indicates that there was 1 case that was classified as 1 that was actually 0. Click the Training Lift Charts and Validation Lift Charts link to navigate to the Lift Charts.

Lift charts are visual aids for measuring model performance. They consist of a lift curve and a baseline. The greater the area between the lift curve and the baseline, the better the model. After the model is built using the training data set, the model is used to score on the training data set and the validation data set. Then the data sets are sorted using the predicted output variable value. After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the number of cases versus the cumulated value. The baseline is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value. XLMiner generates the CT_Stored_1 worksheet along with the other outputs. Please refer to the Scoring chapter for details.

The following options appear on one of the three Classification Tree dialogs.

The variables included in the dataset appear here.

Input variables

Variables selected to be included in the output appear here.

Weight variable

This option is not used with the Classification Tree algorithm.

Output variable

The dependent variable or the variable to be classified appears here.

# Classes

Displays the number of classes in the Output variable.

This option is selected by default. Select the class to be considered a success or the significant class in the Lift Chart. This option is enabled when the number of classes in the output variable is equal to 2Specify initial cutoff probability value for success.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

XLMiner will normalize the data when Normalize input data is selected. Normalization helps only if linear combinations of the input variables are used when splitting the tree. This option is not selected by default.

Select Minimum #records in a terminal node to stop the training data as soon as the number of records in a node reaches the specified minimum value. By default, the value is set to 10% of the number of training records.

Prune Tree

XLMiner will prune the tree using the validation set when Prune Tree is selected. (Pruning the tree using the validation set will reduce the error from over-fitting the tree using the training data.) This option is selected by default. If no validation set exists, then this option is disabled.

XLMiner provides the option to provide maximum #levels in the tree. The default level is 5.

Select this option to grow a complete tree using the training data.

Selecting this option will result in a tree with the fewest number of nodes, subject to the constraint that the error be kept below a specified level (minimum error rate plus the standard error of that error rate).

Select this option to produce a tree that yields the minimum classification error rate when tested on the validation data.

To create a tree with a specified number of decision nodes select this option and enter the desired number of nodes.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Please see the Scoring chapter for information on the Score new data options.

Introduction

Suppose your data consists of fruits, described by their color and shape. Bayesian classifiers operate by saying "If you see a fruit that is red and round, which type of fruit is it most likely to be? In the future, classify red and round fruit as that type of fruit." A difficulty arises when you have more than a few variables and classes an enormous number of observations (records) would be required to estimate these probabilities. The Naive Bayes classification method avoids this problem by not requiring a large number of observations for each possible combination of the variables. Rather, the variables are assumed to be independent of one another and, therefore the probability that a fruit that is red, round, firm, 3" in diameter, etc. will be an apple can be calculated from the independent probabilities that a fruit is red, that it is round, that it is firm, that it is 3" in diameter, etc. In other words, Nave Bayes classifiers assume that the effect of a variable value on a given class is independent of the values of other variables. This assumption is called class conditional independence and is made to simplify the computation. In this sense, it is considered to be Nave. This assumption is a fairly strong assumption and is often not applicable. However, bias in estimating probabilities often may not make a difference in practice -- it is the order of the probabilities, not their exact values, which determine the classifications. Studies comparing classification algorithms have found the Nave Bayesian classifier to be comparable in performance with classification trees and neural network classifiers. It has also been found that these classifiers exhibit high accuracy and speed when applied to large databases. A more technical description of the Nave Bayesian classification method follows.

Bayes Theorem

Let X be the data record (case) whose class label is unknown. Let H be some hypothesis, such as "data record X belongs to a specified class C." For classification, we want to determine P (H|X) -- the probability that the hypothesis H holds, given the observed data record X. P (H|X) is the posterior probability of H conditioned on X. For example, the probability that a fruit is an apple, given the condition that it is red and round. In contrast, P(H) is the prior probability, or apriori probability, of H. In this

example P(H) is the probability that any given data record is an apple, regardless of how the data record looks. The posterior probability, P (H|X), is based on more information (such as background knowledge) than the prior probability, P(H), which is independent of X. Similarly, P (X|H) is posterior probability of X conditioned on H. That is, it is the probability that X is red and round given that we know that it is true that X is an apple. P(X) is the prior probability of X, i.e., it is the probability that a data record from our set of fruits is red and round. Bayes theorem is useful in that it provides a way of calculating the posterior probability, P(H|X), from P(H), P(X), and P(X|H). Bayes theorem can be written as: P (H|X) = P(X|H) P(H) / P(X).

The following example illustrates XLMiner s Nave Bayes classification method. Click Help Examples on the XLMiner ribbon to open the Flying_Fitness.xlsx example dataset. A portion of the dataset appears below.

First, we partition the data into training and validation sets using the Standard Data Partition defaults of 60% of the data randomly allocated to the Training Set and 40% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, then click Classify Nave Bayes. The following Nave Bayes Step 1 of 3 dialog appears.

Select Var2, Var3, Var4, Var5, and Var6 as Input variables and TestRest/Var1 as the Output variable. The # Classes statistic will be automatically updated with a value of 2 when the Output variable is selected. This indicates that the Output variable, TestRest/Var1 contains two classes, 0 and 1. Choose the value that will be the indicator of Success by clicking the down arrow next to Specify Success class (necessary). In this example, we will use the default of 1 indicating that a value of 1 will be specified as a success. Enter a value between 0 and 1 for Specify the initial cutoff probability for success. If the Probability of success (probability of the output variable = 1) is less than this value, then a 0 will be entered for the class value, otherwise a 1 will be entered for the class value. In this example, we will keep the default of 0.5.

On the Step 2 of 3 dialog, select According to relative occurrences in training data to calculate the Prior class probabilities. When this option is selected, XLMiner will calculate the class probabilities from the training data . For the first class, XLMiner will calculate the probability using the number of 0 records / total number of points. For the second class, XLMiner will calculate the probability using the number of 1 records / total number of points. When Use equal prior probabilities is selected, XLMiner will use 0.5 probability in both classes. The third option, User specified prior probabilities, is not supported in this method. Click Next to advance to the Step 3 of 3 dialog.

Select Detailed report, Summary report, and Lift charts under both Score training data and Score validation data to obtain the complete output results for this classification method. For more information on the options for Score new data, please see the Scoring chapter.

Click Finish to generate the output. Click the NNB_Output1 worksheet to display the Output Navigator. Click any link to navigate to the selected topic.

Click the NNB_ValidScore1 worksheet to view the Classification of Validation Data table, shown below. While predicting the class of output variable, XLMiner calculates the conditional probability that the variable may be classified to a particular class. In this case the classes are 0 and 1. For every record in the validation data the conditional probabilities for class - 0 and for class - 1 are calculated as shown below. The maximum value amongst these probabilities is highlighted. XLMiner assigns that class to the output variable, for which the conditional probability is the largest.

Click the Prior Class Pr link on the Output Navigator to view the Prior Class Probabilities table on the NNB_Output1 worksheet. As shown, 54.17% of the

training data records belonged to the 1 class and 45.83% of the training data records belong to the 0 class.

Click the Conditional Probabilities link to display the table below. This table shows the probabilities for each case for each variable. For example, for Var2, 15.38% of the cases were classified as 0, 84.62% of the cases were classified as 1 and 0 cases were classified as 2.

Click the Training Lift Chart and Validation Lift Chart links.

Lift charts are visual aids for measuring model performance. They consist of a lift curve and a baseline. The greater the area between the lift curve and the baseline, the better the model. After the model is built using the training data set, the model is used to score on the training data set and the validation data set. Then the data sets are sorted using the predicted output variable value. After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the number of cases versus the cumulated value. The baseline is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value. Please see the Scoring chapter for information on the worksheet NNB_Stored_1.

The options below appear on one of the three Nave Bayes classification methods dialogs.

The variables included in the dataset appear here.

Input variables

Variables selected to be included in the output appear here.

Weight variable

This option is not used with the Nave Bayes algorithm.

Output variable

The dependent variable or the variable to be classified appears here.

# Classes

Displays the number of classes in the Output variable.

This option is selected by default. Select the class to be considered a success or the significant class in the Lift Chart. This option is enabled when the number of classes in the output variable is equal to 2Specify initial cutoff probability value for success.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

When this option is selected, XLMiner will calculate the class probabilities from the training data . For the first class, XLMiner will calculate the probability using the number of 0 records / total number of points. For the second class, XLMiner will calculate the probability using the number of 1 records / total number of points.

When this option is selected, XLMiner will use 0.5 probability for both classes.

This option is not supported in this method.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Please see the Scoring chapter for information on the Score new data options.

Introduction

Artificial neural networks are relatively crude electronic networks of "neurons" based on the neural structure of the brain. They process records one at a time, and "learn" by comparing their classification of the record (which, at the outset, is largely arbitrary) with the known actual classification of the record. The errors from the initial classification of the first record is fed back into the network, and used to modify the networks algorithm the second time around, and so on for many iterations. Roughly speaking, a neuron in an artificial neural network is 1. 2. A set of input values (xi) and associated weights (wi) A function (g) that sums the weights and maps the results to an output (y).

Neurons are organized into layers: input, hidden and output. The input layer is composed not of full neurons, but rather consists simply of the records values that are inputs to the next layer of neurons. The next layer is the hidden layer. Several hidden layers can exist in one neural network. The final layer is the output layer, where there is one node for each class. A single sweep forward through the network results in the assignment of a value to each output node, and the record is assigned to the class node with the highest value.

In the training phase, the correct class for each record is known (this is termed supervised training), and the output nodes can therefore be assigned "correct" values -- "1" for the node corresponding to the correct class, and "0" for the others. (In practice, better results have been found using values of 0.9 and 0.1, respectively.) It is thus possible to compare the network's calculated values for the output nodes to these "correct" values, and calculate an error term for each node (the "Delta" rule). These error terms are then used to adjust the weights in the hidden layers so that, hopefully, during the next iteration the output values will be closer to the "correct" values.

A key feature of neural networks is an iterative learning process in which records (rows) are presented to the network one at a time, and the weights associated with the input values are adjusted each time. After all cases are presented, the process is often repeated. During this learning phase, the network trains by adjusting the weights to predict the correct class label of input samples. Advantages of neural networks include their high tolerance to noisy data, as well as their ability to classify patterns on which they have not been trained. The most popular neural network algorithm is the back-propagation algorithm proposed in the 1980's. Once a network has been structured for a particular application, that network is ready to be trained. To start this process, the initial weights (described in the next section) are chosen randomly. Then the training, or learning, begins. The network processes the records in the training data one at a time, using the weights and functions in the hidden layers, then compares the resulting outputs against the desired outputs. Errors are then propagated back through the system, causing the system to adjust the weights for application to the next record. This process occurs over and over as the weights are continually tweaked. During the training of a network the same set of data is processed many times as the connection weights are continually refined. Note that some networks never learn. This could be because the input data does not contain the specific information from which the desired output is derived. Networks also will not converge if there is not enough data to enable complete learning. Ideally, there should be enough data available to create a validation set.

