Fundamentals of

Analytics
 MODULE 3
OVERVIEW OF DATA MINING
CONCEPT AND ANALYTICS
•Identify the different foundation of analytics and its
differences

•Understand the scope of data mining and analytics

•Understand how analytics works on the different area

such as the descriptive, predictive and prescriptive
analytics
•Apply the different methods and techniques on
descriptive analytics, prescriptive analytics and
predictive analytics

•Apply the different formulas on excel to get the correct

values required to solve a problem

•Build formula input area and model area separately

 MODULE 3 – SUBTOPIC 1
THE SCOPE OF DATA
MINING AND ANALYTICS
Storage Data • “Big Data” includes machine
Name (Symbol) Value Multiples of generated data from sensory
bytes networks, nuclear plants,
Kilobyte (kB) 1024 Bytes scanning devices, consumer
Megabyte (MB) 1024kB
driven data from social media.
Gigabyte (GB) 1024MB
Terabyte (TB) 1024GB
• Analytics is science of
Petabyte (PB) 1024TB
examining data (text,
Exabyte (EB) 1024PB quantitative, qualitative, etc.)
Zettabyte (ZB) 1024EB to bring fourth underlying
Yottabylte (YB) 1024ZB information.
•DATA
• Collected facts and figures
•DATABASE
• Collection of computer files that contain information on people, locations, and so on
•INFORMATION
• Comes from analyzing data
•Business analytics begins with a data set or commonly with a
database. As databases grow, they need to be stored somewhere.
•Technologies such as computer clouds (hardware and software used
for data remote storage, retrieval, and computation functions) and
data warehousing (a collection of databases used for reporting and
data analysis) store data.
Analytics is the use of data,
information technology
statistical analysis,
quantitative methods, and
mathematical or computer-
based models to help
managers gain improved
insights about their business
operations and make better,
fact-based decisions.
•Management of customer
relationships
•Financial and marketing
activities
•Supply chain management
•Human resource planning
•Pricing decisions
•Sport team game strategies
There is a strong relationship of
BA with:
- Profitability of businesses
- Revenue of businesses
- Shareholder return
BA enhances understanding of data
BA is vital for businesses to remain
competitive
BA enables creation of informative
reports
•Descriptive analytics: examine historical data for similar products
(prices, units sold, advertising, …)

•Predictive analytics: predict sales based on price

•Prescriptive analytics: find the best sets of pricing and advertising to

maximize sales revenue
Example of using DATA in business:

• Annual reports
• Accounting audits
• Financial profitability analysis
• Economic trends
• Marketing research
• Operations management performance
• Human resource measurements
BA represents only a portion of the overall problem
solving and decision making process.
Six steps in the problem solving process
• Recognizing the problem
• Defining the problem
• Structuring the problem
• Analyzing the problem
• Interpreting results and making a decision
• Implementing the solution
1. Recognizing the Problem

Problems exist when there is a gap between what is

happening and what we think should be happening

For example:
• Costs are too high compared with competitors.
2. Defining the Problem

Clearly defining the problem is not a trivial task

Complexity increases when the following occur:
• Large number of courses of action
• Several competing objectives
• External groups are affected
• Problem owner and problem solver are not the same person
• Time constraints exist
3. Structuring the Problem
Stating goals and objectives
Characterizing the possible decisions
Identifying any constraints or restrictions

4. Analyzing the Problem

Identifying and applying appropriate Business Analytics techniques
Typically involves experimentation, statistical analysis, or a solution
process
5. Interpreting Results and Making a Decision
Managers interpret the results from the analysis phase.
Incorporate subjective judgment as needed.
Understand limitations and model assumptions.
Make a decision utilizing the above information.

