Business Analytics Foundations Discussion

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23-October-2022
 Predictive Business Analytics Methods

Hypothesis Testing and Regression Analysis

Business Analytics is about converting data into meaningful business insights that would help to
grow and improve the business. For example, if you work at a credit card company, then you
could analyze customer data to see who might subscribe to a credit card offer. That would save a
lot of time and energy in targeting those specific customers. There are four main types of
Analytics. The first is Descriptive Analytics, the second is Diagnostic Analytics, third is
Predictive Analytics and lastly Prescriptive Analytics. Here we discuss Predictive Analytics.
Predictive Business Analytics is about predicting the possible future outcomes based on the
existing data using machine learning techniques and statistical models. These models include
Forecasting, Clustering, Classification and Regression models.
The discussion here is about Hypothesis Testing and Regression Analysis. Regression techniques
are mainly utilized to determine the relationship between an independent variable and a
dependent variable in the form a mathematical formula. The variable being predicted is called
the dependent variable and the independent variables are called predictors (usually the factors
used to predict the value of the dependent variable). Regression is the most widely used model in
predictive analytics and is used in banking, investing and other finance oriented models to
forecast asset values and help users understand the relationship between variables such as
commodities and stock prices. A fairly simple example would be that based on the previous data
for number of customers and burgers sold, predict the number of burgers that will be sold by a
KFC outlet. The common methods for regression are Simple Linear or Multi-variable regression,
Polynomial Regression and Logistic Regression.
The simple linear regression uses one independent variable X to predict the other dependent
variable Y while multiple regression considers more than one independent variable to predict the
variable Y. The simple linear regression model can be expressed as Y = Bo + B1x + e.
Here Bo represents the slope, B1 the estimated change in the average value of Y as a result of
one-unit change in x and e is the random error. Lastly, hypothesis tests are performed on linear
regression models to determine whether the relationship between the response and the predictor
variables is statistically significant or not. These tests are T-tests and F-tests and based on their
results, a decision is taken and finally a conclusion is drawn by interpreting the results (Kumar,
2022).
 References

1) Kumar, A. (2022, April 18). Linear Regression Hypothesis Testing: Concepts, Examples.

Vital Flux.

https://vitalflux.com/linear-regression-hypothesis-testing-examples/