Feedforward, Back-Propagation

The feedforward, back-propagation architecture was developed in the early 1970's by several independent sources (Werbor; Parker; Rumelhart, Hinton and Williams). This independent co-development was the result of a proliferation of articles and talks at various conferences which stimulated the entire industry. Currently, this synergistically developed back-propagation architecture is the most popular, effective, and easy-to-learn model for complex, multi-layered networks. Its greatest strength is in non-linear solutions to ill-defined problems. The typical back-propagation network has an input layer, an output layer, and at least one hidden layer. There is no theoretical limit on the number of hidden layers but typically there are just one or two. Some studies have shown that the total number of layers needed to solve problems of any complexity is 5 (one input layer, three hidden layers and an output layer). Each layer is fully connected to the succeeding layer. As noted above, the training process normally uses some variant of the Delta Rule, which starts with the calculated difference between the actual outputs and the desired outputs. Using this error, connection weights are increased in proportion to the error times, which are a scaling factor for global accuracy. This means that the inputs, the output, and the desired output all must be present at the same processing element. The most complex part of this algorithm is determining which input contributed the most to an incorrect output and how must the input be modified to correct the error. (An inactive node would not contribute to the error and would have no need to change its weights.) To solve this problem, training inputs are applied to the input layer of the network, and desired outputs are compared at the output layer. During the learning process, a forward sweep is made through the network, and the output of each element is computed layer by layer. The difference between the output of the final layer and the desired output is back-propagated to the previous layer(s), usually modified by the derivative of the transfer function. The connection weights are normally adjusted using the Delta Rule. This process proceeds for the previous layer(s) until the input layer is reached.

The number of layers and the number of processing elements per layer are important decisions. These parameters, to a feedforward, back-propagation topology, are also the most ethereal - they are the "art" of the network designer. There is no quantifiable, best answer to the layout of the network for any particular application. There are only general rules picked up over time and followed by most researchers and engineers applying this architecture to their problems. Rule One: As the complexity in the relationship between the input data and the desired output increases, the number of the processing elements in the hidden layer should also increase. Rule Two: If the process being modeled is separable into multiple stages, then additional hidden layer(s) may be required. If the process is not separable into stages, then additional layers may simply enable memorization of the training set, and not a true general solution. Rule Three: The amount of training data available sets an upper bound for the number of processing elements in the hidden layer(s). To calculate this upper bound, use the number of cases in the training data set and divide that number by the sum of the number of nodes in the input and output layers in the network.

Then divide that result again by a scaling factor between five and ten. Larger scaling factors are used for relatively less noisy data. If too many artificial neurons are used the training set will be memorized, not generalized, and the network will be useless on new data sets.

The example below illustrates the use of XLMiners Automated Neural Networks Classification method. Click Help Examples on the XLMiner ribbon to open the file Wine.xlsx. This file contains 13 quantitative variables measuring the chemical attributes of wine samples from 3 different wineries (Type variable). The objective is to assign a wine classification to each record. A portion of this dataset is shown below.

First, we partition the data into training and validation sets using a Standard Data Partition with percentages of 80% of the data randomly allocated to the Training Set and 20% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the newly created Data_Partition1 worksheet, then click Classify Neural Network on the XLMiner ribbon. The following dialog appears.

Select Type as the Output variable and the remaining variables as Input Variables. Since the Output variable contains three classes (A, B, and C) to denote the three different wineries, the options for Classes in the output variable are disabled. XLMiner also allows a Weight variable. This option can be used if the data contains multiple cases (objects) sharing the same variable values. The weight variable denotes the number of cases with those values.

This dialog contains the options to define the network architecture. Select Normalize input data. Normalizing the data (subtracting the mean and dividing by the standard deviation) is important to ensure that the distance measure accords equal weight to each variable -- without normalization, the variable with the largest scale would dominate the measure.

XLMiner provides two options for the Network Architecture -- Automatic and Manual. The default network architecture is 'Automatic'. This option generates several neural networks in the output sheet for various combinations of hidden layers and nodes within each layer. The total number of the neural networks generated using the 'Automatic' option currently is 100. Choose the Manual option to specify the number of hidden layers and the number of nodes for one neural network. Please see the example below for explanations of the various fields to be specified when the "Manual' network architecture is chosen is as follows. For this example, keep the default setting of Automatic. See the next example for an illustration of how to use the Manual Network Architecture setting. Keep the default setting of 30 for # Epochs. An epoch is one sweep through all records in the training set. Keep the default setting of 0.1 for Step size for gradient descent. This is the multiplying factor for the error correction during backpropagation; it is roughly equivalent to the learning rate for the neural network. A low value produces slow but steady learning, a high value produces rapid but erratic learning. Values for the step size typically range from 0.1 to 0.9. Keep the default setting of 0.6 for Weight change momentum. In each new round of error correction, some memory of the prior correction is retained so that an outlier that crops up does not spoil accumulated learning. Keep the default setting of 0.01 for Error tolerance. The error in a particular iteration is backpropagated only if it is greater than the error tolerance. Typically error tolerance is a small value in the range from 0 to 1. Keep the default setting of 0 for Weight decay. To prevent over-fitting of the network on the training data, set a weight decay to penalize the weight in each iteration. Each calculated weight will be multiplied by (1-decay). XLMiner provides four options for cost functions -- Squared mirror, Cross entropy, Maximum likelihood and Perceptron convergence. The user can select the appropriate one. Keep the default selection, Squared error, for this example. Nodes in the hidden layer receive input from the input layer. The output of the hidden nodes is a weighted sum of the input values. This weighted sum is computed with weights that are initially set at random values. As the network learns these weights are adjusted. This weighted sum is used to compute the hidden nodes output using a transfer function. Select Standard (the default setting) to use a logistic function for the transfer function with a range of 0 and 1. This function has a squashing effect on very small or very large values but is almost linear in the range where the value of the function is between 0.1 and 0.9.3 Select Symmetric to use the tanh function for the transfer function, the range being -1 to 1. Keep the default selection, Standard, for this example. If more than one hidden layer exists, this function is used for all layers. As in the hidden layer output calculation (explained in the above paragraph), the output layer is also computed using the same transfer function. Select Standard (the default setting) to use a logistic function for the transfer function with a range of 0 and 1. Select Symmetric to use the tanh function for the transfer function, the range being -1 to 1. Keep the default selection, Standard, for this example.

Galit Shmueli, Nitin R. Patel, and Peter C. Bruce, Data Mining for Business Intelligence (New Jersey: Wiley, 2010) 226.

Since Automatic is selected for Network Architecture, the Next button is disabled. Click Finish. The Automatic_NNC1 worksheet containing the output will be inserted at the end of the workbook. The top section of this worksheet includes the Output Navigator which can be used to quickly navigate to various sections of the output. The Data, Variables, and Parameters/Options sections of the output worksheet all reflect inputs chosen by the user.

The above error report gives the total number of errors and the % error in classification produced by each network ID for the training and validation sets separately. For example: Net 26 has 2 hidden layers each having one node in each hidden layer. For this neural network, the percentage of errors in the training data is 72.54% and the percentage of errors in the validation data is 75%. XLMiner provides sorting of the error report according to increasing or decreasing order of the %Error by clicking the up arrow next to % Error. Click the upgrade arrow to sort in ascending order, and the downward arrow to sort in descending order. If you click a hyperlink for a particular Net ID (say Net 26) in the Error Report, the following dialog appears. Here, the user can select the various options for scoring data on Net ID 26. See the example below for more on this dialog and the associated output.

Click Cancel to return to the Automated_NNCOutput1 worksheet. Scroll down to the final section of this worksheet to find the Confusion matrices for all Net IDs in the training and validation datasets.

Refer to the example above to advance to the Neural Network (MultiLayer Feedforward) Step 2 of 3 dialog, shown below.

This example will use the same dataset to illustrate the use of the Manual Network Architecture selection. Follow the steps above for the Step 1 of 3 dialog. On the Step 2 of 3 dialog, keep the default setting of 1 for the # hidden layers option. Up to four hidden layers can be specified for this option. Keep the default setting of 25 for #Nodes. (Since # hidden layers is set to 1, only the first text box is enabled.)

Select Detailed report and Summary report under both Score training data and Score validation data. For more information on the Score new data options, see the Scoring chapter.

Click Finish to produce the output. Click the NNC_Output1 worksheet to view the Output Navigator.

Click the Training Epoch Log to display the Neural Network Classification Log. XLMiner also provides intermediate information produced during the last pass through the network Scroll down on the Output1 worksheet to the Interlayer connections' weights table.

Recall that a key element in a neural network is the weights for the connections between nodes. In this example, we chose to have one hidden layer, and we also chose to have 25 nodes in that layer. XLMiner's output contains a section that contains the final values for the weights between the input layer and the hidden layer, between hidden layers, and between the last hidden layer and the output layer. This information is useful at viewing the insides of the neural network; however, it is unlikely to be of use to the data analyst end-user. Displayed above are the final connection weights between the input layer and the hidden layer for our example. Click the Training Epoch Log link on the Output Navigator to display the following log.

During an epoch, each training record is fed forward in the network and classified. The error is calculated and is back propagated for the weights correction. Weights are continuously adjusted during the epoch. The classification error is computed as the records pass through the network. It does not report the classification error after the final weight adjustment. Scoring of the training data is performed using the final weights so the training classification error may not exactly match with the last epoch error in the Epoch log. See the Scoring chapter for information on Stored Model Sheets, NNC_Stored_1.

The Error Report for a dataset with 2 classes in the output variable will look slightly different. Open the file Boston_Housing.xlsx by clicking Help Examples on the XLMiner ribbon. Partition the data as shown in the two previous Neural Network examples.

Select a cell on the Data_Partition1 worksheet, then click Classify Neural Network on the XLMiner ribbon. Select CAT.MEDV (has 2 classes) for the Output variable and the remaining variables (except MEDV) as Input variables. Click Next to proceed to the Step 2 of 3 dialog.

The Step 2 of 3 dialog contains options to define the network architecture. For this example, accept the default values. (Details on these choices are explained in the above examples.)

Click Finish to produce the Automated_NNC1 output worksheet. Scroll down to the Error Report.

The above error report gives the total number of errors, % Error, % Sensitivity and % Specificity in the classification produced by each network ID for the training and validation datasets separately. For example: Net 10 has one hidden layer having 10 nodes. For this neural network, the percentage of errors in the training data is 4.69% and the percentage of errors in the validation data is 3.96%. The percentage sensitivity is 76.92% and 84.21% for training data and validation data respectively. The percentage specificity is 98.82% and 98.78% for training data and validation data respectively. Numerically, sensitivity is the number of true positive results (TP) divided by the sum of true positive and false negative (FN) results, i.e., sensitivity = TP/(TP + FN). Numerically, specificity is the number of true negative results (TN) divided by the sum of true negative and false positive (FP) results, i.e., specificity = TN/(TN + FP). XLMiner provides sorting of the error report according to increasing or decreasing order of the %Error, %Sensitivity or %Specificity. This can be done by clicking the up arrow next to %Error, %Sensitivity or %Specificity, respectively. Click the upward arrow to sort in ascending order, and the downward arrow to sort in descending order.

