MODULE 1: INTRODUCTION TO BUSINESS ANALYTICS

1: Meaning , Definition and Evolution

Meaning : Business analytics (BA) refers to all the methods and techniques that are used by an
organization to measure performance. Business analytics are made up of statistical methods that
can be applied to a specific project, process or product. Business analytics can also be used to
evaluate an entire company. Business analytics are performed in order to identify weaknesses in
existing processes and highlight meaningful data that will help an organization prepare for future
growth and challenges

Definition :Business Analytics is “the study of data through statistical and operations analysis,
the formation of predictive models, application of optimization techniques, and the
communication of these results to customers, business partners, and college executives.”
Business Analytics requires quantitative methods and evidence-based data for business modeling
and decision making.

3: Types of analytics

1.Descriptive analytics: Descriptive analytics answers the question of what happened. For
instance, a healthcare provider will learn how many patients were hospitalized last month; a
manufacturer – a rate of the products returned for a past month, etc. Descriptive analytics juggles
raw data from multiple data sources to give valuable insights into the past. However, these
findings simply signal that something is wrong or right, without explaining why. For this reason,
highly data-driven companies do not content themselves with descriptive analytics only and
prefer combining it with other types of data analytics.

2.Diagnostic analytics: Diagnostic analytics is used to determine why something happened in

the past. It is characterized by techniques such as drill-down, data discovery, data mining and
correlations. Diagnostic analytics takes a deeper look at data to understand the root causes of the
events. It is helpful in determining what factors and events contributed to the outcome. It mostly
uses probabilities, likelihoods, and the distribution of outcomes for the analysis.

For example, in a time series data of sales, diagnostic analytics would help you understand why
the sales have decreased or increased for a specific year or so. However, this type of analytics
has a limited ability to give actionable insights. It just provides an understanding of causal
relationships and sequences while looking backward

3.Predictive analytics: Predictive analytics tells what is likely to happen. It uses the findings of
descriptive and diagnostic analytics to detect tendencies, clusters and exceptions, and to predict
future trends, which makes it a valuable tool for forecasting. However, it cannot predict if an
 event will occur in the future; it merely forecasts what are the probabilities of the occurrence of
the event. The essence of predictive analytics is to devise models such that, the existing data is
understood predict the future data. Hence, predictive analytics includes building and validation
of models that provide accurate predictions. Predictive analytics relies on machine learning
algorithms like random forests, SVM, etc. and statistics for learning and testing the data.

4. Prescriptive Analytics: The basis of this analytics is predictive analytics but it goes beyond
the three mentioned above to suggest the future solutions. It can suggest all favorable outcomes
according to a specified course of action and also suggest various course of actions to get to a
particular outcome. Hence, it uses a strong feedback system that constantly learns and updates
the relationship between the action and the outcome.

The computations include optimization of some functions that are related to the desired outcome.
For example, while calling for a cab online, the application uses GPS to connect you to the
correct driver from among a number of drivers found nearby. Hence, it optimizes the distance for
faster arrival time.

4: Emergence of Business Analytics as a Competitive Strategy

Customer expectations have reached an all-time high and industry competition is ever increasing
-- putting businesses under constant pressure to increase efficiency and improve results. At the
same time, the amount and type of available data have grown exponentially

As a result, analytics has become one of the most important tools at an organization’s disposal.
When data and analytics work in tandem, the benefits become obvious. Companies can leverage
data to improve cost savings, redefine processes, drive market strategy, establish competitive
differentiators and, perhaps most importantly, build an exceptional and truly personalized
customer experience.

Companies can prepare themselves to use analytics for competitive advantage, according to the
report, by using the following strategies:

▪ Acquire the right talent now. Talent for analytics and Big Data is in high demand. Talent
shortages may become more of a barrier to analytics implementation as more companies use data
to drive more processes and decisions.
▪ Tie analytics to decision-making. Better data and analysis don’t necessarily result in better
decisions. Specific initiatives to improve decision cultures and processes, along with changing
the understanding and behaviours of front-line workers, lead to better decisions, the report says.
▪ Apply analytics to marketing and customers. Finance operations are the most frequent area of
analytics investment, with implementation by 79% of respondents. Marketing and sales groups,
at 55%, are the second-most frequent analytics users, and the report says the best financial
returns from analytics often come from marketing and customer-oriented applications.
▪ Coordinate and align analytics. There is little consistency among companies with regard to
who oversees analytics initiatives. Business units or division heads (23%), no single executive
(20%), CFOs (18%) and CIOs (15%) were most commonly cited. More co-ordination may be
needed to realise the full benefits of data throughout the organisation.
▪ Create a long-term strategy for analytics. While current analytical processes are being
implemented, a multi-year plan for the growth of analytical capabilities – linked to strategy
development – will help organisations better use data over time, the report says.

5: Concept of Big Data

What is Big Data?

• Big Data is a collection of large datasets that cannot be adequately processed using traditional
processing techniques. Big data is not only data it has become a complete subject, which involves
various tools, techniques and frameworks.
• Big data term describes the volume amount of data both structured and unstructured manner that
adapted in day-to-day business environment. It’s important that what organizations utilize with
these with the data that matters.
• Big data helps to analyze the in-depth concepts for the better decisions and strategic taken for the
development of the organization.

➢ Why is Big Data Important ?

The importance of big data does not revolve around how much data a company has but how a
company utilises the collected data. Every company uses data in its own way; the more
efficiently a company uses its data, the more potential it has to grow. The company can take data
from any source and analyse it to find answers which will enable:

1. Cost Savings : Some tools of Big Data like Hadoop and Cloud-Based Analytics can bring cost
advantages to business when large amounts of data are to be stored and these tools also help in
identifying more efficient ways of doing business.
2. Time Reductions :The high speed of tools like Hadoop and in-memory analytics can easily
identify new sources of data which helps businesses analyzing data immediately and make quick
decisions based on the learnings.
3. New Product Development : By knowing the trends of customer needs and satisfaction through
analytics you can create products according to the wants of customers.
4. Understand the market conditions : By analyzing big data you can get a better understanding
of current market conditions. For example, by analyzing customers’ purchasing behaviors, a
company can find out the products that are sold the most and produce products according to this
trend. By this, it can get ahead of its competitors.
5. Control online reputation: Big data tools can do sentiment analysis. Therefore, you can get
feedback about who is saying what about your company. If you want to monitor and improve the
online presence of your business, then, big data tools can help in all this.

6: 5 V’s of Big Data/ Characteristics of Big Data

In recent years, Big Data was defined by the “3Vs” but now there is “5Vs” of Big Data which are
also termed as the characteristics of Big Data as follows:
1. Volume:
• The name ‘Big Data’ itself is related to a size which is enormous.
• Volume is a huge amount of data.
• To determine the value of data, size of data plays a very crucial role. If the volume of data
is very large then it is actually considered as a ‘Big Data’. This means whether a particular
data can actually be considered as a Big Data or not, is dependent upon the volume of data.
• Hence while dealing with Big Data it is necessary to consider a characteristic ‘Volume’.
• Example: In the year 2016, the estimated global mobile traffic was 6.2 Exabytes(6.2 billion
GB) per month. Also, by the year 2020 we will have almost 40000 ExaBytes of data.
2. Velocity:
• Velocity refers to the high speed of accumulation of data.
• In Big Data velocity data flows in from sources like machines, networks, social media,
mobile phones etc.
• There is a massive and continuous flow of data. This determines the potential of data that
how fast the data is generated and processed to meet the demands.
• Sampling data can help in dealing with the issue like ‘velocity’.
• Example: There are more than 3.5 billion searches per day are made on Google. Also,
FaceBook users are increasing by 22%(Approx.) year by year.
3. Variety:
• It refers to nature of data that is structured, semi-structured and unstructured data.
• It also refers to heterogeneous sources.
• Variety is basically the arrival of data from new sources that are both inside and outside of
an enterprise. It can be structured, semi-structured and unstructured.
• Structured data: This data is basically an organized data. It generally refers to data
that has defined the length and format of data.
• Semi- Structured data: This data is basically a semi-organised data. It is generally a
form of data that do not conform to the formal structure of data. Log files are the
examples of this type of data.
• Unstructured data: This data basically refers to unorganized data. It generally refers
to data that doesn’t fit neatly into the traditional row and column structure of the
relational database. Texts, pictures, videos etc. are the examples of unstructured data
which can’t be stored in the form of rows and columns.
4. Veracity:
 • It refers to inconsistencies and uncertainty in data, that is data which is available can
sometimes get messy and quality and accuracy are difficult to control.
• Big Data is also variable because of the multitude of data dimensions resulting from
multiple disparate data types and sources.
• Example: Data in bulk could create confusion whereas less amount of data could convey
half or Incomplete Information.
5. Value:
• After having the 4 V’s into account there comes one more V which stands for Value!. The
bulk of Data having no Value is of no good to the company, unless you turn it into
something useful.
• Data in itself is of no use or importance but it needs to be converted into something
valuable to extract Information. Hence, you can state that Value! is the most important V of
all the 5V’s.