6. Implementing the Solution

Translate the results of the model back to the real world.
Make the solution work in the organization by providing adequate
training and resources
Model:
•An abstraction or representation of a real system, idea, or object
•Captures the most important features
•Can be a written or verbal description, a visual display, a
mathematical formula, or a spreadsheet representation
A Sales-Promotion Model

In the grocery industry, managers typically need to know

how best to use pricing, coupons and advertising strategies
to influence sales.
Using Business Analytics, a grocer can develop a model
that predicts sales using price, coupons and advertising.
An equation can be developed to predict sales.
Descriptive Decision Models
Simple tell “what is” and describe
relationships
Do not tell managers what to do
Influence Diagrams visually
show how various model
elements relate to one
another.
A Linear Demand A Nonlinear Demand Prediction
Model
Prediction Model
• Assumes price elasticity
• As price increases, (constant ration of % change in
demand falls. demand to % change in price)
•Predictive Decision Models often incorporate
uncertainty to help managers analyze risk.
•Aim to predict what will happen in the future
•Uncertainty is imperfect knowledge of what will happen
in the future
•Risk is associated with the consequences of what
actually happens
•Prescriptive Decision Models help decision makers identify the
best solution.
•Optimization – finding values of decision variables that
minimize (or maximize) something such as cost (or profit).
•Objective function – the equation that minimizes (or maximizes)
the quantity of interest.
•Constraints – limitations or restrictions.
•Optimal solution – values of the decision variables at the
minimum (or maximum) point
A PRODUCER WANTS TO KNOW…
Which are our
lowest/highest
margin
What is the most customers? Who are my
effective customers and
distribution what products are
channel? they buying?

What product Which customers

promotions have are most likely to
the biggest impact go to the
on revenue? What impact will competition?
new
products/services
have on revenue
A single, complete and consistent store of data obtained
from a variety of different sources made available to end
users in a what they can understand and use in a business
context. [Barry Devlin]
A data warehouse is a
Subject-oriented
Integrated
Time-variant
Non-volatile
collection of data that is used primarily in organizational decision
making. [Bill Inmon, Building the Data Warehouse 1996]
Data should be integrated
across the enterprise
Summary data has a real
value to the organization
Historical data holds the
key to understanding the
over time
What-if capabilities are
required
Technique for assembling and
managing data from various
sources for the purpose of
answering business questions.

Thus making decisions that were

not previous possible.
A decision support database
maintained separately from the
organization’s operational
database
 MODULE 3 – SUBTOPIC 2
HOW ANALYTICS WORKS?
Data
Data today is fast, big and complex. Analytics solutions have to
analyze data of any type, including traditional structured data
and emerging formats, such as streaming sensor data, images
and video.

Discovery
Discovery is all about exploration, visualization and model
building. Finding the right algorithm is often a process of trial
and error.
Deployment
Whether you’re building a single model or thousands, moving
from selecting models to deploying models requires model
management.

Model management provides version control and helps you

register, validate and centrally manage your models. It helps
you develop procedures and rules for model deployment and
monitoring. And you also get transparency about data and
model use.
Descriptive analytics or statistics does exactly what the
name implies: they “describe”, or summarize, raw data and
make it something that is interpretable by humans.

They are analytics that describe the past.

The past refers to any point of time that an event has
occurred, whether it is one minute ago, or one year ago.

Descriptive analytics are useful because they allow us to

learn from past behaviors, and understand how they might
influence future outcomes.
Predictive analytics is the use of data, statistical algorithms
and machine learning techniques to identify the likelihood of
future outcomes based on historical data.

The goal is to go beyond knowing what has happened to

providing a best assessment of what will happen in the
future.
Why is predictive analytics important?

Organizations are turning to predictive analytics to

help solve difficult problems and uncover new opportunities.
Common uses include:

• Detecting fraud
• Optimizing marketing campaigns
• Improving operations
• Reducing risk
Prescriptive analytics focuses on finding the best course of
action in a scenario, given the available data.

It’s related to both descriptive analytics and predictive

analytics, but emphasizes actionable insights instead of
data monitoring.
Prescriptive analytics provides organizations with
recommendations around optimal actions to achieve
business objectives such as customer satisfaction, profits,
and cost savings.

Prescriptive analytics solutions use optimization technology

to solve complex decisions with millions of decision
variables, constraints and tradeoffs.
Organizations across industries are using prescriptive
analytics for a range of use cases spanning strategic
planning, operational and tactical activities.
Benefits:

Improve operations. Optimize product planning, reduce

inefficiencies, drive smarter operational decision-making.

Manage resources more efficiently. Better utilize: capital,

personnel, equipment, vehicles and facilities.

Mitigate risks. Gain insight into how decisions can have business-
wide impacts and hedge against data uncertainty.
Descriptive analytics offers BI insights into what has
happened.

Predictive analytics focuses on forecasting possible

outcomes.

Prescriptive analytics aims to find the best solution given a

variety of choices.
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