The options below appear on one of the three Neural Network Classification dialogs.

The variables included in the dataset appear here.

Input variables

Variables selected to be included in the output appear here.

Weight variable

This option is not used with the Neural Network Classification algorithm.

Output variable

The dependent variable or the variable to be classified appears here.

# Classes

Displays the number of classes in the Output variable.

This option is selected by default. Click the drop down arrow to select the value to specify a success. This option is only enabled when the # of classes is equal to 2.

Enter a value between 0 and 1 here to denote the cutoff probability for success. If the calculated probability for success for an observation is greater than or equal to this value, than a success (or a 1) will be predicted for that observation. If the calculated probability for success for an observation is less than this value, then a non-success (or a 0) will be predicted for that observation. The default value is 0.5. This option is only enabled when the # of classes is equal to 2.

Normalizing the data (subtracting the mean and dividing by the standard deviation) is important to ensure that the distance measure accords equal weight to each variable -- without normalization, the variable with the largest scale would dominate the measure. This option is selected by default.

Network Architecture

XLMiner provides two options for the Network Architecture -- Automatic and Manual. The default network architecture is 'Automatic'. This option generates several neural networks in the output sheet for various combinations of hidden layers and nodes within each layer. The total number of the neural networks generated using the 'Automatic' option currently is 100. Choose the Manual option to specify the number of hidden layers and the number of nodes for one neural network.

# Hidden Layers

When Manual is selected, this option is enabled. XLMiner supports up to 4 hidden layers.

# Nodes

When Manual is selected, this option is enabled. Enter the number of nodes per layer here.

# Epochs

An epoch is one sweep through all records in the training set. The default setting is 30.

This is the multiplying factor for the error correction during backpropagation; it is roughly equivalent to the learning rate for the neural network. A low value produces slow but steady learning, a high value produces rapid but erratic learning. Values for the step size typically range from 0.1 to 0.9. The default setting is 0.1.

In each new round of error correction, some memory of the prior correction is retained so that an outlier that crops up does not spoil accumulated learning. The default setting is 0.6.

Error tolerance

The error in a particular iteration is backpropagated only if it is greater than the error tolerance. Typically error tolerance is a small value in the range from 0 to 1. The default setting is 0.01.

Weight decay

To prevent over-fitting of the network on the training data, set a weight decay to penalize the weight in each iteration. Each calculated weight will be multiplied by (1-decay). The default setting is 0.

Cost Function

XLMiner provides four options for the cost function -- Squared mirror, Cross entropy, Maximum likelihood and Perceptron convergence. The user can select the appropriate one. The default setting is Squared error.

Nodes in the hidden layer receive input from the input layer. The output of the hidden nodes is a weighted sum of the input values. This weighted sum is computed with weights that are initially set at random values. As the network learns, these weights are adjusted. This weighted sum is used to compute the hidden nodes output using a transfer function. Select Standard (the default setting) to use a logistic function for the transfer function with a range of 0 and 1. This function has a squashing effect on very small or very large values but is almost linear in the range where the value of the function is between 0.1 and 0.9. Select Symmetric to use the tanh function for the transfer function, the

range being -1 to 1. If more than one hidden layer exists, this function is used for all layers. The default selection is Standard.

As in the hidden layer output calculation (explained in the above paragraph), the output layer is also computed using the same transfer function as described for Hidden Layer Sigmoid. Select Standard (the default setting) to use a logistic function for the transfer function with a range of 0 and 1. Select Symmetric to use the tanh function for the transfer function, the range being -1 to 1. The default selection is Standard.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

See the Scoring chapter for more details on the In worksheet or In database options.

Introduction

Linear regression is performed on a dataset either to predict the response variable based on the predictor variable, or to study the relationship between the response variable and predictor variables. For example, using linear regression, the crime rate of a state can be explained as a function of demographic factors such as population, education, male to female ratio etc. This procedure performs linear regression on a selected dataset that fits a linear model of the form Y= b0 + b1X1 + b2X2+ .... + bkXk+ e where Y is the dependent variable (response), X1, X2,.. .,Xk are the independent variables (predictors) and e is the random error. b0 , b1, b2, .... bk are known as the regression coefficients, which are estimated from the data. The multiple linear regression algorithm in XLMiner chooses regression coefficients to minimize the difference between the predicted and actual values.

The following example illustrates XLMiners Multiple Linear Regression method using the Boston Housing dataset to predict the median house price in housing tracts in the Boston area. This dataset has 14 variables. A description of each variable is given in the table below. In addition to these variables, the data set also contains an additional variable, which has been created by categorizing median value (MEDV) into two categories high (MEDV > 30) and low (MEDV < 30). CRIM ZN INDUS CHAS NOX RM AGE DIS RAD TAX PTRATIO B LSTAT MEDV

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Per capita crime rate by town Proportion of residential land zoned for lots over 25,000 sq.ft. Proportion of non-retail business acres per town Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) Nitric oxides concentration (parts per 10 million) Average number of rooms per dwelling Proportion of owner-occupied units built prior to 1940 Weighted distances to five Boston employment centers Index of accessibility to radial highways Full-value property-tax rate per $10,000 Pupil-teacher ratio by town 1000(Bk - 0.63)^2 where Bk is the proportion of African-Americans by town % Lower status of the population Median value of owner-occupied homes in $1000's

User Guide Page 330

Click Help Examples on the XLMiner ribbon to open the Boston_Housing.xlsx from the datasets folder. A portion of the dataset is shown below.

First, we partition the data into training and validation sets using the Standard Data Partition defaults with percentages of 60% of the data randomly allocated to the Training Set and 40% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, then click Predict Multiple Linear Regression. The following dialog appears.

Select MEDV as the Output variable and all remaining variables (except CAT. MEDV) as Input variables. (The bottom portion of the dialog is not used with prediction methods.)

Click Next to advance to the Step 2 of 2 dialog. If the number of rows in the data is less than the number of variables selected as Input variables, XLMiner displays the following message box.

Select Yes to proceed to the Best Subset dialog (see below). Click No to return to the Multiple Linear Regression Step 1 of 2 dialog.

If Force constant term to zero is selected, there will be no constant term in the equation. Leave this option unchecked for this example. Select Fitted values. When this option is selected, the fitted values are displayed in the output. Select ANOVA table. When this option is selected, the ANOVA table is displayed in the output. Select Standardized under Residuals to display the Standardized Residuals in the output. Standardized residuals are obtained by dividing the unstandardized residuals by the respective standard deviations.

Select Unstandardized under Residuals to display the Unstandardized Residuals in the output. Unstandardized residuals are computed by the formula: Unstandardized residual = Actual response Predicted response. Select Variance-covariance matrix. When this option is selected the variancecovariance matrix of the estimated regression coefficients is displayed in the output. Select all options under Score Training data and Score validation data to produce all three reports in the output.

Select Studentized. When this option is selected the Studentized Residuals are displayed in the output. Studentized residuals are computed by dividing the unstandardized residuals by quantities related to the diagonal elements of the hat matrix, using a common scale estimate computed without the ith case in the model. These residuals have t - distributions with ( n-k-1) degrees of freedom. As a result, any residual with absolute value exceeding 3 usually requires attention. Select Deleted. When this option is selected the Deleted Residuals are displayed in the output. This residual is computed for the ith observation by first fitting a model without the ith observation, then using this model to predict the ith observation. Afterwards the difference is taken between the predicted observation and the actual observation. Select Cook's Distance. When this checkbox is selected the Cook's Distance for each observation is displayed in the output. This is an overall measure of the impact of the ith datapoint on the estimated regression coefficient. In linear models Cook's Distance has, approximately, an F distribution with k and (n-k) degrees of freedom. Select DF fits. When this checkbox is selected the DF fits (change in the regression fit) for each observation is displayed in the output. These reflect coefficient changes as well as forecasting effects when an observation is deleted. Select Covariance Ratios. When this checkbox is selected, the covariance ratios are displayed in the output. This measure reflects the change in the variance-covariance matrix of the estimated coefficients when the ith observation is deleted. Select Hat matrix Diagonal. When this checkbox is selected, the diagonal elements of the hat matrix are displayed in the output. This measure is also known as the leverage of the ith observation. Select Perform Collinearity diagnostics. When this checkbox is selected, the collinearity diagnostics are displayed in the output.

When Perform Collinearity diagnostics is selected, Number of collinearity components is enabled. Enter 2 for this option. This number can be between 2 and the number of degrees of freedom for the model. When the model is fitted without an intercept, the model degrees of freedom is equal to the number of predictors in the model. When the model is fitted with an intercept, the model degrees of freedom is equal to the number of predictors in the model plus one. When Perform Collinearity diagnostics is selected, Multicollinearity criterion is enabled. Enter 0.05 for Multicollinearity criterion. Multicollinearity can be defined as the occurrence of two or more input variables that share the same linear relationship with the outcome variable. Enter a value between 0 and 1. The default setting is 0.05.

Click OK to return to the Step 2 of 2 dialog, then click Best subset (on the Step 2 of 2 dialog) to open the following dialog.

When you have a large number of predictors and would like to limit the model to only the significant variables, select Perform best subset selection to select

the best subset. For this example, enter 13 (the default value) for the Maximum size of best subsets (for a model with up to 13 variables). XLMiner accepts an integer value of 1 up to N where N is the number of Input variables in the model. Enter 3 for Number of best subsets. XLMiner will first show the best, then the next-best, etc., and will show this number of subsets for subsets of one variable, subsets of two variables, etc., on up to subsets of the size you specified above. XLMiner allows integer values up to 20. Select Backward elimination for the Selection procedure. XLMiner offers five different selection procedures for selecting the best subset of variables. Backward elimination in which variables are eliminated one at a time, starting with the least significant. Forward selection in which variables are added one at a time, starting with the most significant. Exhaustive search where searches of all combinations of variables are performed to observe which combination has the best fit. (This option can become quite time consuming depending on the number of input variables.) Sequential replacement in which variables are sequentially replaced and replacements that improve performance are retained. Stepwise selection is similar to Forward selection except that at each stage, XLMiner considers dropping variables that are not statistically significant. When this procedure is selected, the Stepwise selection options FIN and FOUT are enabled. In the stepwise selection procedure a statistic is calculated when variables are added or eliminated. For a variable to come into the regression, the statistics value must be greater than the value for FIN (default = 3.84). For a variable to leave the regression, the statistics value must be less than the value of FOUT (default = 2.71). The value for FIN must be greater than the value for FOUT.