7: Applications of Big data in management / Who are the ones who use the Big Data
Technology?
1.Banking :Large amounts of data streaming in from countless sources, banks have to find out
unique and innovative ways to manage big data. It’s important to analyze customers needs and
provide them service as per their requirements, and minimize risk and fraud while maintaining
regulatory compliance. Big data have to deal with financial institutions to do one step from the
advanced analytics.
2.Government: When government agencies are harnessing and applying analytics to their big
data, they have improvised a lot in terms of managing utilities, running agencies, dealing with
traffic congestion or preventing the affects crime. But apart from its advantages in Big Data,
governments also address issues of transparency and privacy.
3.Education : Educator regarding Big Data provides a significant impact on school systems,
students and curriculums. By analyzing big data, they can identify at-risk students, ensuring
student’s progress, and can implement an improvised system for evaluation and support of teachers
and principals in their teachings.
4.Health Care :When it comes to health care in terms of Patient records. Treatment plans.
Prescription information etc., everything needs to be done quickly and accurately and some aspects
enough transparency to satisfy stringent industry regulations. Effective management results in
good health care to uncover hidden insights that improve patient care.
5.Manufacturing :Manufacturers can improve their quality and output while minimizing waste
where processes are known as the main key factors in today’s highly competitive market. Several
manufacturers are working on analytics where they can solve problems faster and make more agile
business decisions.
6.Retail: Customer relationship maintains is the biggest challenge in the retail industry and the
best way to manage will be to manage big data. Retailers must have unique marketing ideas to sell
their products to customers, the most effective way to handle transactions, and applying
improvised tactics of using innovative ideas using BigData to improve their business.
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8: Data visualization Concepts.

Data visualization is the process of displaying data/information in graphical charts, figures and
bars.It is used as means to deliver visual reporting to users for the performance, operations or
general statistics of an application, network, hardware or virtually any IT asset.

➢ Importance of data visualization

Data visualization is important as it saves time required for reading long reports. It helps you in
delivering much effective & crisp presentations thus saving everyone time and increasing
productivity. Also, making changes to the charts and graphs is much easier as the data visualization
softwares provides flexibility to convert one chart to another and make changes to specific data
which needs to be modified. Some of the advantages which data visualization provides are:

• By designing data visualizations you will get an idea which product to place where
• A data visualization tool can predict the sales, plot trends and thus help in decision making
• By using the best interactive data visualization software, it is quite easy to understand the
factors that influence customers behavior
• A big data visualization tool also helps to understand the areas that need improvement
• Brings out the correlations and key details from data which often goes unnoticed
• By using data visualization the data engineers or scientists can track their data sources and
make an analysis report.

➢ Factors that influence data visualization choices

1. Audience. It’s important to adjust data representation to the target audience. If it’s end
customers who browse through their progress in a fitness app, then simplicity is the key. On
the other hand, if data insights are intended for researchers or experienced decision-makers,
you can and often should go beyond simple charts.
2. Content. The type of data determines the tactics. For example, if it’s metrics that changes
over time, you most probably will use line charts to show the dynamics. To show the
relationship between two elements you will use a scatter plot. In turn, bar charts are perfect
for comparison analysis.
3. Context. You may use different approaches to the way your graphs look and therefore read
depending on the context. To emphasize a certain figure, for example serious profit growth
compared to other years, you may want to use the shades of one color and pick the bright one
 for the most significant element on the chart. On the contrary, to differentiate elements, you’ll
use contrast colors.
4. Dynamics. There are various types of data, and each of it implies a different rate of change.
For example, financial results can be measured monthly or yearly, while time series and
tracking data is constantly changing. Depending on the type of change, you may consider
dynamic representation (steaming) or a static visualization.
5. Purpose. The goal of data visualization also has serious influence on the way it is
implemented. In order to make a complex analysis of a system or combine different types of
data for a more profound view, visualizations are compiled into dashboards with controls and
filters. However, dashboards are not necessary to show a single or occasional data insight.

➢ Data visualization techniques

1.Charts :The easiest way to show the development of one or several data sets is a chart. Charts
vary from bar and line charts that show relationship between elements over time to pie charts that
demonstrate the components or proportions between the elements of one whole.
2.Plots :Plots allow to distribute two or more data sets over a 2D or even 3D space to show the
relationship between these sets and the parameters on the plot. Plots also vary: scatter and bubble
plots are the most traditional. Though when it comes to big data, analysts use box plots that
enable to visualize the relationship between large volumes of different data.

3.Maps :Maps are widely-used in different industries. They allow to position elements on
relevant objects and areas - geographical maps, building plans, website layouts, etc. Among the
most popular map visualizations are heat maps, dot distribution maps, cartograms.

4.Diagrams and matrices :Diagrams are usually used to demonstrate complex data relationships
and links and include various types of data on one visualization. They can be hierarchical,
multidimensional, tree-like.
Matrix is a big data visualization technique that allows to reflect the correlations between
multiple constantly updating (steaming) data sets.

5.Line charts allow looking at the behavior of one or several variables over time and identifying
the trends. In traditional BI, line charts can show sales, profit and revenue development for the
last 12 months

6.Pie charts show the components of the whole. Companies that work with both traditional and
big data may use this technique to look at customer segments or market shares. The difference
lies in the sources from which these companies take raw data for the analysis.

7.Bar charts allow comparing the values of different variables. In traditional BI, companies can
analyze their sales by category, the costs of marketing promotions by channels, etc. When
analyzing big data, companies can look at the visitors’ engagement with their website’s multiple
pages, at the most frequent pre-failure cases recognized by sensors and more.

Module 2 Analytics Domains & Cloud Computing

1: Financial Services Analytics

1: Financial Services Analytics

The financial services industry is dealing with record amounts of data flowing faster than ever,
so smarter analytics will increasingly become the competitive differentiator among financial
service companies. The true strategic value of these big data streams is to predict consequential
outcomes at critical decision points, optimizing operational decisions in core
processes. Following are some of the most effective use cases deployed by financial services
industry leaders:

1.Improve the customer experience and drive growth

• Deliver personalized services based on customer profiles, using data on customer

satisfaction, preferences, buying history, demographics, and behavior to better understand
their needs. These insights can help you tailor products and services and deliver highly
targeted, personalized offers that improve customer satisfaction and retention.
• Recommend the next-best product to buy using deep insights to accurately cluster
customers and prospects into segments according to their profiles and probable needs.
Use these insights to develop cross-sell and up-sell opportunities, which can be triggered
at the right time through the right channel.
• Provide robo-advisor services to help customers with investment decisions by offering a
peer-to-peer comparison or customer-specific portfolio advice. A robo-advisor can
manage portfolios without human influence, basing investment decisions on algorithms
developed from customer risk profiles.
• Automate personal finance management, which gives customers a holistic view of their
finances and provides forward-looking advice. Identify investment opportunities based on
customer risk profiles and available funds, propose remortgaging a house loan, or use
previous spending data to understand trends and encourage better customer savings habits

2.Optimize risk controls and business outcomes

• Provide early warning predictions using liability analysis to identify potential exposures
prior to default. You can also work proactively with customers to manage their liabilities
and limit bank exposure.
 • Predict risk of loan delinquency and recommend proactive maintenance strategies by
segmenting delinquent borrowers and identifying self-cure customers. With this insight,
banks can better tailor collection strategies and improve on-time payment rates.
• Improve collection and recovery rates. To minimize delinquencies, credit card issuers
can use account pattern-recognition technologies and develop contact guidelines and
strategies for delinquent accounts.
• Predict risk of churn for individual customers and recommend proactive retention
strategies to improve customer loyalty. Identify at-risk customers and act quickly to
retain them.
• Detect financial crime such as fraud, money laundering, or counter-terrorism financing
activities by identifying transaction anomalies or suspicious activities using transactional,
customer, black-list, and geospatial data.

