Introduction to Business Analytics

 Introduction to Business Analytics

 Business Analytics and Its Importance in Modern

Business Decisions

 Types of Business Analytics

 Tools of Business Analytics

 Analysis* is "a detailed
examination of anything
complex in order to
understand its nature or to
determine its essential
features: a thorough study.“
 It answers “What happened”
 Analysis is the process of
breaking down a complex
object into its simpler forms
*According to the Merriam- Webster dictionary
 Analytics is defined as "the
method of logical analysis”.
 It answers “ Why did it
happen and what will
happen next”
 Analytics is the science of
analysis whereby statistics,
data mining, computer
technology, etc. is used in
doing analysis
“BA is a data driven decision making approach that
uses statistical and quantitative analysis,
information technology, and management science
(mathematical modeling, simulation), along with
data mining and fact- based data to measure past
business performance to guide an organization in
business planning and effective decision making.”
• To visualize and
• To explore the patterns and trends in the data
• To predict future business outcomes with the help of
forecasting and predictive modeling.

In this age of technology, companies collect massive amount

of data. Successful companies use their data as an asset and
use them for competitive advantage.
Most businesses collect and analyze massive amounts of
data referred to as Big Data using specially designed big data
software and data analytics.

Big data analysis is now becoming an integral part of BA.

BA helps to address, explore and answer a number of
questions that are critical in driving business decisions.
It tries to answer the following questions:

 What is happening and Why did something happen?

 Will it happen again?
 What will happen if we make changes to some of the
inputs?
 What the data is telling us that we were not able to see
before?
 Companies use BA tools as an organizational commitment to
data-driven decision making.

 BA makes extensive use of data and descriptive statistics,

statistical analysis, mathematical and statistical modeling, and
data mining to explore, investigate and understand the
business performance.

 Through data, BA helps to gain insight and drive business

planning and decisions.
Types of Business Analytics
BA area can be divided into different categories
depending upon the types of analytics and tools
being used.

The major categories of BA are:

 Descriptive analytics
 Predictive analytics
 Prescriptive analytics
Descriptive Analytics (What Happened?)

 Encompasses the set of techniques that describes

what has happened in the past.

e.g. data queries, reports, descriptive statistics, data

visualization including data dashboards, spread sheet
models.
 Data Query is a request for information with
certain characteristics from a database, basically
derived from SQL. This query provides descriptive
information about the data.

 Data Dashboards are collections of tables, charts,

maps and summary statistics that are updated as
new data become available.
Predictive Analytics (What might happen?)

 It consists of techniques that use models

constructed from past data to predict the future.

 e.g. Linear regression, time series analysis,

simulation.

 Survey data and past purchase behaviour used to

help predict the market share of a new product.
 One of the major tools of analytics is Data Mining,
which is a part of predictive analytics. Data mining
techniques used to find patterns or relationships
among elements of the data in a large database.

 Simulation involves the use of probability and

statistics to construct a computer model to study
the impact of uncertainty on a decision. E.g.
Pharmaceutical industry to assess the risk of
introducing a new drug.
Prescriptive Analytics (What we should do?)

➢ It indicates best course of action to take i.e.

output of a prescriptive model is a best decision.

➢ e.g. The airlines industry’s use of Revenue

Management. Airlines use past purchasing data as
inputs into a model that recommends the best
pricing strategy across all flights for maximizing
revenue.
 Which Which
How many Why has the students
students drop-out rate students are
should I target
dropped out increased inthe most likely to to keep from
last one year? drop out? droppingout?
last year?

Descriptive Diagnostic Predictive Prescriptive

Information Decision
Insights
Tools of BA
 BA is more about anticipated future trends of the key
performance indicators. This is about using the past data and
models to make predictions.

 Analytics models use the data with a view to drawing out

new, useful insights to improve business planning and boost
future performance. BA helps the company adapt to the
changes and take advantage of future developments.

 The tools of BA focus on understanding business performance

based on the data and a number of models derived from
statistics, management science, and operations research
areas.
One of the major tools of analytics is Data Mining, which is a
part of predictive analytics.

• In business, data mining is used to analyze business data.

Business transaction data along with other customer and
product related data are continuously stored in the databases.