Click OK to return to the Step 2 of 2 dialog, then click Finish. Click the Output1 worksheet to find the Output Navigator. Click any link here to display the selected output.

Click the Train. Score Detailed Rep. link to open the Multiple Linear Regression Prediction of Training Data table. Of primary interest in a datamining context will be the predicted and actual values for each record, along with the residual (difference), shown here for the training data set:

XLMiner also displays The Total sum of squared errors summaries for both the training and validation data sets on the Output1 worksheet. The total sum of squared errors is the sum of the squared errors (deviations between predicted and actual values) and the root mean square error (square root of the average squared error). The average error is typically very small, because positive prediction errors tend to be counterbalanced by negative ones.

A variety of residual and collinearity diagnostics output is available since the option was selected on the Advanced dialog (see above). Select the Subset Selection link on the Output Navigator to display the Best Subset Selection chart which displays a list of different models generated using the Best Subset selections. Since we have selected 13 as the maximum size of subsets, 13 Best Subset models have been created containing 1 to 13 variables. A portion of this chart is shown below.

Every model includes a constant term (since Force constant term to zero was not selected on the Step 2 of 2 dialog) and one or more variables as the additional coefficients. We can use any of these models for further analysis by clicking on the respective link, "Choose Subset". The choice of model depends on the calculated values of various error values and the probability. The error values calculated are RSS: The residual sum of squares, or the sum of squared deviations between the predicted probability of success and the actual value (1 or 0) Cp: Mallows Cp (Total squared error) is a measure of the error in the best subset model, relative to the error incorporating all variables. Adequate models are those for which Cp is roughly equal to the number of parameters in the model (including the constant), and/or Cp is at a minimum R-Squared: R-squared Goodness-of-fit Adj. R-Squared: Adjusted R-Squared values.

"Probability" is a quasi hypothesis test of the proposition that a given subset is acceptable; if Probability < .05 we can rule out that subset.

When hovering over Choose Subset, the mouse icon will change to a grabber hand. If Choose Subset is clicked, XLMiner opens the Multiple Linear Regression Step 1 of 1 dialog displaying the input variables included in that particular subset. Scroll down to the end of the table.

Compare the RSS value as the number of coefficients in the subset increases from 11 to 12 (8923.724 down to 6978.134). The RSS for 12 coefficients is just slightly higher than the RSS for 14 coefficients suggesting that a model with 12 coefficients may be sufficient to fit a regression. Click the Choose Subset link next to the first model with 12 coefficients (RSS = 6978.134), the Multiple Linear Regression The Step 1 of 2 dialog appears with these 12 variables already selected as Input variables. The User can easily click Next to run a Multiple Linear Regression on these variables. Model terms are shown in the Regression Model output shown below along with the Summary statistics

The Regression Model table contains the coefficient, the standard error of the coefficient, the p-value and the Sum of Squared Error for each variable included in the model. The Sum of Squared Errors is calculated as each variable is introduced in the model beginning with the constant term and continuing with each variable as it appears in the dataset. Summary statistics (to the above right) show the residual degrees of freedom (#observations - #predictors), the R-squared value, a standard deviation type measure for the model (which typically has a chi-square distribution), and the Residual Sum of Squares error. The R-squared value shown here is the r-squared value for a logistic regression model , defined as R2 = (D0-D)/D0 ,

where D is the Deviance based on the fitted model and D0 is the deviance based on the null model. The null model is defined as the model containing no predictor variables apart from the constant. Click the Collinearity Diagnostics link to display the Collinearity Diagnostics table. This table helps assess whether two or more variables so closely track one another as to provide essentially the same information. As you can see the NOX variable was ignored.

The columns represent the variance components (related to principal components in multivariate analysis), while the rows represent the variance proportion decomposition explained by each variable in the model. The eigenvalues are those associated with the singular value decomposition of the variance-covariance matrix of the coefficients, while the condition numbers are the ratios of the square root of the largest eigenvalue to all the rest. In general, multicollinearity is likely to be a problem with a high condition number (more than 20 or 30), and high variance decomposition proportions (say more than 0.5) for two or more variables. Lift charts (on the MLR_TrainLiftChart and MLR_ValidLiftChart, respectively) are visual aids for measuring model performance. They consist of a lift curve and a baseline. The greater the area between the lift curve and the baseline, the better the model.

After the model is built using the training data set, the model is used to score on the training data set and the validation data set (if one exists). Then the data set(s) are sorted using the predicted output variable value. After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the number of cases versus the cumulated value. The baseline (red line connecting the origin to the end point of the blue line) is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value. See the chapter on Stored Model Sheets for more information on the MLR_Stored_1 worksheet.

The following options appear on the four Multiple Linear Regression dialogs.

All variables in the dataset are listed here.

Input variables

Variables listed here will be utilized in the XLMiner output.

Weight variable

One major assumption of Multiple Linear Regression is that each observation provides equal information. XLMiner offers an opportunity to provide a Weight variable. Using a Weight variable allows the user to allocate a weight to each record. A record with a large weight will influence the model more than a record with a smaller weight.

Output Variable

Select the variable whose outcome is to be predicted here.

If this option is selected, there will be no constant term in the equation. This option is not selected by default.

Fitted values

When this option is selected, the fitted values are displayed in the output. This option is not selected by default.

Anova table

When this option is selected, the ANOVA table is displayed in the output. This option is not selected by default.

Standardized

Select this option under Residuals to display the Standardized Residuals in the output. Standardized residuals are obtained by dividing the unstandardized residuals by the respective standard deviations. This option is not selected by default.

Unstandardized

Select this option under Residuals to display the Unstandardized Residuals in the output. Unstandardized residuals are computed by the formula: Unstandardized residual = Actual response Predicted response. This option is not selected by default.

When this option is selected the variance-covariance matrix of the estimated regression coefficients is displayed in the output. This option is not selected by default.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

See the Scoring chapter for more details on the In worksheet or In database options.

Studentized

When this option is selected the Studentized Residuals are displayed in the output. Studentized residuals are computed by dividing the unstandardized residuals by quantities related to the diagonal elements of the hat matrix, using a common scale estimate computed without the ith case in the model. These residuals have t - distributions with ( n-k-1) degrees of freedom. As a result, any residual with absolute value exceeding 3 usually requires attention. This option is not selected by default.

Deleted

When this option is selected the Deleted Residuals are displayed in the output. This residual is computed for the ith observation by first fitting a model without the ith observation, then using this model to predict the ith observation. Afterwards the difference is taken between the predicted observation and the actual observation. This option is not selected by default.

When this checkbox is selected the Cook's Distance for each observation is displayed in the output. This is an overall measure of the impact of the i th datapoint on the estimated regression coefficient. In linear models Cook's Distance has, approximately, an F distribution with k and (n-k) degrees of freedom. This option is not selected by default.

DF fits

When this checkbox is selected the DF fits (change in the regression fit) for each observation is displayed in the output. These reflect coefficient changes as well

Covariance Ratios

When this checkbox is selected, the covariance ratios are displayed in the output. This measure reflects the change in the variance-covariance matrix of the estimated coefficients when the ith observation is deleted. This option is not selected by default.

When this checkbox is selected, the diagonal elements of the hat matrix are displayed in the output. This measure is also known as the leverage of the i th observation. This option is not selected by default.

When this option is selected, the collinearity diagnostics are displayed in the output. (This option is not selected by default.)

When Perform Collinearity diagnostics is selected, the Number of collinearity components is enabled. This number can be between 2 and the number of degrees of freedom for the model. When the model is fitted without an intercept, the model degrees of freedom is equal to the number of predictors in the model. When the model is fitted with an intercept, the model degrees of freedom is equal to the number of predictors in the model plus one.

Multicollinearity Criterion

When Perform Collinearity diagnostics is selected, Multicollinearity criterion is enabled. Multicollinearity can be defined as the occurrence of two or more input variables that share the same linear relationship with the outcome variable. Enter a value between 0 and 1. The default setting is 0.05.

Often a subset of variables (rather than all of the variables) performs the best job of classification. Selecting Perform best subset selection enables the Best Subset options. This option is not selected by default.

Using the spinner controls to specify the number of best subsets to be generated by XLMiner. Its possible that XLMiner could find a smaller subset of variables. This option can take on values of 1 up to N where N is the number of input variables. The default setting is 13.

Using the spinner controls, specify the Number of best subsets. XLMiner can provide up to 20 different subsets. The default setting is 1.

Selection Procedure

XLMiner offers five different selection procedures for selecting the best subset of variables. Backward elimination in which variables are eliminated one at a time, starting with the least significant. Forward selection in which variables are added one at a time, starting with the most significant. Exhaustive search where searches of all combinations of variables are performed to observe which combination has the best fit. (This option can become quite time consuming depending on the number of input variables.) Sequential replacement in which variables are sequentially replaced and replacements that improve performance are retained. Stepwise selection is similar to Forward selection except that at each stage, XLMiner considers dropping variables that are not statistically significant. When this procedure is selected, the Stepwise selection options FIN and FOUT are enabled. In the stepwise selection procedure a statistic is calculated when variables are added or eliminated. For a variable to come into the regression, the statistics value must be greater than the value for FIN (default = 3.84). For a variable to leave the regression, the statistics value must be less than the value of FOUT (default = 2.71). The value for FIN must be greater than the value for FOUT.

Introduction

In the k-nearest-neighbor prediction method, the training data set is used to predict the value of a variable of interest for each member of a "target" data set. The structure of the data generally consists of a variable of interest ("amount purchased," for example), and a number of additional predictor variables (age, income, location, etc.). 1. For each row (case) in the target data set (the set to be predicted), locate the k closest members (the k nearest neighbors) of the training data set. A Euclidean Distance measure is used to calculate how close each member of the training set is to the target row that is being examined. Find the weighted sum of the variable of interest for the k nearest neighbors (the weights are the inverse of the distances). Repeat this procedure for the remaining rows (cases) in the target set. Additionally, XLMiner also allows the user to select a maximum value for k, builds models in parallel on all values of k (up to the maximum specified value) and performs scoring on the best of these models.

2. 3. 4.

Computing time increases as k increases, but the advantage is that higher values of k provide smoothing that reduces vulnerability to noise in the training data. Typically, k is in units of tens rather than in hundreds or thousands of units.

The example below illustrates the use of XLMiners k-Nearest Neighbors Prediction method. Click Help Examples on the XLMiner ribbon to open the Boston_Housing.xlsx example dataset. This dataset contains 14 variables, the description of each is given in the table below. The dependent variable MEDV is the median value of a dwelling. This objective of this example is to predict the value of MEDV.