3.Automate business processes

• Algorithmic trading based on deep learning, high-performance computing, and

geographical positioning can deliver subsecond timing advantages in automated trading.
• Customer credit risk evaluation uses application and customer data for automated real-
time credit decisions based on information such as age, income, address, guarantor, loan
size, job experience, rating, and transaction history.
• Customer complaint management uses data from various interaction channels to
understand why customers complain, identify dissatisfied customers, find the root causes
of problems, and rapidly respond to affected customers.
• Inquiry response employs data from customer engagement channels to automatically
route and respond to inquiries while spending fewer resources on manual tasks.

2:Marketing Analytics:

Meaning: Marketing analytics is a system used for measuring, managing and analyzing the
marketing performance. The concept of marketing analytics facilitates not only to improve the
effectiveness but also allows the marketers to take a successful shot at optimizing the return on
investment.Marketing analytics provides a clear picture about the marketing efforts, and allows
you to monitor campaigns that can easily facilitate the saving of resources. When you run a
marketing campaign, its performance can be tracked via Marketing Analytics

➢ Why Marketing Analytics is Important?

(i)Understanding the customer and market trends is really important in today’s time. Marketing
analytics easily allows understanding of big picture trends that too by focusing on every single
detail.

(ii)With the aid of providing you with a clear picture of the efforts and the returns, it allows you
to easily depict that which programs worked and also depicts the reasons why it failed or even
succeeded.

(iii) The market study is also an important part of the business. Marketing analytics allow
monitoring of trends over time.

(iv) Marketing analytics allows understanding the return on investment by providing a clear picture
of the working and the reports of each programme.

(v) By easily helping to study the market trends, marketing analytics facilitates to proficiently
forecast future results.

Turning to search marketing, keywords also allow understanding what even the mindset of the
customers is. Analytics help you find the keywords that can easily be used to optimize business
processes by –

(i) Customer surveys — One can easily infer the relative priorities of competing interests by the
examination of keyword frequency data

(ii) Industry trends — It becomes really easy to understand and predict trends in customer behavior

(iii) Product design — It is vital to understand what are the solutions that a customer is looking
for. Keywords can easily facilitate the understanding of what the customer actually wants

Marketing Analytics Examples

Amazon Fresh and Whole Foods:This campaign is one of the best Marketing Analytics
Examples that showcase how analytical data helped Amazon gauge how customers purchase
groceries. It also updated the company about how suppliers would do their interaction with the
grocer.

Netflix use of Marketing Analytics for Target Adverts :Netflix used the analytics data to find
out specific inclinations of their audiences. Accordingly, company sent emails to their subscribers
about the programs that would be best fit for them.

3: Pricing Analytics
Meaning: Pricing analytics are the metrics and associated tools used to understand how pricing
activities affect the overall business, analyze the profitability of specific price points, and optimize
a business’s pricing strategy for maximum revenue.

One general rule of thumb, though, is that pricing tends to become a bigger challenge as companies
grow. Companies with lots of products sold at different price points, different customer tiers, or
complex product bundles tend to see the greatest benefits from analysis.

Subscription billing in particular makes businesses the perfect candidates for pricing analytics
tools like ProfitWell. Revenue in a company is built one subscription at a time and paid in small
increments; therefore, success in means understanding the factors that drive subscription and churn
rates more than just knowing which factors drive one-time sales. Pricing analytics solutions give
you the data to make better pricing decisions, so you can stop guessing and start growing.

➢ How pricing analytics improve profitability/Role of pricing analyt+ics

1.Acquire more insights on customers Going after the wrong customer segment can mean
significant lost revenue. For companies dipping their toes into improving their pricing for the first
time, even simple tools like customer segmentation can be a huge improvement.

Pricing analytics show which customer segments are the most (and least) profitable and which
respond best to specific pricing strategies. Aligning your pricing with those customer segments
increases both revenue and profit, keeping customers happy and helping reduce churn.

2.Optimize your pricing for value : Data lets you quickly learn which customers are most likely
to buy and exactly how much they value your solution to their problems. The insights from your
pricing analytics drive more effective (and profitable) business and pricing decisions for you, and
a fair price for customers that matches the value you provide. Everybody wins.

3.Identify quick pricing wins :Nearly every company has holes in their pricing strategy just
waiting to be patched—pricing leaks, underpriced or overpriced product tiers, or missed upsell
opportunities. Pricing analytics tools comb through the data, finding the low-hanging fruit that can
be fixed quickly and creating extra revenue in just a few short months.

4.Discover which channels are most profitable :Pricing analytics can also show, for example,
that posting videos on YouTube might bring in fewer qualified leads than written content, but that
video helps those leads trust you more, meaning customers who are more willing to pay a premium
for your product. Based on that discovery, you might choose to pursue video more aggressively,
even though your customer acquisition costs might end up higher.

5.Recognize which pricing tiers work the best :Tiered pricing models are incredibly common in
subscription businesses—most companies offer some form of pricing tiers to meet the needs of
different customer segments. Having insight into how many tiers you should have, the optimal
price for each tier, and who uses which tiers can unlock new levels of profitability for your product
without needing to add new products or features.

6:Plan promotions :Pricing promotions need to be carefully planned for the most optimal time to
acquire the most number of paying customers. Predictive analytics let you keep a close eye on the
market, waiting for the perfect time to pounce with your promotional campaign. Most pricing tools
will also calculate price elasticity in real time and predict revenue at different price points, making
it a piece of cake to set your prices and discount levels for maximum demand.

4: Retail Sales Analytics

Meaning: Retail analytics focuses on providing insights related to sales, inventory, customers, and
other important aspects crucial for merchants’ decision-making process.

It helps in creating a broader picture of a retail business’ health, and sales alongside overall areas
for improvement and reinforcement. Essentially, retail analytics is used to help make better
choices, run businesses more efficiently, and deliver improved customer service analytics.

Retail Analytics uses techniques like data mining and data discovery to sanitize datasets to produce
actionable BI insights that can be applied in the short-term.

Moreover, companies use these analytics to create better snapshots of their target demographics.
By harnessing sales data analysis, retailers can identify their ideal customers according to diverse
categories such as age, preferences, buying patterns, location, and more.

Essentially, the field is focused not just on parsing data, but also defining what information is
needed, how best to gather it, and most importantly, how it will be used.

By prioritizing retail analytics basics that focus on the process and not exclusively on data itself,
companies can uncover stronger insights and be in a more advantageous position to succeed when
attempting to predict business and consumer needs.

➢ Retail Analytics Benefits:

• One of the biggest benefits the field delivers to companies is optimizing their inventory and
procurement. Thanks to predictive tools, businesses can use historical data and trend analysis
to determine which products they should order, and in what quantities instead of relying
exclusively on past orders.
• In addition, they can optimize inventory management to emphasize products customers need,
reducing wasted space and associated overhead costs.
• many retailers use analytics to identify customer trends and changing preferences by
combining data from different areas. By merging sales data with a variety of factors, businesses
 can identify emerging trends and anticipate them better. This is closely tied to marketing
functions, which also benefit from analytics.
• Companies can harness retail analytics to improve their marketing campaigns by building an
improved understanding of individual preferences and gleaning more granular insights. By
blending demographic data with information such as shopping habits, preferences, and
purchase history, companies can create strategies that focus on individuals and exhibit higher
success rates.
➢ Applications of Retail Analytics:

1.Consumer Behavior Insights: Analytics allows retailers to study consumer behavior and
understand their buying patterns. This is perhaps the biggest reason why retailers are investing in
big data analytics.

Consumer behavior insights enable retailers to understand why these things happen and offer a
solution to improve sales. It is especially a boon for e-commerce businesses, where heaps of
customer details, such as most searched items, items added to cart, abandoned cart items, etc. are
easily accessible.