• The data mining software are used to analyze the vast amount
of customer data to reveal hidden patterns, trends, and other
customer behavior.
Businesses use data mining :
 To perform market analysis
 To identify and develop new products,
 To analyze their supply chain,
 To find the root cause of manufacturing problems,
 To study the customer behavior for product promotion,
 To improve sales by understanding the needs and
requirements of their customer,
 To prevent customer attrition and acquire new customers.
For example:

Wal-Mart collects and processes over 20 million point-of-sale

transactions every day.

These data are stored in a centralized database, and are

analyzed using data mining software to understand and
determine customer behavior, needs and requirements.

The data are analyzed to determine sales trends and

forecasts, develop marketing strategies, and predict
customer-buying habits.
A large amount of data and information about products,
companies, and individuals are available through Google,
Facebook, Amazon, and several other sources.

Data mining and analytics tools are used to extract

meaningful information and pattern to learn customer
behavior.

Financial institutions analyze data of millions of customers to

assess risk and customer behavior. Data mining techniques
are also used widely in the areas of science and engineering,
such as bioinformatics, genetics, medicine, education, and
electrical power engineering.
Some BA Scenarios By Vertical
 Manufacturing – Supply Chain Analytics, Warrantee Analysis, Plant
Manager Dashboards, Inventory Analytics
 Retail – Category Management, Store Manager KPI Dashboards,
Multi-Channel Analysis, Market Basket Analysis, Shrinkage
Analysis, Replenishment Planning
 Financial Services – Banking Customer Analytics, Risk Analysis,
Property/Casualty Analysis, Life Insurance & Actuarial Analysis,
Loan Compliance
 Government – Financials/Budgeting, Case Management for Courts
and various agencies, Compliance Management Analytics
 Healthcare –Episode Analysis, Clinical Analysis, Physician Detailing
 Sports Analytics
 Web Analytics
 By applying advanced analytics to capture and understand
their data, companies in the banking and securities,
insurance, and investment sectors can leverage their data
to build stronger, more robust business models.

 In doing so, they can make more proactive decisions that

deliver customer value.
Financial Analytics:

Predictive models are used to forecast future financial performance, to

assess the risk of investment portfolios and projects and to construct
financial instruments such as derivatives.

Prescriptive models are used to construct optimal portfolios of

investments, to allocate assets, and to create optimal capital budgeting
plans.

e.g. GE Asset Management uses optimization models to decide how to

invest its own cash received from insurance policies and other financial
products as well as the cash of its clients such as “Genworth Financial”.
The estimated benefit from the optimization models was $75 million
over a five year period. Simulation is also often used to assess risk in
the financial sector.
HR Analytics:

HR function is charged with ensuring that the organization

• Has the mix of skill set s necessary to meet its needs,
• Is hiring the highest quality talent and providing an
environment that retains it,
• Achieves its organisational diversity goals.

Sears Holding Corporation(SHC) owners of retailers Kmart

and Sears, Roebuck and Company, has created an HR
analytics team inside its corporate HR function.

The team uses descriptive and predictive analytics to

support employee hiring and to track and influence
retention.
Marketing Analytics:

• A better understanding of consumer behaviour through analytics

leads to the better use of advertising budgets, more effective pricing
strategies, improved forecasting of demand, improved product line
management and increased customer satisfaction and loyalty.

Automobile manufacturer Chrysler teamed with J.D. Power and

Associates to develop an innovate set of predictive models to support
its pricing decisions for automobiles.

These models help Chrysler to better understand the ramifications of

proposed pricing structures (a combination of manufacturer’s suggested
retail price, interest rate offers and rebates) and as a result to improve
its pricing decisions.

The model have generated an estimate annual savings of $500million.

Why has business analytics jumped to the top of the priority
list for banks?
 Regulatory reform
 managing risk
 changing business models
 expansion into new markets
 a renewed focus on customer profitability
 Competitive Advantage
 Rising cost of compliance and risk of Non-Compliance
 Profitable Growth
 Reporting -30%
Building Data repositories- eg
- Suspicious Activity, Account validation
 Descriptive-40%
 Generating actionable insights on the current situations
◦ Customer segmentation
◦ Profitability
◦ Campaign Analytics
 Predictive-20%
 Predicting likely future outcome of events
 Pattern recognition and predict frauds
 Generating risk alerts
 Designing personalized next-best offers
 Prescriptive-10%
 Optimizing & Prescribing action items required to deal with
predicted future events.