CRIM ZN INDUS CHAS NOX RM AGE DIS RAD TAX PTRATIO B LSTAT MEDV

Per capita crime rate by town Proportion of residential land zoned for lots over 25,000 sq.ft. Proportion of non-retail business acres per town Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) Nitric oxides concentration (parts per 10 million) Average number of rooms per dwelling Proportion of owner-occupied units built prior to 1940 Weighted distances to five Boston employment centers Index of accessibility to radial highways Full-value property-tax rate per $10,000 Pupil-teacher ratio by town 1000(Bk - 0.63)^2 where Bk is the proportion of AfricanAmericans by town % Lower status of the population Median value of owner-occupied homes in $1000's

A portion of the dataset is shown below. The last variable, CAT. MEDV, is a discrete classification of the MEDV variable and will not be used in this example.

First, we partition the data into training and validation sets using the Standard Data Partition defaults with percentages of 60% of the data randomly allocated to the Training Set and 40% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, then click Predict k-Nearest Neighbors to open the following dialog.

Select MEDV as the Output variable, and the remaining variables (except CAT. MEDV) as Input variables. (The Weight variable and Class options are not supported in this method and are disabled.)

Select Normalize Input data. When this option is selected, the input data is normalized which means that all data is expressed in terms of standard deviations. This option is available to ensure that the distance measure is not dominated by variables with a large scale. Enter 5 for the Number of Nearest Neighbors. This is the parameter k in the knearest neighbor algorithm. The value of k should be between 1 and the total number of observations (rows). Typically, this is chosen to be in units of tens. Select Score on best k between 1 and specified value for the Scoring option. XLMiner will display the output for the best k between 1 and 5. If Score on specified value of k as above is selected, the output will be displayed for the specified value of k. Select Detailed scoring, Summary report, and Lift charts under both Score training data and Score validation data to show an assessment of the performance in predicting the training data. The options in the Score test data group are enabled only when a test partition is available. Please see the Scoring chapter for a complete discussion on the options under Score New Data.

Click Finish. Worksheets containing the output of the method will be inserted at the end of the workbook. The Output1 worksheet contains the Output Navigator which allows easy access to all portions of the output.

Scroll down the Output1 worksheet to the Validation error log (shown below). As per our specifications XLMiner has calculated the RMS error for all values of k and denoted the value of k with the smallest RMS Error.

A little further down the page is the Summary Report, shown below. This report summarizes the prediction error. The first number, the total sum of squared errors, is the sum of the squared deviations (residuals) between the predicted and actual values. The second is the square root of the average of the squared residuals. The third is the average deviation. All these values are calculated for the best k, i.e. k=2.

Select the Valid. Score Detailed Rep. link in the Output Navigator to display the Prediction of Validation Data table, shown below. This table displays the predicted value, the actual value and the difference between them (the residuals), for each record.

Click the Training Lift Charts and Validation Lift Charts links to display both charts, respectively. The Lift charts (shown below) are visual aids for measuring the models performance. They consist of a lift curve and a baseline. The greater the area between the lift curve and the baseline, the better the model. After the model is built using the training data set, the model is used to score on the training data set and the validation data set. Then the data sets are sorted using the predicted output variable value (or predicted probability of success in

the logistic regression case). After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the number of cases versus the cumulated value. The baseline is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value.

The following options appear on the two k-Nearest Neighbors dialogs.

All variables in the dataset are listed here.

Input variables

Variables listed here will be utilized in the XLMiner output.

Output Variable

Select the variable whose outcome is to be predicted here.

When this option is selected, the input data is normalized which means that all data is expressed in terms of standard deviations. This option is available to ensure that the distance measure is not dominated by variables with a large scale. This option is not selected by default.

This is the parameter k in the k-nearest neighbor algorithm. The value of k should be between 1 and the total number of observations (rows). Typically, this is chosen to be in units of tens. The default value is 1.

Scoring Option

When Score on best k between 1 and specified value is selected, XLMiner will display the output for the best k between 1 and the value entered for Number of nearest neighbors (k). If Score on specified value of k as above is selected, the output will be displayed for the specified value of k. The default setting is Score on specified value of k.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

These options are enabled when a test set is present. Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

See the Scoring chapter for more details on the In worksheet or In database options.

Introduction

As with all regression techniques, XLMiner assumes the existence of a single output (response) variable and one or more input (predictor) variables. The output variable is numerical. The general regression tree building methodology allows input variables to be a mixture of continuous and categorical variables. A decision tree is generated where each decision node in the tree contains a test on some input variable's value. The terminal nodes of the tree contain the predicted output variable values. A Regression tree may be considered as a variant of decision trees, designed to approximate real-valued functions instead of being used for classification methods.

Methodology

A Regression tree is built through a process known as binary recursive partitioning. This is an iterative process that splits the data into partitions or branches, and then continues splitting each partition into smaller groups as the method moves up each branch. Initially, all records in the training set (the pre-classified records that are used to determine the structure of the tree) are grouped into the same partition. The algorithm then begins allocating the data into the first two partitions or branches, using every possible binary split on every field. The algorithm selects the split that minimizes the sum of the squared deviations from the mean in the two separate partitions. This splitting rule is then applied to each of the new branches. This process continues until each node reaches a user-specified minimum node size and becomes a terminal node. (If the sum of squared deviations from the mean in a node is zero, then that node is considered a terminal node even if it has not reached the minimum size.)

Since the tree is grown from the training data set, a fully developed tree typically suffers from over-fitting (i.e. it is "explaining" random elements of the training data that are not likely to be features of the larger population). This over-fitting results in poor performance on real life data. Therefore, the tree must be pruned using the validation data set. XLMiner calculates the cost complexity factor at each step during the growth of the tree and decides the number of decision nodes in the pruned tree. The cost complexity factor is the multiplicative factor that is applied to the size of the tree (which is measured by the number of terminal nodes).

The tree is pruned to minimize the sum of (1) the output variable variance in the validation data, taken one terminal node at a time, and (2) the product of the cost complexity factor and the number of terminal nodes. If the cost complexity factor is specified as zero then pruning is simply finding the tree that performs best on validation data in terms of total terminal node variance. Larger values of the cost complexity factor result in smaller trees. Pruning is performed on a last in first out basis meaning the last grown node is the first to be subject to elimination.

This example illustrates XLMiners Regression Tree prediction method. We will again use the Boston_Housing.xlsx example dataset. This dataset contains 14 variables, the description of each is given in the table below. The dependent variable MEDV is the median value of a dwelling. This objective of this example is to predict the value of MEDV. CRIM ZN INDUS CHAS NOX RM AGE DIS RAD TAX PTRATIO B LSTAT MEDV Per capita crime rate by town Proportion of residential land zoned for lots over 25,000 sq.ft. Proportion of non-retail business acres per town Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) Nitric oxides concentration (parts per 10 million) Average number of rooms per dwelling Proportion of owner-occupied units built prior to 1940 Weighted distances to five Boston employment centers Index of accessibility to radial highways Full-value property-tax rate per $10,000 Pupil-teacher ratio by town 1000(Bk - 0.63)^2 where Bk is the proportion of African-Americans by town % Lower status of the population Median value of owner-occupied homes in $1000's

A portion of the dataset is shown below. The last variable, CAT. MEDV, is a discrete classification of the MEDV variable and will not be used in this example.

First, we partition the data into training and validation sets using the Standard Data Partition with percentages of 50% of the data randomly allocated to the Training Set and 30% of the data randomly allocated to the Validation Set and 20% of the data randomly allocated to the Test Set (default settings for Specify percentages). For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the Data_Partition1 worksheet, then click Predict Regression Tree to open the following dialog.

Select MEDV as the Output variable, then select the remaining variables (except CAT.MEDV) as the Input variables. (The Weight variable and the Classes group are not used in the Regression Tree predictive method.)

Leave Normalize input data option unchecked. Normalizing the data only makes a difference if linear combinations of the input variables are used for splitting. Enter 100 for the Maximum #splits for input variables. This is the maximum number of splits allowed for each input variable. Enter 25 for the Minimum #records in a terminal node. The tree will continue to grow until all terminal nodes reach this size. Select Using Best prune tree for the Scoring option. The option, Maximum #decision nodes is enabled when Using user specified tree is selected.

Enter 7 for the Maximum # levels to be displayed or the number of levels to be displayed in the output file. Select Full tree (grown using training data) to display the full regression tree grown using the training dataset.

Select Pruned tree (pruned using validation data) to display the tree pruned using the validation dataset. Select Minimum error tree (pruned using validation data) to display the minimum error tree, pruned using the validation dataset. Select Detailed report, Summary report, and Lift charts under Score training data, Score validation data, and Score test data to display each in the output. See the Scoring chapter for details on scoring to a worksheet or database.

Click Finish. Worksheets containing the output of the method will be inserted at the end of the workbook. The Output1 worksheet contains the Output Navigator which allows easy access to all portions of the output.

Click the Valid. Score Detailed Rep. link to navigate to the Prediction of Validation Data table.

The Prune log (shown below) shows the residual sum of squares (RSS) at each stage of the tree for both the training and validation data sets. This is the sum of the squared residuals (difference between predicted and actual). The prune log shows that the validation RSS continues reducing as the tree continues to split. The cost complexity is calculated at each step. The Cost Complexity Factor is the parameter that governs how far back the tree should be pruned. XLMiner chooses the number of decision nodes for the pruned tree and the minimum error tree from the values of RSS and the Cost Complexity Factor. In the Prune log shown below, Validation RSS continues to reduce until the number of Decision Nodes increases from 0 to 5. At node 6, the RSS starts to increase. The Minimum Error and Best Pruned Tree display 6 decision nodes each.

Click the Best Pruned Tree link to display the Best Pruned Tree (shown below).

We can read this tree as follows. LSTAT (% of the population that is lower status) is chosen as the first splitting variable; if this percentage is > 9.54 (95 cases), then LSTAT is again chosen for splitting. Now, if LSTAT <=14.98 (36 cases) then MEDV is predicted as $20.96. So the first rule is if LSTAT >9.54 and LSTAT<=14.895 then MEDV=$20.96. If LSTAT <= 9.54%, then we move to RM (Average No. of rooms per dwelling) as the next divider. If RM >7.141 (12 cases), MEDV for those cases is predicted to be $40.69 ($40.69 is a terminal node). So the second rule is "If LSTAT <= 9.54 AND RM >7.141, then MEDV = $40.69." The output also contains summary reports on both the training data and the validation data. These reports contain the total sum of squared errors, the root mean square error (RMS error, or the square root of the mean squared error), and also the average error (which is much smaller, since errors fall roughly into negative and positive errors and tend to cancel each other out unless squared first.) Select the Training Lift Charts and Validation Lift Charts links to navigate to each. Lift charts are visual aids for measuring model performance. They consist of a lift curve and a baseline. The larger the area between the lift curve and the baseline, the better the model. After the model is built using the training data set, the model is used to score on the training data set and the validation data set. Then the data sets are sorted using the predicted output variable value. After sorting, the actual outcome values of the output variable are cumulated and the lift curve is drawn as the

number of cases versus the cumulated value. The baseline is drawn as the number of cases versus the average of actual output variable values multiplied by the number of cases. The decilewise lift curve is drawn as the decile number versus the cumulative actual output variable value divided by the decile's average output variable value.