2:Marketing Strategies :Retail analytics helps marketers strategize their activities efficiently
based on consumer behavior patterns and run profitable campaigns. As much as 13% retailers have
already adopted “digital first” as their preferred marketing strategy.

For instance, a family apparel store owner would be interested in knowing where his millennial
customers are most active and which channels are best to approach middle-aged customers for a
festive offer. Analytics helps with such minute details and helps pick the right campaign for every
customer group.

3:Personalized Offers :Customers love attention, and offering personalized deals is a great way
to show your customers that they are important. 75% consumers are more likely to buy from a
retailer that recognizes them by name, recommends options based on past purchases.

But the trick lies in offering personalized deals to the right customer at the right time. Analytics
helps businesses track down transaction histories and consumer preferences. It indicates what the
customer wants, and allows retailers to offer similar choices at affordable rates, closing sales most
effectively.

4:Store Optimization : One of the biggest advantages of adopting retail analytics is that it helps
in streamlining not just online retail operations, but also helps boosting brick-and-mortar store
performances.

It helps retailers analyze minute details like how often a customer visits the stores and how long
he stays in which section and making further sales easier. With the help of analytics, it is also
possible to stock up sufficient inventories based on consumer demands and market trends.
5:Customer Satisfaction :9 out of 10 customers like to shop at stores that offer free delivery.
Whereas, 42% of customers rely on user reviews before buying a product. Customer satisfaction
is the key catalyst behind retail success.

By using analytics, retailers are able to offer the customer exactly what he wants and engage him
most effectively. This in turn helps in building a positive brand image, gaining trust and developing
long-lasting retail relationships.

5: Supply Chain Analytics

Supply chain analytics is the foundation for applying cognitive technologies, such as artificial
intelligence (AI), to the supply chain process. Cognitive technologies understand reason, learn and
interact like a human, but at enormous capacity and speed.

This advanced form of supply chain analytics is ushering in a new era of supply chain optimization.
It can automatically sift through large amounts of data to help an organization improve forecasting,
identify inefficiencies, respond better to customer needs, drive innovation and pursue breakthrough
ideas.

Why is supply chain analytics important?

• Gain a significant return on investment. A recent Gartner survey revealed that 29 percent of
surveyed organizations said they have achieved high levels of ROI by using analytics,
compared with only four percent that achieved no ROI.⁴
• Better understand risks. Supply chain analytics can identify known risks and help to predict
future risks by spotting patterns and trends throughout the supply chain.
• Increase accuracy in planning. By analyzing customer data, supply chain analytics can help
a business better predict future demand. It helps an organization decide what products can be
minimized when they become less profitable or understand what customer needs will be after
the initial order.
• Achieve the lean supply chain. Companies can use supply chain analytics to monitor
warehouse, partner responses and customer needs for better-informed decisions.
• Prepare for the future. Companies are now offering advanced analytics for supply chain
management. Advanced analytics can process both structured and unstructured data to give
organizations an edge to get alerts on time to make the optimal decisions. It can build
correlation and patterns among different sources to provide alerts that minimize risks at little
cost and less sustainability impact.

Features of effective supply chain analytics:

• Connected. Being able to access unstructured data from social media, structured data from the
Internet of Things (IoT) and more traditional data sets available through traditional ERP and
B2B integration tools.
• Collaborative. Improving collaboration with suppliers increasingly means the use of cloud-
based commerce networks to enable multi-enterprise collaboration and engagement.
• Cyber-aware. The supply chain must harden its systems from cyber-intrusions and hacks,
which should be an enterprise-wide concern.
• Cognitively enabled. The AI platform becomes the modern supply chain's control tower by
collating, coordinating and conducting decisions and actions across the chain. Most of the
supply chain is automated and self-learning.
• Comprehensive. Analytics capabilities must be scaled with data in real time. Insights will be
comprehensive and fast. Latency is unacceptable in the supply chain of the future.

➢ Using software for supply chain analytics

With supply chain analytics becoming so complicated, many types of software have been
developed to optimize supply chain performance. Software products cover the gamut — from
supplying timely and accurate supply chain information to monitoring sales.

For instance, IBM has developed many software products to increase the effectiveness of supply
chain analytics, with some of the software even using AI technologies. With AI capabilities, supply
chain software can actually learn an ever-fluctuating production flow and can anticipate the need
for changes.

6: HR Analytics

HR analytics is the application of statistics, modeling, and analysis of employee-related factors to

improve business outcomes.HR analytics is also often referred to as: People analytics, Talent
analytics, and Workforce analytics

• HR analytics enables HR professionals to make data-driven decisions to attract, manage, and

retain employees, which improves ROI.
• It helps leaders make decisions to create better work environments and maximize employee
productivity.
• It has a major impact on the bottom-line when used effectively.

HR professionals gather data points across the organization from sources like:

Employee surveys, Telemetric Data, Attendance records, Multi-rater reviews, Salary and
promotion history, Employee work history, Demographic data, Personality/temperament
data, Recruitment process, Employee databases

Benefits of HR Analytics

Companies are now realizing company success is built on people, and HR analytics can light the
way from intangible theory-based decisions to real ROI through the following:
Better hiring practices, Decreased retention, Task automation, Process improvement, improved
employee experience, more productive workforce, and improved workforce planning through
informed talent development.

The 8 HR Analytics Every Manager Should Know About

1.Capability analytics: The success of your business depends on the level of expertise and skill
of your workforce. Capability analytics is a talent management process that allows you to identify
the capabilities or core competencies you want and need in your business. Once you know what
those capabilities are you can compare them to the capabilities you have in place at the moment to
see if you have any gaps.

2.Competency acquisition analytics :Talent matters, and the acquisition and management of
talent is often a critical factor in business growth. Competency acquisition analytics is the process
of assessing how well or otherwise your business acquires the desired competencies. You need to
start by identifying the core competencies your business requires now and in the future. Then
assess the current levels of these competencies within your business and identify any gaps. You
can then monitor how effective you are at developing these competencies in-house or spotting and
recruiting candidates with those competencies.

3.Capacity analytics :Capacity affects revenue. Capacity analytics seeks to establish how
operationally efficient people are in a business, e.g. are people spending too much time on admin
and not enough on more profitable work, or are individuals stretched far too thin? It also allows
businesses to establish of how much capacity they have to grow?

4.Employee churn analytics :Hiring employees, training them and then integrating them into the
business costs time and money. Employee churn analytics is the process of assessing your staff
turnover rates in an attempt to predict the future and reduce employee churn.

5.Corporate culture analytics :Culture refers to the collective rules, systems and patterns of
behavior that embody your business. Corporate culture analytics is therefore the process of
assessing and understanding more about your corporate culture or the different cultures that exists
across your organization. This then allows you to track changes in culture you would like to make,
understand how the culture is changing, create early warning systems to detect toxic cultures in
their development and ensure you are recruiting people that don’t clash with the corporate culture.

6:Recruitment channel analytics :Employees represent the greatest cost and greatest opportunity
in most businesses. Recruitment channel analytics is the process of working out where your best
employees come from and what recruitment channels are most effective. Recruitment channel
analytics will involve some historical assessment of employee value using KPIS such as human
capital value added and return per employee. Surveys and entry interviews are also useful sources
of data.

7:Leadership analytics : Leadership analytics unpacks the various dimensions of leadership

performance via data to uncover the good, the bad and the ugly. Data about leadership performance
can be gained through the use of surveys, focus groups, employee interviews or ethnography.

8:Employee performance analytics :. Employee performance analytics seeks to assess individual

employee performance. The resulting insights can identify who is performing well and who may
need some additional training or support in order to raise their game. Today, we have many
innovative ways of collecting and analyzing performance, from crowd sourced performance
assessments to big data analytics.

7: Talent Analytics

Talent analytics is focused on applying statistics and technology to large sets of people in order to
make better organizational and operational decisions. Talent analytics uses a variety of BI tools
and systems to create a more holistic and data-driven view of an organization’s staff. This way,
companies can make the best decisions based on actual results and quantifiable success.

Today, talent analytics is mainly used by HR departments, as it offers tools that are highly
complementary to their mandate. This subset of data analytics focuses on understanding people
data that can inform decisions related to hiring, retaining, or improving results of a pool of current
or potential employees.

Talent Analytics Uses:

• Some HR dashboards examples include employee engagement and morale along with charts
correlating them with success levels and positive outcomes. In a similar vein, talent analytics
can track several key employee metrics such as hours worked, salary competitiveness, earnings
per employee and much more.
• Some organizations also utilize talent analytics to gauge potential employee attrition, focusing
on characteristics and measurements of employees that may signal how likely they are to leave.
This can help minimize the effects of employee turnover and reduce the impact of a team
member leaving abruptly.
• Others utilize talent analytics in a different way. Sports teams use it to measure biometric data
from athletes for a variety of purposes. This includes evaluating and delivering better care
when treating injuries and health conditions, finding ways to improve player performance, and
even gauging health, fitness, and satisfaction levels for contract negotiations.

4 Talent analytics examples

1. Automated application screening :This is probably the most widely used type of talent
analytics at present. Once an application has been uploaded to your company careers page, the
analytics application uses machine learning algorithms to read the screening question answers and
the full CV. The words are analyzed and scored according to data and insights already in the
system. This happens immediately that an application is received, and you get an updated list of
the most suitable candidates.

2. Measuring employees’ sentiments and feelings :Although the value of a happy workforce is
becoming a crucial factor in boardroom decisions, it hasn’t necessarily filtered down the
management chain. Many managers still don’t take conscience of the wellbeing or opinions of
their subordinates. This can lead to reduced productivity, bottlenecks in the supply chain and
competition harming your employee retention rates.

Well-designed employee surveys will identify existing and potential problem areas. Talent
analytics allows you to step in and address issues before they manifest as a problem. By stepping
in and listening to your workforce, you not only prevent disasters, but you gain employee trust and
therefore their buy-in and loyalty. Sound employee engagement improves productivity,
transparency and staff retention.

3. Employer brand awareness : Employer brand awareness can be tracked in different ways.
Tracking the volume of inbound traffic from people researching your company, applying for
vacancies and interacting with your brand through various platforms is a good measure. This will
allow you to adjust your brand message, image and visibility to attract the type of talent you need.

4. Increase profitability :Data-driven tools can be integrated across all sectors of an organization.
They link up with time management systems, financial systems and training, and development
programs.

Well-designed applications can analyze time versus money, comparing labor hours paid to total
output or production. That way, you can identify patterns of irregular overtime and other payroll
leakages. They can also be used to predict patterns of fraud and stock loss. Often these issues are
overlooked because they develop gradually over time, and line managers take their employees at
face value.

8:Cloud Computing – Meaning and Basic Concepts

Cloud computing is a general term for anything that involves delivering hosted services over the
Internet. These services are broadly divided into three categories: Infrastructure-as-a-Service
(IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS). The name cloud
computing was inspired by the cloud symbol that's often used to represent the Internet in flowcharts
and diagrams
Cloud computing differs from traditional IT hosting services in that the consumer (whether that’s
a business, organization, or individual user) generally doesn’t own the infrastructure needed to
support the programs or applications they use.

Instead, those elements are owned and operated by a third party, and the end-user pays only for
the services they use. In other words, cloud computing is an on-demand, utility-based model of
computing.

➢ Why Cloud Computing?

• With increase in computer and Mobile user’s, data storage has become a priority in all fields.
Large and small scale businesses today thrive on their data & they spent a huge amount of
money to maintain this data. It requires a strong IT support and a storage hub. Not all
businesses can afford high cost of in-house IT infrastructure and back up support services. For
them Cloud Computing is a cheaper solution. Perhaps its efficiency in storing data,
computation and less maintenance cost has succeeded to attract even bigger businesses as well.
• Cloud computing decreases the hardware and software demand from the user’s side. The only
thing that user must be able to run is the cloud computing systems interface software, which
can be as simple as Web browser, and the Cloud network takes care of the rest. Some of the
popular cloud services we have used or we are still using are mail services like gmail, hotmail
or yahoo etc.
• While accessing e-mail service our data is stored on cloud server and not on our computer. The
technology and infrastructure behind the cloud is invisible. It is less important whether cloud
services are based on HTTP, XML, Ruby, PHP or other specific technologies as far as it is user
friendly and functional. An individual user can connect to cloud system from his/her own
devices like desktop, laptop or mobile.
• Cloud computing harnesses small business effectively having limited resources, it gives small
businesses access to the technologies that previously were out of their reach. Cloud computing
helps small businesses to convert their maintenance cost into profit. in cloud computing, the
service provider takes the complete responsibility of the complication and the technical faults.

➢ Benefits of Cloud Computing

• Self-service provisioning: End users can spin up compute resources for almost any type of
workload on demand. This eliminates the traditional need for IT administrators to provision
and manage compute resources.
• Elasticity: Companies can scale up as computing needs increase and scale down again as
demands decrease. This eliminates the need for massive investments in local infrastructure,
which may or may not remain active.
• Pay per use: Compute resources are measured at a granular level, enabling users to pay only
for the resources and workloads they use.
• Workload resilience: Cloud service providers often implement redundant resources to
ensure resilient storage and to keep users' important workloads running -- often across
multiple global regions.
• Migration flexibility: Organizations can move certain workloads to or from the cloud -- or
to different cloud platforms -- as desired or automatically for better cost savings or to use
new services as they emerge.

➢ Characteristics of cloud computing

1.On-demand self-service :Users can access computing services via the cloud when they need to
without interaction from the service provider. The computing services should be fully on-demand
so that users have control and agility to meet their evolving needs.

2.Broad network access: Cloud computing services are widely available via the network through
users’ preferred tools (e.g., laptops, desktops, smartphones, etc.).

3.Resource pooling: One of the most attractive elements of cloud computing is the pooling of
resources to deliver computing services at scale. Resources, such as storage, memory, processing,
and network bandwidth, are pooled and assigned to multiple consumers based on demand.

4.Rapid elasticity: Successful resource allocation requires elasticity. Resources must be assigned
accurately and quickly with the ability to absorb significant increases and decreases in demand
without service interruption or quality degradation.

5.Measured service: Following the utility model, cloud computing services are measured and
metered. This measurement allows the service provider (and consumer) to track usage and gauge
costs according to their demand on resources.

➢ Types of cloud computing

Cloud computing is usually described in one of two ways. Either based on the deployment
model, or on the service that the cloud is offering.
(I)Based on a deployment model, we can classify cloud as:
▪ Public Cloud – Whole computing infrastructure is located on the premises of a cloud
computing company that offers the cloud service.
▪ Private Cloud – Hosting all your computing infrastructure yourself and is not shared. The
security and control level is highest while using a private network.
 ▪ Hybrid Cloud – using both private and public clouds, depending on their purpose. You host
your most important applications on your own servers to keep them more secure and
secondary applications elsewhere.
▪ Community Cloud – A community cloud is shared between organizations with a common
goal or that fit into a specific community (professional community, geographic community,
etc.).

(II)Based on a service the cloud model is offering, we are speaking of either:

1.Infrastructure-as-a-service (IaaS) :IaaS is the most basic category of cloud computing
services that allows you rent IT infrastructure (servers or VM’s) from a cloud provider on a pay-
as-you-go basis.
2.Platform as a service (PaaS): Platform-as-a-service (PaaS) refers to the supply an on-demand
environment for developing, testing, delivering and managing software applications. It is
designed to quickly create web or mobile apps, without worrying about setting up or managing
the underlying infrastructure of servers, storage, network and databases needed for development.
3.Software as a service (SaaS): Software-as-a-service (SaaS) is a method for delivering
software applications over the Internet as per the demand and on a subscription basis. SaaS helps
you host and manage the software application and underlying infrastructure and handle any
maintenance (software upgrades and security patching).
4.FaaS (functions as a service): FaaS adds another layer of abstraction to PaaS, so that
developers are completely insulated from everything in the stack below their code. Instead of
handling the hassles of virtual servers, containers, and application runtimes, they upload
narrowly functional blocks of code, and set them to be triggered by a certain event. FaaS
applications consume no IaaS resources until an event occurs, reducing pay-per-use fees.