For information on the RT_Stored_1 worksheet, please see the Scoring chapter.

The options below appear on one of the three Regression Tree dialogs.

All variables in the dataset are listed here.

Input variables

Variables listed here will be utilized in the XLMiner output.

Weight Variable

The Weight variable is not used in this method.

Output Variable

Select the variable whose outcome is to be predicted here.

When this option is checked, XLMiner will normalize the data. Normalizing the data (subtracting the mean and dividing by the standard deviation) is important to ensure that the distance measure accords equal weight to each variable -without normalization, the variable with the largest scale will dominate the measure. Normalizing the data will only make a difference if linear combinations of the input variables are used for determining the splits. This option is not selected by default.

This is the maximum number of splits allowed for each input variable. The default setting is 100.

The tree will continue to grow until all terminal nodes contain this number of records. The default setting is 25.

Scoring option

Select the tree to be used for scoring. Select Using Full tree (the default) to use the full grown tree for scoring. Select Using Best prune tree to use the best pruned tree for scoring. Select Using minimum error tree to use the minimum error tree for scoring. Select Using user specified tree to use a tree specified by the user. The option, Maximum #decision nodes in the pruned tree, is enabled when Using user specified tree is selected.

Enter the desired number of nodes to be displayed in the output here. The default value is 5.

Select this option to display the full regression tree. The tree will be drawn according to the maximum #levels in the tree that are specified. This option is not selected by default.

Select this option to display the pruned tree. This option is not selected by default.

Select this option to display the minimum error tree, pruned using validation data. This option is not selected by default.

Select these options to show an assessment of the performance of the tree in classifying the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in classifying the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

The options in this group let you apply the model for scoring to an altogether new data. See the Scoring chapter for details on these options.

Introduction

Artificial neural networks are relatively crude electronic networks of "neurons" based on the neural structure of the brain. They process records one at a time, and "learn" by comparing their prediction of the record (which, at the outset, is largely arbitrary) with the known actual record. The errors from the initial prediction of the first record is fed back to the network and used to modify the networks algorithm for the second iteration. These steps are repeated multiple times. Roughly speaking, a neuron in an artificial neural network is 1. 2. A set of input values (xi) with associated weights (wi) A input function (g) that sums the weights and maps the results to an output function(y).

Neurons are organized into layers: input, hidden and output. The input layer is composed not of full neurons, but simply of the values in a record that are inputs to the next layer of neurons. The next layer is the hidden layer of which there could be several. The final layer is the output layer, where there is one node for each class. A single sweep forward through the network results in the assignment of a value to each output node. The record is assigned to the class node with the highest value.

In the training phase, the correct class for each record is known (this is termed supervised training), and the output nodes can therefore be assigned "correct" values -- "1" for the node corresponding to the correct class, and "0" for the others. (In practice, better results have been found using values of 0.9 and 0.1, respectively.) As a result, it is possible to compare the network's calculated values for the output nodes to these "correct" values, and calculate an error term for each node. These error terms are then used to adjust the weights in the hidden layers so that, hopefully, the next time around the output values will be closer to the "correct" values.

A key feature of neural networks is an iterative learning process in which records (rows) are presented to the network one at a time, and the weights associated with the input values are adjusted each time. After all cases are presented, the process often starts over again. During this learning phase, the network trains by adjusting the weights to predict the correct class label of input samples. Advantages of neural networks include their high tolerance to noisy data, as well as their ability to classify patterns on which they have not been trained. The most popular neural network algorithm is the backpropagation algorithm proposed in the 1980's. Once a network has been structured for a particular application, that network is ready to be trained. To start this process, the initial weights (described in the next section) are chosen randomly. Then the training, or learning, begins. The network processes the records in the training data one at a time, using the weights and functions in the hidden layers, then compares the resulting outputs against the desired outputs. Errors are then propagated back through the system, causing the system to adjust the weights for the next record. This process occurs over and over as the weights are continually tweaked. During the training of a network the same set of data is processed many times as the connection weights are continually refined.

Note that some networks never learn. This could be because the input data do not contain the specific information from which the desired output is derived. Networks also will not converge if there is not enough data to enable complete learning. Ideally, there should be enough data available to create a validation set.

Feedforward, Back-Propagation

The feedforward, back-propagation architecture was developed in the early 1970's by several independent sources (Werbor; Parker; Rumelhart, Hinton and Williams). This independent co-development was the result of a proliferation of articles and talks at various conferences which stimulated the entire industry. Currently, this synergistically developed back-propagation architecture is the most popular, effective, and easy-to-learn model for complex, multi-layered networks. Its greatest strength is in non-linear solutions to ill-defined problems. The typical back-propagation network has an input layer, an output layer, and at least one hidden layer. Theoretically, there is no limit on the number of hidden layers but typically there are just one or two. Some studies have shown that the total number of layers needed to solve problems of any complexity is 5 (one input layer, three hidden layers and an output layer). Each layer is fully connected to the succeeding layer. As noted above, the training process normally uses some variant of the Delta Rule, which starts with the calculated difference between the actual outputs and the desired outputs. Using this error, connection weights are increased in proportion to the error times, which are a scaling factor for global accuracy. This means that the inputs, the output, and the desired output all must be present at the same processing element. The most complex part of this algorithm is determining which input contributed the most to an incorrect output and how to modify the input to correct the error. (An inactive node would not contribute to the error and would have no need to change its weights.) To solve this problem, training inputs are applied to the input layer of the network, and desired outputs are compared at the output layer. During the learning process, a forward sweep is made through the network, and the output of each element is computed layer by layer. The difference between the output of the final layer and the desired output is back-propagated to the previous layer(s), usually modified by the derivative of the transfer function. The connection weights are normally adjusted using the Delta Rule. This process proceeds for the previous layer(s) until the input layer is reached.

The number of layers and the number of processing elements per layer are important decisions. These parameters, to a feedforward, back-propagation topology, are also the most ethereal - they are the "art" of the network designer. There is no quantifiable, best answer to the layout of the network for any particular application. There are only general rules picked up over time and followed by most researchers and engineers applying this architecture to their problems. Rule One: As the complexity in the relationship between the input data and the desired output increases, the number of the processing elements in the hidden layer should also increase. Rule Two: If the process being modeled is separable into multiple stages, then additional hidden layer(s) may be required. If the process is not separable into stages, then additional layers may simply enable memorization of the training set, and not a true general solution.

Rule Three: The amount of training data available sets an upper bound for the number of processing elements in the hidden layer(s). To calculate this upper bound, use the number of cases in the training data set and divide that number by the sum of the number of nodes in the input and output layers in the network. Then divide that result again by a scaling factor between five and ten. Larger scaling factors are used for relatively less noisy data. If too many artificial neurons are used the training set will be memorized, not generalized, and the network will be useless on new data sets.

portion of the dataset is shown below. The last variable, CAT.MEDV, is a discrete classification of the MEDV variable and will not be used in this example.

The example below illustrates XLMiners Neural Network Prediction method. We will again use the Boston_Housing.xlsx example dataset. This dataset contains 14 variables, the description of each is given in the table below. The dependent variable MEDV is the median value of a dwelling. This objective of this example is to predict the value of MEDV. CRIM ZN INDUS CHAS NOX RM AGE DIS RAD TAX PTRATIO B LSTAT MEDV Per capita crime rate by town Proportion of residential land zoned for lots over 25,000 sq.ft. Proportion of non-retail business acres per town Charles River dummy variable (= 1 if tract bounds river; 0 otherwise) Nitric oxides concentration (parts per 10 million) Average number of rooms per dwelling Proportion of owner-occupied units built prior to 1940 Weighted distances to five Boston employment centers Index of accessibility to radial highways Full-value property-tax rate per $10,000 Pupil-teacher ratio by town 1000(Bk - 0.63)^2 where Bk is the proportion of African-Americans by town % Lower status of the population Median value of owner-occupied homes in $1000's

A portion of the dataset is shown below. The last variable, CAT.MEDV, is a discrete classification of the MEDV variable and will not be used in this example.

First, we partition the data into training and validation sets using the Standard Data Partition defaults with percentages of 60% of the data randomly allocated to the Training Set and 40% of the data randomly allocated to the Validation Set. For more information on partitioning a dataset, see the Data Mining Partitioning chapter.

Select a cell on the newly created Data_Partition1 worksheet, then click Predict Neural Network on the XLMiner ribbon. The following dialog appears.

Select Type as the Output variable and the remaining variables as Input Variables (except the CAT.MEDV variable) Since the Output variable contains three classes (A, B, and C) to denote the three different wineries, the options for Classes in the output variable are disabled. The Weight variable and the Success options are not used in this method and are therefore not enabled.

This dialog contains the options to define the network architecture. Keep Normalize input data unselected in this example. Normalizing the data (subtracting the mean and dividing by the standard deviation) is important to ensure that the distance measure accords equal weight to each variable -without normalization, the variable with the largest scale would dominate the measure. Keep the # Hidden Layers at the default value of 1. Click the up arrow to increase the number of hidden layers. The default setting is 1. XLMiner supports up to 4 hidden layers. Enter 25 for the # Nodes for the Hidden layer.

Enter 500 for # Epochs. An epoch is one sweep through all records in the training set. Keep the default setting of 0.1 for Step size for gradient descent. This is the multiplying factor for the error correction during backpropagation; it is roughly equivalent to the learning rate for the neural network. A low value produces slow but steady learning, a high value produces rapid but erratic learning. Values for the step size typically range from 0.1 to 0.9. Keep the default setting of 0.6 for Weight change momentum. In each new round of error correction, some memory of the prior correction is retained so that an outlier does not spoil accumulated learning. Keep the default setting of 0.01 for Error tolerance. The error in a particular iteration is backpropagated only if it is greater than the error tolerance. Typically error tolerance is a small value in the range from 0 to 1. Keep the default setting of 0 for Weight decay. To prevent over-fitting of the network on the training data, set a weight decay to penalize the weight in each iteration. Each calculated weight will be multiplied by 1-decay.

Select Detailed report, Summary report, and Lift charts under Score training data and Score validation data to show an assessment of the performance of the tree in predicting the output variable. The output is displayed according to the users specifications Detailed, Summary, and/or Lift charts. If a test dataset exists, the options under Score test data will be enabled. Select Detailed report, Summary report, and Lift charts under Score test data to show an assessment of the performance of the test dataset in predicting the output variable. The output is displayed according to the users specifications Detailed, Summary, and/or Lift charts. See the Scoring chapter for information on options under Score new data.

Click Finish to initiate the output. Worksheets containing the output of the model will be inserted at the end of the workbook. The Output Navigator appears on the NNP_Output1 worksheet. Click any link to easily view the results.