Module 3 Descriptive Statistics & Artificial Intelligence

1: Artificial Intelligence (AI)

Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are
programmed to think like humans and mimic their actions. The term may also be applied to any
machine that exhibits traits associated with a human mind such as learning and problem-solving.

The ideal characteristic of artificial intelligence is its ability to rationalize and take actions that
have the best chance of achieving a specific goal.

Artificial intelligence is based on the principle that human intelligence can be defined in a way
that a machine can easily mimic it and execute tasks, from the most simple to those that are even
more complex. The goals of artificial intelligence include learning, reasoning, and perception.
 ➢ Categorization of Artificial Intelligence

Weak artificial intelligence : embodies a system designed to carry out one particular job. Weak
AI systems include video games such as the chess example from above and personal assistants
such as Amazon's Alexa and Apple's Siri. You ask the assistant a question, it answers it for you.

Strong artificial intelligence systems are systems that carry on the tasks considered to be human-
like. These tend to be more complex and complicated systems. They are programmed to handle
situations in which they may be required to problem solve without having a person intervene.
These kinds of systems can be found in applications like self-driving cars or in hospital operating
rooms.

➢ Advantages of Artificial Intelligence:

• AI would have a low error rate compared to humans, if coded properly. They would
have incredible precision, accuracy, and speed.
• They won't be affected by hostile environments, thus able to complete dangerous tasks,
explore in space, and endure problems that would injure or kill us.This can even mean
mining and digging fuels that would otherwise be hostile for humans.
• Replace humans in repetitive, tedious tasks and in many laborious places of work.
• Predict what a user will type, ask, search, and do. They can easily act as assitants and
can recommend or direct various actions.An example of this can be found in the
smartphone.
• Can detect fraud in card-based systems, and possibly other systems in the future.
• Organized and manages records.
• Interact with humans for entertainment or a task as avatars or robots.An example of
this is AI for playing many videogames..
• They can think logically without emotions, making rational decisions with less or no
mistakes.
• Can assess people;This can be for medical purposes, such as health risks and emotional
state. Can simulate medical procedures and give info on side effects.
▪ Robotic radiosurgery, and other types of surgery in the future, can achieve precision
that humans can't.
• They don't need to sleep, rest, take breaks, or get entertained, as they don't get bored or
tired.

Disadvantages:
 • Can cost a lot of money and time to build, rebuild, and repair. Robotic repair can occur
to reduce time and humans needing to fix it, but that'll cost more money and resources.
• It's questionable: is it ethically and morally correct to have androids, human-like
robots, or recreate intelligence, a gift of nature that shouldn't be recreated? This is a
discussion about AI that's popular in the days.
• Storage is expensive, but access and retrieval may not lead to connections in memory
as well as humans could.
o They can learn and get better with tasks if coded to, but it's questionable as to if this
can ever become as good as humans can do such.
▪ They cannot work outside of what they were programmed for.
o They could never, or, at least, seemingly never with our technological perceptions,
receive creativity that humans have..
• Robots, with them replacing jobs, can lead to severe unemployment, unless if humans
can fix the unemployment with jobs AI can't do or severly change the government to
communism.
• As seen partially with smartphones and other technology already, humans can become
too dependent on AI and lose their mental capacities.
o Machines can easily lead to destruction, if put in the wrong hands.
o AI as robots can supercede humans, enslaving us.

➢ Potential Risk of AI

1.Autonomous weapons :AI programmed to do something dangerous, as is the case with

autonomous weapons programmed to kill, is one way AI can pose risks. It might even be likelyto
expect that the nuclear arms race will be replaced with a global autonomous weapons race. Once
deployed, they will likely be difficult to dismantle or combat.

2.Social manipulation :Social media through its autonomous-powered algorithms is very

effective at target marketing. They know who we are, what we like and are incredibly good at
surmising what we think.This can lead to Social manipulation

3:Invasion of privacy and social grading :It is now possible to track and analyze an
individual's every move online as well as when they are going about their daily business.
Cameras are nearly everywhere, and facial recognition algorithms know who you are.

4:Misalignment between our goals and the machine’s :Part of what humans value in AI-
powered machines is their efficiency and effectiveness. But, if we aren’t clear with the goals we
set for AI machines, it could be dangerous if a machine isn’t armed with the same goals we have.
5:Discrimination: Since machines can collect, track and analyze so much about you, it’s very
possible for those machines to use that information against you.

➢ AI applications

➢ AI In Marketing
➢ AI In Banking
➢ AI In Finance
➢ AI In Agriculture
➢ AI In HealthCare
➢ AI In Gaming
➢ AI In Space Exploration
➢ AI In Autonomous Vehicles
➢ AI In Chatbots
➢ AI In Artificial Creativity

https://www.edureka.co/blog/artificial-intelligence-applications/

Module 4 Decision Theory

1: Steps of decision making process

1. Identification of the purpose of the decision:In this step, the problem is thoroughly
analysed. There are a couple of questions one should ask when it comes to identifying the
purpose of the decision.

• What exactly is the problem?

• Why the problem should be solved?
• Who are the affected parties of the problem?
• Does the problem have a deadline or a specific time-line?
2. Analysing the Problem: In this stage, the decision maker gathers facts and looks for advice.
He collects as many facts as he can and tries to separate facts from beliefs, opinions and
preconceived notions. Each items is carefully evaluated, it is relatively weighted, its validity
judged. Irrelevant data and trivia will be discarded. The whole exercise helps in ensuring
adequate background information and essential data relating to the problem defined.
3.Generating Alternatives: Normally, a business problem can be solved in many ways. If there
is only one alternative, no decision is required. But in any rational decision-making process, the
manager should not jump on to single proposal without considering all the alternatives.
At this stage, the decision maker searches for existing alternatives, modifies more reliable, easier
to implement and available. If these alternatives are found unsuitable, they can be made useful
by modification. Ingenuity research and creative imagination are required to make sure that the
best alternatives are considered before a course of action is selected.

4. Evaluating Alternatives: At this stage, the decision maker should weigh alternative solution
against one another. The problem effects of each alternative must be outlined They must be
classified and pros and cons must be considered and the important facts must be distinguished
from trivial facts. The basic purpose or evaluation should not be to find out one magic solution.

The attempt should be to limit the alternatives to a manageable (two or three) and economically
feasible number. Comparisons must be made on the basis of values, the desirable and undesirable
aspects in every alternative listed and the conflicting values resolved in some satisfactory
manner. This requires subjective judgment and a lot of experience.

5.Choosing the Best Alternative:In this phase, the decision maker evaluates each alternative by
judging it according to some criteria. According to Druker, there are four criteria for picking the
best among the possible solutions.

1. The risk:
2. Economy of effort:
3. Timing:
4. Limitation of Resource

6: Implementing and Verifying the Decision:Decision implementation is as important as decision

formulation. A manager’s decision is always a decision concerning what other people should do.
So to avoid problems in implementation, he must communicate the decision, that is, he must
indicate as to what change in behaviour is expected, what action is expected, and so on. In
addition, effective implementation depends on how people react to it. Gaining acceptance
requires participation by operating people. Decision implementation thus includes: observing the
decision as it becomes operative, modifying it when necessary, coaching the people who
implement it and perfecting it once it is in action.

2: Types of decision-making environments

The decisions are taken in different types of environment. The type of environment also
influences the way the decision is made.There are three types of environment in which
decisions are made.

1. Certainty: Such type of environment is very sure and certain by its nature. This means that all
the information is available and at hand. Such data is also easy to attain and not very expensive to
gather. So the manager has all the information he may need to make an informed and well thought
out decision. All the alternatives and their outcomes can also be analyzed and then the manager
chooses the best alternative.Another way to ensure an environment of certainty is for the manager to
create a closed system. This means he will choose to only focus on some of the alternatives.He will
get all the available information with respect to such alternatives he is analyzing. He will ignore the
other factors for which the information is not available. Such factors become irrelevant to him
altogether.

2. Uncertainty :In the decision making environment of uncertainty, the information available to the
manager is incomplete, insufficient and often unreliable. In an uncertain environment, everything is
in a state of flux. Several external and random forces mean that the environment is most
unpredictable. In these times of chaos, all the variables change fast. But the manager has to make
sense of this mayhem to the best of his ability. He must create some order, obtain some reliable data
and make the best decision as per his judgment.

3.Risk:Under the condition of risk, there is the possibility of more than one event taking place.
Which means the manager has to first ascertain the possibility and probability of the occurrence or
non-occurrence of the event. The manager will generally rely on past experiences to make this
deduction. In this scenario too, the manager has some information available to him. But the
availability and the reliability of the information is not guaranteed. He has to chart a few alternative
courses of actions from the data he has.

3: Decision tree analysis.

Definition: The Decision Tree Analysis is a schematic representation of several decisions

followed by different chances of the occurrence. Simply, a tree-shaped graphical representation
of decisions related to the investments and the chance points that help to investigate the possible
outcomes is called as a decision tree analysis.

The decision tree shows Decision Points, represented by squares, are the alternative actions
along with the investment outlays, that can be undertaken for the experimentation. These
decisions are followed by the chance points, represented by circles, are the uncertain points,
where the outcomes are dependent on the chance process. Thus, the probability of occurrence is
assigned to each chance point.
Once the decision tree is described precisely, and the data about outcomes along with their
probabilities is gathered, the decision alternatives can be evaluated as follows:

1.Start from the extreme right-hand end of the tree and start calculating NPV for each chance
points as you proceed leftward.

2.Once the NPVs are calculated for each chance point, evaluate the alternatives at the final stage
decision points in terms of their NPV.

3.Select the alternative which has the highest NPV and cut the branch of inferior decision
alternative. Assign value to each decision point equivalent to the NPV of the alternative selected.

4.Again, repeat the process, proceed leftward, recalculate NPV for each chance point, select the
decision alternative which has the highest NPV value and then cut the branch of the inferior
decision alternative. Assign the value to each point equivalent to the NPV of selected alternative
and repeat this process again and again until a final decision point is reached.

Thus, decision tree analysis helps the decision maker to take all the possible outcomes into the
consideration before reaching a final investment decision.

4: Design of Experiments

Design of experiments (DOE) is defined as a branch of applied statistics that deals with planning,
conducting, analyzing, and interpreting controlled tests to evaluate the factors that control the
value of a parameter or group of parameters. DOE is a powerful data collection and analysis
tool that can be used in a variety of experimental situations
Design of experiments is a technique or procedure to generate the required information with the
minimum amount of experimentation, using the following:
• Experimental limits
• Specific experimental conditions
• Mathematical analysis to predict the response at any point within the experimental limits.

➢ The main uses of DOE

Design of experiment is multipurpose tool that can be used in various situations for
identification of important input factors (input variable) and how they are related to the outputs
(response variable). In addition, DOE is basically regression analysis that can be used in various
situations. Commonly used design types are the following
1. Comparison ‒ this is one factor among multiple comparisons to select the best option that
uses t‒test, Z‒test, or F‒test.
2. Variable screening ‒ these are usually two level factorial designs intended to select important
factors (variables) among many that affect performances of a system, process, or product.
3. Transfer function identification ‒ if important input variables are identified, the relationship
between the input variables and output variable can be used for further performance exploration
of the system, process or product via transfer function.
4. System Optimization ‒ the transfer function can be used for optimization by moving the
experiment to optimum setting of the variables. On this way performances of the system, process
or product can be improved.
5. Robust design ‒ deals with reduction of variation in the system, process or product without
elimination of its causes. Robust design was pioneered by Dr. Genichi Taguchi who made
system robust against noise (environmental and uncontrollable factors are considered as noise).
Generally, factors that cause product variation can be categorized in three main groups:
•external/environmental (such as temperature, humidity and dust);
• internal (wear of a machine and aging of materials);
• Unit to unit variation (variations in material, processes and equipment).

Module 5 Analytical Techniques

1: Cluster Analysis:
Meanng: Cluster analysis is a class of techniques that are used to classify objects or
cases into relative groups called clusters. Cluster analysis is also called
classification analysis or numerical taxonomy. In cluster analysis, there is no prior
information about the group or cluster membe rship for any of the objects.
Cluster analysis involves formulating a problem, selecting a distance measure,
selecting a clustering procedure, deciding the number of clusters, interpreting the
profile clusters and finally, assessing the validity of cluster ing.

Examples of Clustering Applications

• Marketing: Help marketers discover distinct groups in their customer bases, and then use this
knowledge to develop targeted marketing programs
• Land use: Identification of areas of similar land use in an earth observation database
• Insurance: Identifying groups of motor insurance policy holders with a high average claim cost
• City-planning: Identifying groups of houses according to their house type, value, and
geographical location
• Earth-quake studies: Observed earth quake epicenters should be clustered along continent fauls

➢ Types of clustering algorithms

Since the task of clustering is subjective, the means that can be used for achieving this goal are
plenty. Every methodology follows a different set of rules for defining the ‘similarity’ among data
points. In fact, there are more than 100 clustering algorithms known. But few of the algorithms are
used popularly, let’s look at them in detail:

• Connectivity models: As the name suggests, these models are based on the notion that the
data points closer in data space exhibit more similarity to each other than the data points lying
farther away. These models can follow two approaches. In the first approach, they start with
classifying all data points into separate clusters & then aggregating them as the distance
decreases. In the second approach, all data points are classified as a single cluster and then
partitioned as the distance increases. Also, the choice of distance function is subjective. These
models are very easy to interpret but lacks scalability for handling big datasets. Examples of
these models are hierarchical clustering algorithm and its variants.

• Centroid models: These are iterative clustering algorithms in which the notion of similarity
is derived by the closeness of a data point to the centroid of the clusters. K-Means clustering
algorithm is a popular algorithm that falls into this category. In these models, the no. of clusters
 required at the end have to be mentioned beforehand, which makes it important to have prior
knowledge of the dataset. These models run iteratively to find the local optima.

• Distribution models: These clustering models are based on the notion of how probable is it
that all data points in the cluster belong to the same distribution (For example: Normal,
Gaussian). These models often suffer from overfitting. A popular example of these models is
Expectation-maximization algorithm which uses multivariate normal distributions.

• Density Models: These models search the data space for areas of varied density of data points
in the data space. It isolates various different density regions and assign the data points within
these regions in the same cluster. Popular examples of density models are DBSCAN and
OPTICS.

➢ Types of clustering:

1. Hierarchical clustering: Also known as 'nesting clustering' as it also clusters to exist

within bigger clusters to form a tree.
2. Partition clustering: Its simply a division of the set of data objects into non-overlapping
clusters such that each objects is in exactly one subset.
3. Exclusive Clustering: They assign each value to a single cluster.
4. Overlapping Clustering: It is used to reflect the fact that an object can simultaneously
belong to more than one group.
5. Fuzzy clustering: Every objects belongs to every cluster with a membership weight that
goes between 0:if it absolutely doesn't belong to cluster and 1:if it absolutely belongs to
the cluster.
6. Complete clustering: It perform a hierarchical clustering using a set of dissimilarities on
'n' objects that are being clustered. They tend to find compact clusters of an
approximately equal diameter.

➢ Techniques used in cluster analysis:

2: Visualization techniques:

An overview of the best data visualization techniques:

1. Know Your Audience

2. Set Your Goals

3. Choose The Right Chart Type

4. Take Advantage Of Color Theory

5. Handle Your Big Data

6. Use Ordering, Layout, And Hierarchy To Prioritize

7. Utilize Word Clouds And Network Diagrams

8. Include Comparisons

9. Tell Your Tale

10. Apply Visualization Tools For The Digital Age

3:Principal components

Principal Component Analysis (PCA) is a dimension-reduction tool that can be used to reduce a
large set of variables to a small set that still contains most of the information in the large set.

• 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 first principal component accounts for as much of the variability in the data as possible,
and each succeeding component accounts for as much of the remaining variability as possible

• Principal components analysis is similar to another multivariate procedure called Factor

Analysis. They are often confused and many scientists do not understand the difference between
the two methods or what types of analyses they are each best suited.

• Traditionally, principal component analysis is performed on a square symmetric matrix.

• It can be a SSCP matrix (pure sums of squares and cross products), Covariance matrix (scaled
sums of squares and cross products), or Correlation matrix (sums of squares and cross products
from standardized data).