The Data, Variables, and Parameters Options sections reflect the user inputs. Click the Valid. Score Detailed Rep. link on the Output Navigator to navigate to the Prediction of Validation Data table on the NNP_ValidScore1 worksheet. This table displays the Actual and Predicted values for the validation dataset.

XLMiner also provides intermediate information produced during the last pass through the network. Scroll down on the Output1 worksheet to the Interlayer connections' weights table.

Recall that a key element in a neural network is the weights for the connections between nodes. In this example, we chose to have one hidden layer, and we also chose to have 25 nodes in that layer. XLMiner's output contains a section that contains the final values for the weights between the input layer and the hidden layer, between hidden layers, and between the last hidden layer and the output layer. This information is useful at viewing the insides of the neural network; however, it is unlikely to be of utility to the data analyst end-user. Displayed above are the final connection weights between the input layer and the hidden layer for our example. Click the Training Epoch Log link on the Output Navigator to display the following log.

During an epoch, each training record is fed forward in the network and classified. The error is calculated and is back propagated for the weights correction. As a result, weights are continuously adjusted during the epoch. The

classification error is computed as the records pass through the network. It does not report the classification error after the final weight adjustment. Scoring of the training data is performed using the final weights so the training classification error may not exactly match with the last epoch error in the Epoch log. See the Scoring chapter for information on the Stored Model Sheet, NNC_Stored_1.

The options below appear on one of the three Neural Network Prediction method dialogs.

All variables in the dataset are listed here.

Input variables

Variables listed here will be utilized in the XLMiner output.

Weight Variable

The Weight variable is not used in this method.

Output Variable

Select the variable whose outcome is to be predicted here.

Normalizing the data (subtracting the mean and dividing by the standard deviation) is important to ensure that the distance measure accords equal weight to each variable -- without normalization, the variable with the largest scale would dominate the measure. This option is not selected by default.

# Hidden Layers

Click the up and down arrows until the desired number of hidden layers appears. The default setting is 1. XLMiner supports up to 4 hidden layers.

# Nodes

Enter the number of nodes per layer here. The first field is for the first hidden layer, the second field is for the second hidden layer, etc.

# Epochs

An epoch is one sweep through all records in the training set. The default setting is 30.

This is the multiplying factor for the error correction during backpropagation; it is roughly equivalent to the learning rate for the neural network. A low value produces slow but steady learning, a high value produces rapid but erratic learning. Values for the step size typically range from 0.1 to 0.9. The default setting is 0.1.

In each new round of error correction, some memory of the prior correction is retained so that an outlier that crops up does not spoil accumulated learning. The default setting is 0.6.

Error tolerance

The error in a particular iteration is backpropagated only if it is greater than the error tolerance. Typically error tolerance is a small value in the range from 0 to 1. The default setting is 0.01.

Weight decay

To prevent over-fitting of the network on the training data, set a weight decay to penalize the weight in each iteration. Each calculated weight will be multiplied by (1-decay). The default setting is 0.

Select these options to show an assessment of the performance of the tree in predicting the output variable using the training data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in predicting the value of the output variable using the validation data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

Select these options to show an assessment of the performance of the tree in predicting the output variable using the test data. The report is displayed according to your specifications - Detailed, Summary and Lift charts.

The options in this group apply the model to be scored to an altogether new dataset. See the Scoring chapter for details on these options.

Association Rules

Introduction

The goal of association rule mining is to recognize associations and/or correlations among large sets of data items. A typical and widely-used example of association rule mining is the Market Basket Analysis. Most market basket databases consist of a large number of transaction records where each record lists all items purchased by a customer during a trip through the check-out line. Data is easily and accurately collected through the bar-code scanners. Supermarket managers are interested in determining what foods customers purchase together, like, for instance, bread and milk, bacon and eggs, wine and cheese, etc. This information is useful in planning store layouts (placing items optimally with respect to each other), cross-selling promotions, coupon offers, etc. Association rules provide results in the form of "if-then" statements. These rules are computed from the data and, unlike the if-then rules of logic, are probabilistic in nature. The if portion of the statement is referred to as the antecedent and the then portion of the statement is referred to as the consequent. In addition to the antecedent (the "if" part) and the consequent (the "then" part), an association rule contains two numbers that express the degree of uncertainty about the rule. In association analysis the antecedent and consequent are sets of items (called itemsets) that are disjoint meaning they do not have any items in common. The first number is called the support which is simply the number of transactions that include all items in the antecedent and consequent. (The support is sometimes expressed as a percentage of the total number of records in the database.) The second number is known as the confidence which is the ratio of the number of transactions that include all items in the consequent as well as the antecedent (namely, the support) to the number of transactions that include all items in the antecedent. For example, assume a supermarket database has 100,000 point-of-sale transactions, out of which 2,000 include both items A and B and 800 of these include item C. The association rule "If A and B are purchased then C is purchased on the same trip" has a support of 800 transactions (alternatively 0.8% = 800/100,000) and a confidence of 40% (=800/2,000). In other works, support is the probability that a randomly selected transaction from the database will contain all items in the antecedent and the consequent. Confidence is the conditional probability that a randomly selected transaction will include all the items in the consequent given that the transaction includes all the items in the antecedent. Lift is one more parameter of interest in the association analysis. Lift is the ratio of Confidence to Expected Confidence. Expected Confidence, in the example above, is the "confidence of buying A and B does not enhance the probability of buying C." or the number of transactions that include the consequent divided by the total number of transactions. Suppose the total number of transactions for C is 5,000. Expected Confidence is computed as 5% (5,000/1,000,000) while the ratio of Lift Confidence to Expected Confidence is 8 (40%/5%). Hence, Lift is a

value that provides information about the increase in probability of the "then" (consequent) given the "if" (antecedent). A lift ratio larger than 1.0 implies that the relationship between the antecedent and the consequent is more significant than would be expected if the two sets were independent. The larger the lift ratio, the more significant the association.

This example below illustrates XLMiners Association Rule method. Click Help Examples to open the Associations.xlsx example file. A portion of the dataset is shown below.

Select a cell in the dataset, say, A2, then click Associate Association Rules to open the Association Rule dialog, shown below.

Since the data contained in the Associations.xlsx dataset are all 0s and 1s, select Data in binary matrix format for the Input data format. This option should be selected if each column in the data represents a distinct item. XLMiner will treat the data as a matrix of two entities -- zeros and non-zeros.

All non-zeros are treated as 1's. A 0 signifies that the item is absent in that transaction and a 1 signifies the item is present. Select Data in item list format when each row of data consists of item codes or names that are present in that transaction. Enter 100 for the Minimum Support (# transactions). This option specifies the minimum number of transactions in which a particular item-set must appear to qualify for inclusion in an association rule. Enter 90 for Minimum confidence. This option specifies the minimum confidence threshold for rule generation. If A is the set of Antecedents and C the set of Consequents, then only those A =>C ("Antecedent implies Consequent") rules will qualify, for which the ratio (support of A U C) / (support of A) at least equals this percentage.

Click OK. The output worksheet, AssocRules_1, is inserted immediately after the Assoc_binary worksheet. Click the column titles to sort each rule by ascending or descending values.

Rule 2 indicates that if an Italian cookbook and a Youth book are purchased, then with 100% confidence a second cookbook will also be purchased. Support (a) indicates that the rule has support of all 118 transactions, meaning that 118 people bought an Italian cookbook and a Youth book. Support (c) indicates the number of transactions involving the purchase of cookbooks. Support (a U c)

indicates the number of transactions where an Italian cookbook and a Youth book as well as a second cookbook were purchased. The Lift Ratio indicates how much more likely a transaction will be found where an Italian cookbook and a Youth book are purchased, as compared to the entire population of transactions. In other words, the Lift Ratio is the confidence divided by support (c), where the latter is expressed as a percentage. For Rule 2, with a confidence of 100%, support is calculated as 862/2000 * 100 = 43.1. Consequently, the Lift ratio is calculated as 100/43.1 or 2.320186. Given support at 100% and a lift ratio of 2.320186, this rule can be considered useful.

The following options appear on the Association Rule dialog.

Select Data in binary matrix format if each column in the data represents a distinct item. If this option is selected, XLMiner treats the data as a matrix of two entities -- zeros and non-zeros. All non-zeros are treated as 1's. So, effectively the data set is converted to a binary matrix which contains 0's and 1's. A 0 indicates that the item is absent in the transaction and a 1 indicates it is present. Select Input Data in item list format if each row of data consists of item codes or names that are present in that transaction.

Specify the minimum number of transactions in which a particular item-set must appear for it to qualify for inclusion in an association rule here. The default setting is 200.

A value entered for this option specifies the minimum confidence threshold for rule generation. If A is the set of Antecedents and C the set of Consequents, then only those A =>C ("Antecedent implies Consequent") rules will qualify, for which the ratio (support of A U C) / (support of A) is greater than or equal to. The default setting is 50.

Introduction

XLMiner provides a method for scoring new data in a database or worksheet with any of the Classification or Prediction algorithms. This facility matches the input variables to the database (or worksheet) fields and then performs the scoring on the database (or worksheet).

Scoring to a Database

Refer to the Discriminant Analysis example in the previous chapter Discriminant Analysis Classification Method for instructions on advancing to the Discriminant Analysis Step 3 of 3 dialog. This feature can be used with any of the Classification or Prediction algorithms and can be found on the last dialog for each method. In the Discriminant Analysis method, this feature is found on the Step 3 of 3 dialog.

In the Score new data in group, select Database. The Scoring to Database dialog opens.

The first step on this dialog is to select the Data source. Once the Data source is selected, Connect to a database will be enabled. If your database is a SQL Server database, select SQL Server for Data source then click Connect to a database, the following dialog will appear. Enter the appropriate details, then click OK to be connected to the database.

If your data source is an Oracle database, select Oracle as Data source, then click Connect to a database, the following dialog will appear. Enter the appropriate details and click OK to connect to the database.

This example illustrates how to score to an MS-Access database. Select MSAccess for the Data source, then click Connect to a Database The following dialog appears.

Click Browse for database file and browse to C:\Program Files\Frontline Systems\Analytic Solver Platform\Datasets\dataset.mdb,

Click OK to close the MS-Access database file dialog. The Scoring to Database dialog re-appears. Select Boston_Housing for Select table/view. The dialog will be populated with variables from the database, dataset.mdb, under Fields in table and with variables from the Boston_Housing.xlsx workbook under Variables in input data.

XLMiner offers three easy techniques to match variables in the dataset to variables in the database: 1. 2. 3. Matching variables with the same names. Matching the first N variables where N is the number of input variables. Manually matching the variables.

If Match variable(s) with same names(s) is clicked, all similar named variables in Boston_Housing.xlsx will be matched with similar named variables in dataset.mdb, as shown in the screenprint below. Note that the additional database fields remain in the Fields in table listbox while all variables in the Variables in input data listbox have been matched.