• The analysis results for objects of type SSCP and Covariance do not differ, since these objects
only differ in a global scaling factor.

• A correlation matrix is used if the variances of individual variates differ much, or if the units of
measurement of the individual variates differ.

➢ Objectives of principal component analysis

• PCA reduces attribute space from a larger number of variables to a smaller number of factors
and as such is a "non-dependent" procedure (that is, it does not assume a dependent variable is
specified).

• PCA is a dimensionality reduction or data compression method. The goal is dimension

reduction and there is no guarantee that the dimensions are interpretable (a fact often not
appreciated by (amateur) statisticians).

•To select a subset of variables from a larger set, based on which original variables have the
highest correlations with the principal component.
4.Multidimensional scaling

Scaling is the process of adjusting a set of values so that they fit in a known framework. The
adjustment is uniform and preserves the relative proportions of the items with respect to each
other. The purpose is to allow the observer to compare the unfamiliar values with the familiar
framework.

Multidimensional scaling is a visual representation of distances between sets of objects.

“Objects” can be colors, faces, map coordinates, political persuasion, or any kind of real or
conceptual stimuli (Kruskal and Wish, 1978). Objects that are more similar (or have shorter
distances) are closer together on the graph than objects that are less similar (or have longer
distances). As well as interpreting dissimilarities as distances on a graph, MDS can also serve as
a dimension reduction technique for high-dimensional data . MDS is now used over a wide
variety of disciplines. It’s use isn’t limited to a specific matrix or set of data; In fact, just about
any matrix can be analyzed with the technique as long as the matrix contains some type of
relational data (Young, 2013). Examples of relational data include correlations, distances,
multiple rating scales or similarities.

Uses of Multidimensional Scaling

1.Market segmentation: If brands are located as points in preference space, as in the example
and consumers ideal points are similarly located, market segments may then be viewed as
subspaces in which consumers have similar ideal positions and perceive the brands similarly.

2.Product life cycle: By analyzing respondent perceptions at different times, researchers may be
able to relate movement along various dimensions (characteristics) to some measure such as
market share, and, thus develop a new concept of product life cycle.

3.Vendor Evaluations: Industrial purchasing agents must choose among vendors who differ –
for example, in price, delivery, reliability, technical service and credit. How purchasing agents
summarize the various characteristics to determine a specific vendor from whom to purchase
would be information that would help vendors design sales strategies.

4.Advertising Media Selection: Which magazines should be used for an advertising campaign
to reach a given audience? Different possible media could be identified aspects in similarity pace
(as were cars in the example) and members of their audiences located as ideal points. This would
be similar to the market segmentation process. A similar approach might be taken to locate the
best media for specific ads.

5:Hierarchical clustering
Hierarchical clustering, also known as hierarchical cluster analysis, is an algorithm that groups
similar objects into groups called clusters. The endpoint is a set of clusters, where each cluster is
distinct from each other cluster, and the objects within each cluster are broadly similar to each
other.

Hierarchical clustering Technique:

1. Agglomerative Hierarchical clustering Technique: In this technique, initially each data point
is considered as an individual cluster. At each iteration, the similar clusters merge with other
clusters until one cluster or K clusters are formed.

The basic algorithm of Agglomerative is straight forward.

• Compute the proximity matrix

• Let each data point be a cluster

• Repeat: Merge the two closest clusters and update the proximity matrix

• Until only a single cluster remains

2. Divisive Hierarchical clustering Technique: Divisive Hierarchical clustering is exactly the

opposite of the Agglomerative Hierarchical clustering. In Divisive Hierarchical clustering, we
consider all the data points as a single cluster and in each iteration, we separate the data points
from the cluster which are not similar. Each data point which is separated is considered as an
individual cluster. In the end, we’ll be left with n clusters.

6:Factor Analysis:

Factor analysis is a linear statistical model. It is used to explain the variance among
the observed variable and condense a set of the observed variable into the
unobserved variable called factors. Observed variables are modeled as a linear
combination of factors and error terms (Source). Factor or latent variable is
associated with multiple observed variables, who have common patterns of
responses. Each factor explains a particular amount of variance in the observed
variables. It helps in data interpretations by reducing the number of variables.
Factor analysis is widely utilized in market research, advertising, psychology,
finance, and operation research. Market researchers use factor analysis to identify
price-sensitive customers, identify brand features that influence consumer choice,
and helps in understanding channel selection criteria for the distribution channel.

Assumptions:

1. There are no outliers in data.

2. Sample size should be greater than the factor.

3. There should not be perfect multicollinearity.

4. There should not be homoscedasticity between the variables.

Factor Analysis Vs. Principle Component Analysis

• PCA components explain the maximum amount of variance while factor analysis
explains the covariance in data.

• PCA components are fully orthogonal to each other whereas factor analysis does not
require factors to be orthogonal.

• PCA component is a linear combination of the observed variable while in FA, the
observed variables are linear combinations of the unobserved variable or factor.

• PCA components are uninterpretable. In FA, underlying factors are labelable and
interpretable.

• PCA is a kind of dimensionality reduction method whereas factor analysis is the latent
variable method.

• PCA is a type of factor analysis. PCA is observational whereas FA is a modeling

technique.

1.Exploratory factor analysis : is a statistical technique that is used to reduce data to a smaller
set of summary variables and to explore the underlying theoretical structure of the
phenomena. It is used to identify the structure of the relationship between the variable and the
respondent. Exploratory factor analysis can be performed by using the following two methods:
• R-type factor analysis: When factors are calculated from the correlation matrix, then it is called
R-type factor analysis.
• Q-type factor analysis: When factors are calculated from the individual respondent, then it said
to be Q-type factor analysis

2.Confirmatory factor analysis (CFA) : is a multivariate statistical procedure that is used to

test how well the measured variables represent the number of constructs. Confirmatory factor
analysis (CFA) and exploratory factor analysis (EFA) are similar techniques, but in exploratory
factor analysis (EFA), data is simply explored and provides information about the numbers of
factors required to represent the data. In exploratory factor analysis, all measured variables are
related to every latent variable. But in confirmatory factor analysis (CFA), researchers can
specify the number of factors required in the data and which measured variable is related to
which latent variable. Confirmatory factor analysis (CFA) is a tool that is used to confirm or
reject the measurement theory.

7: Discriminant Analysis:

Discriminant Analysis is a statistical tool with an objective to assess the adequacy of a

classification, given the group memberships; or to assign objects to one group among a number
of groups. For any kind of Discriminant Analysis, some group assignments should be known
beforehand.

When Discriminant Analysis is used to separate two groups, it is called Discriminant Function
Analysis (DFA); while when there are more than two groups – the Canonical Varieties Analysis
(CVA) method is used

8: Linear Discriminant analysis

Linear Discriminant Analysis or Normal Discriminant Analysis or Discriminant Function

Analysis is a dimensionality reduction technique which is commonly used for the supervised
classification problems. It is used for modeling differences in groups i.e. separating two or more
classes. It is used to project the features in higher dimension space into a lower dimension space.

➢ Applications

1.Bankruptcy prediction :In bankruptcy prediction based on accounting ratios and other
financial variables, linear discriminant analysis was the first statistical method applied to
systematically explain which firms entered bankruptcy vs. survived.
2.Face recognition :In computerized face recognition, each face is represented by a large
number of pixel values. Linear discriminant analysis is primarily used here to reduce the number
of features to a more manageable number before classification.

3.Marketing: In marketing, discriminant analysis was once often used to determine the factors
which distinguish different types of customers and/or products on the basis of surveys or other
forms of collected data. Logistic regression or other methods are now more commonly used.

4.Biomedical studies:The main application of discriminant analysis in medicine is the

assessment of severity state of a patient and prognosis of disease outcome. For example, during
retrospective analysis, patients are divided into groups according to severity of disease – mild,
moderate and severe form. Then results of clinical and laboratory analyses are studied in order to
reveal variables which are statistically different in studied groups. Using these variables,
discriminant functions are built which help to objectively classify disease in a future patient into
mild, moderate or severe form.

5.Earth Science:This method can be used to separate the alteration zones. For example, when
different data from various zones are available, discriminate analysis can find the pattern within
the data and classify them efficiently.
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