If Match the first 11 variables in the same sequence is clicked, the first 11 variables in Boston_Housing.xlsx will be matched with the first 11 variables in the dataset.mdb database. The first 11 variables in both the database and the dataset are now matched under Variables in input data. The additional database fields remain under Fields in table. Note: The 11 in Match the first 11 variables in the same sequence command button title will change with the number of input variables.

To manually map variables from the dataset to the database, select a variable from the database in the Fields in table listbox, then select the variable to be matched in the dataset in the Variables in input data listbox, then click Match. For example to match the CRIM variable in the database to the CRIM variable in the dataset, select CRIM from the dataset.mdb database in the Fields in table listbox, select CRIM from the Boston_Housing.xlsx dataset in the Variables in input data listbox, then click Match CRIM < -- > CRIM to match the two

variables.

Notice that CRIM has been removed from the Fields in table listbox and is now listed next to CRIM in the Variables in input data listbox. Continue with these steps to match the remaining 10 variables in the Boston_Housing.xlsx dataset.

To unmatch all variables click Unmatch all. To unmatch a single match, highlight the match, then click Unmatch the selected variable.

The Output Field can be selected from the remaining database fields listed under Fields in table or a new Output Field can be added. Note: An output field must be a string. To select an output field from the remaining database fields, select the field to be added as the output field, in this case, nfld, then click > to the right of the Select output field radio button.

In this example, the field nfld is the only remaining database field which is a string so it is the only choice for the output field. To choose a different output field click the < command button to return the nfld field to the Fields in table listbox. To add a new field for the output, select Add new field for output radio button, then type a name for this new field such as Output_Field. XLMiner will create the new field in the dataset.mdb database

After all the desired variables in the input data have been matched, OK will be enabled, click to return to the original Step 3 of 3 dialog. Notice that Database is selected.

XLMiner can also perform scoring on new data in a worksheet. Click Help Examples on the XLMiner ribbon and open the Digit.xlsx and Flying_Fitness.xlsx example datasets. Select a cell on the Data worksheet of Flying_Fitness.xlsx workbook, say cell A2, and click Classify Discriminant Analysis to open the Discriminant Analysis Step 1 of 3 dialog. Select Var2, Var3, Var4, Var5, and Var6 as the Input variables and TestRes/Var1 as the Output variable.

Click Next to advance to the Step 2 of 3 dialog. Then click Next on the Step 2 of 3 dialog to accept the defaults.

On the Step 3 of 3 dialog, select Detailed report in the Score new data in group.

In the dialog above, the variables listed under Variables in new data are from Digits.xlsx and the variables listed under Variables in input data are from Flying_Fitness.xlsx. Again, variables can be matched in three different ways. 1. 2. Match variables with same names. Match the first N variables where N is the number of variables included in the input data.

3.

If Match variable(s) with same name(s) is clicked, no variables will be matched as no variables share the same names. If Match the first 5 variables in the same sequence is clicked, the first five variables from each listbox are matched as shown below.

Finally, variables may be matched manually by selecting a variable under Variables in new data, selecting a variable in Variables in input data, and clicking Match. For example, select y under Variables in new data and Var2 under Variables in input data, then click Match y < -- > Var2.

Notice y has been removed from the Variables in new data listbox and added to the Variables in input data listbox.

To unmatch all matched variables, click Unmatch all. To unmatch only one set of matched variables, select the matched variables in the Variables in input data listbox, then select Unmatch. Click OK to return to the Step 3 of 3 dialog. Notice Detailed report is now selected in the Score new data in group and Canonical Scores has been enabled within that same group.

Click Finish to review the output. Click the DA_NewScore1 worksheet to view the output as shown below. All variables in the input data have been matched

with the variables in the new data. Instead of Var2, y is listed, instead of Var3, x1 is listed, instead of Var4, x2 is listed, etc.

Introduction

When XLMiner calculates prediction or classification results, internal values and coefficients are generated and used in the computations. XLMiner saves these values to an additional output sheet, termed Stored Model Sheet, which uses the worksheet name, XX_Stored_N where XX are the initials of the classification or prediction method and N is the number of generated stored sheets. This sheet is used when scoring the test data. Note: In previous versions of XLMiner, this utility was a separate add-on application named XLMCalc. In XLMiner V12.5, this utility is included free of charge and can be accessed under Score in the Tools section of the XLMiner ribbon.

The material saved to the Stored Model Sheet varies with the classification or prediction method used. Please see the table below for details. Classification/Prediction Method Multiple Linear or Logistic Regression Classification or Regression Trees Nave Bayes k-Nearest Neighbors Neural Networks Discriminant Analysis Contents of Stored Model Sheet Coefficients of the regression equation. Tree rules for all selected trees. Each variable value, class and all class probabilities. Model generated from training data. All weights between Input, Hidden, and Output layers Discriminant coefficients for each class.

For example, assume the Multiple Linear Regression prediction method has just finished. The Stored Model Sheet (MLR_Stored_1) will contain the regression equation. When the Score Test Data utility is invoked, XLMiner will apply this equation from the Stored Model Sheet to the test data. Along with values required to generate the output, the Stored Model Sheet also contains information associated with the input variables that were present in the training data. The dataset on which the scoring will be performed should contain at least these original Input variables. XLMiner offers a matching utility that will match the Input variables in the training set to the variables in the new dataset so the variable names are not required to be identical in both data sets (training and test).

This example illustrates how to score test data using a stored model sheet using output from a Multiple Linear Regression. This procedure may be repeated on stored model sheets generated from the following Classification or Prediction routines: Logistic Regression, k-Nearest Neighbors, Neural Networks, Naive Bayes, or Discriminant Analysis. Click Help Examples on the XLMiner ribbon and open the example files, Scoring.xlsm and Boston_Housing.xlsx. The Scoring.xlsm workbook contains the MLR_Stored_1 worksheet which was generated by the Multiple Linear Regression prediction routine on the Boston_Housing example dataset. Select a cell on the Data worksheet within the Boston_Housing.xlsx workbook, say A2, then click Score on the XLMiner ribbon. Under Data to be scored, confirm that Data appears as the Worksheet and Boston_Housing.xlsx as the Workbook.

Click Next. XLMiner will open the Match variables Step 2 dialog which is where the matching of the Input variables to the New Data variables will take place.

XLMiner displays the list of variables on the Stored Model Sheet under Variables in stored model and the variables in the new data under Variables in new data. Variables may be matched using three easy techniques: by name, by sequence or manually. If Match variable(s) with same names(s) is clicked, all similar named variables in the stored model sheet will be matched with similar named variables in the new dataset. However, since none of the variables in either list are named similarly, no variables are matched. If Match variables in stored model in same sequence is clicked, the Variables in the stored model will be matched with the Variables in the new data in order that they appear in the two listboxes. For example, the variable CRIM from the new dataset will be matched with the variable CRIM_Scr from the stored model sheet, the variable ZN from the new data will be matched with the variable ZN_Scr from the stored model sheet and so on.

Since the stored model sheet only contains 13 variables while the new data contains 15 variables, two variables will remain in the Variables in new data listbox. Note: It is essential that the variables in the new data set appear in the same sequence as the variables in the stored model when using this matching technique. To manually map variables from the stored model sheet to the new data set, select a variable from the new data set in the Variables in new data listbox, then select the variable to be matched in the stored model sheet in the Variables in stored model listbox, then click Match. For example to match the CRIM variable in the new dataset to the CRIM_Scr variable in the stored model sheet, select CRIM from the Variables in new data listbox, select CRIM_Scr from the stored model sheet in the Variables in stored model listbox, then click Match CRIM < -- > CRIM to match the two variables.

Notice that CRIM has been removed from the Variables in new data listbox and is now listed next to CRIM_SCR in the Variables in stored model listbox. Continue with these steps to match the remaining 12 variables in the stored model sheet.

To unmatch all variables click Unmatch all. To unmatch CRIM and CRIM_SCR, click Unmatch CRIM_SCR <- -> CRIM. For this example, click Match variables in stored model in same sequence to match the variables in the new dataset to the variables on the stored model sheet. Then click OK. A new sheet MLR_Score1 will be added to Boston_Housing.xlsx. A portion of this output is shown below.

Now lets apply these same steps to a stored model sheet created by the Classification Tree classification method. Click Score on the XLMiner ribbon. Confirm that Boston_Housing.xlsx is selected for Workbook and Data is selected for Worksheet under Data to be scored. Then, under Stored Model, select Scoring.xlsm for Workbook and CT_Stored_1 for Worksheet.

Click Next to advance to the Step 2 dialog. Click Match variables in stored model in same sequence.

Click the down arrow to select the desired scoring option, then click OK. (Since this stored model sheet was created when only the Full Tree Rules option was selected during the Classification Tree method, this is the only option.) The worksheet CT_Score1 will be added at the end of the workbook. A portion of the output is shown below.

The options below appear on one of the Scoring Test Data dialogs.

Data to be Scored

Workbook: Select the open workbook containing the data to be scored here. Worksheet: Select the worksheet, from the Workbook selection, containing the data to be scored here. Data Range: The dataset range will be prefilled here. If not prefilled, enter the dataset range here. First Row Contains Headers: This option is selected by default and indicates to XLMiner to list variables in the Step 2 dialog by their column headings.

Stored Model

Workbook: Select the open workbook containing the Stored Model Sheet here. Worksheet: Select the Stored Model worksheet, from the Workbook selection, here.

XLMiner displays the list of variables on the Stored Model Sheet under Variables in stored model and the variables in the new data under Variables in new data. Variables may be matched using three easy techniques: by name, by sequence, or manually.

Match by Name

If Match variable(s) with same names(s) is clicked, all similar named variables in the stored model sheet will be matched with similar named variables in the new dataset. However, if none of the variables in either list are named similarly, no variables will be matched.

Match by Sequence

If Match variables in stored model in same sequence is clicked, the Variables in the stored model will be matched with the Variables in the new data in order that they appear in the two listboxes. In the dialog above, the variable CRIM from the new dataset will be matched with the variable CRIM_Scr from the stored model sheet, the variable ZN from the new data will be matched with the variable ZN_Scr from the stored model sheet and so on.

Manual Match

To manually map variables from the stored model sheet to the new data set, select a variable from the new data set in the Variables in new data listbox, then select the variable to be matched in the stored model sheet in the Variables in stored model listbox, then click Match. To match the CRIM variable in the new dataset to the CRIM_Scr variable in the stored model sheet in the dialog above, select CRIM from the Variables in new data listbox, select CRIM_Scr from the stored model sheet in the Variables in stored model listbox, then click Match CRIM < -- > CRIM.

When scoring to a Stored Model Sheet generated by the Classification Tree method, an additional dialog will appear. Click the down arrow to select the desired scoring rule. The options appearing in this drop down are based on the options selected on the Classification Tree Step 3 of 3 dialog.

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