Chapter 1 Part 1

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Introduction to
Business Analytics
Business Analytics, 1e
By Sanjiv Jaggia, Alison Kelly, Kevin Lertwachara, and Leida Chen
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
7/6/2020 written consent of McGraw-Hill Education.
1-1
Chapter 1 Learning Objectives (LOs)
LO 1.1 Explain the importance of business

analytics.
LO 1.2 Explain the various types of data.
LO 1.3 Describe variables and types of
measurement scales.
LO 1.4 Describe different data sources and file
formats.
BUSINESS ANALYTICS, 1e | Jaggia, Kelly, 1-2

Copyright © 2021 McGraw-Hill Education. AllLertwachara,
rights reserved.Chen
No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-2
Introductory Case: Vacation in Belize
• After graduating college, Emily is planning a
vacation in Belize.
• She is worried about staying within her budget,
and researches her options for flights and hotels
by looking for deals and packages.
– Flights: where does she depart from and arrive at?
– Hotels: location, amenities, activities, reviews
1. Find a flight that is convenient as well as
affordable.
2. Choose a reputable hotel that is priced under
$200 per night.
1.1: Overview of Business Analytics (1/7)
• Data and analytics capabilities have made a leap forward.
– Growing availability of vast amounts of data
– Improved computational power
– Development of sophisticated algorithms
– Colleges/universities have curriculum emphasizing business analytics
• Data and analytics capabilities have changed the way businesses make
decisions.
– Companies need data-savvy professionals
– Turn data into insights and action
• Business analytics (data analytics) involves extracting information and
knowledge from data.
– Improve the bottom line
– Enhance the customer experience
– Develop better marketing strategies
– Deepen customer engagement
– Enhance efficiency and reduce expenses
– Identify emerging markets
– Mitigate risk and fraud

• Business analytics is a broad topic.
– Statistics
– Computer Science
– Information Systems
• Business analytics is widely applied.
– Marketing
– Human resource management
– Economics
– Finance
– Health, sports, and politics
• Business analytics combines qualitative reasoning with quantitative tools.
– Identify key business problems
– Translate data analysis into decisions
– Improve business performance
• Business analytics differs from data science.
– Data science: develop applications for end users
– Business analytics: data analyses for business applications

• Business analytics begins with understating the business context.
– Ask the right questions
– Identify the appropriate analysis
– Communicate information
• Numerical results are not very useful unless they are accompanied with
clearly stated actionable business insights.
• There are three different types of analytics techniques.
– Descriptive analytics: what has happened?
– Predictive analytics: what could happen in the future?
– Prescriptive analytics: what should we do?
• Can be viewed according to the level of sophistication and business
values they offer.
• Turning data-driven recommendations into action also requires
thoughtful consideration and organizational commitment beyond
developing descriptive and predictive analytical models.

1.1: Overview of Business Analytics
(4/7)

• Descriptive Analytics: what has happened?
– Gather
– Organize
– Tabulate
– Visualize
– Summarize
• Descriptive information can be presented in a number of formats.
– Written reports
– Tables
– Graphs
– Maps
• Descriptive analytics is referred to as business intelligence (BI).
– Access and manipulate data through reports, dashboards, application and
visualization tools
– Uses past data integrated from multiple sources
– Inform decision-making and identify problems and solutions
• Examples
– A firm’s marketing expenses and sales
– Financial reports
– Crime rates across regions and time
• Predictive Analytics: what could happen in the future?
– Use historical data to make predictions
– Analytical models help identify associations
– Associations used to estimate the likelihood of a favorable outcome
– Commonly considered advanced predictions
– Build models that help an organization understand what might happen
in the future
– Use statistics and data mining
• Examples
– Identifying customers who are most likely to respond to specific
marketing campaigns
– Transactions that are likely to be fraudulent
– Incidence of crime at certain regions and times

• Prescriptive Analytics: what should we do?
– Optimization and simulation algorithms to provide advice
– Explore several possible actions
– Suggest course of action
– Commonly considered advanced predictions
– Build models that help an organization understand what might happen
in the future
– Use statistics and data mining
• Examples
– Scheduling employees’ works hours
– Select a mix of products to manufacture
– Choose an investment portfolio

1.2: Types of Data (1/7)
• An important first step for making decisions is to find

the right data and prepare it.
– Compilation of facts, figures, or other content
– Numerical and non-numerical
– All types and formats are generated from multiple sources
– Often we have a large amount of data
– Even small data can give insights
• Data that have been organized, analyzed, and
processed in a meaningful and purposeful way
become information.
• Use a blend of data, contextual information,
experience, and intuition to derive knowledge.

• It is not feasible to collect data that comprise a population of all
elements of interest.
– Too expensive
– It is impossible
• A sample is a subset of the population and is used for analyses.
• Traditional statistical techniques use sample information to draw
conclusions about the population.
• Cross-sectional data
– Collected by recording a characteristic of many subjects at the same point in
time
– Recording a characteristic of many subjects at the same point in time
• Time series data
– Collected over several time periods focusing on certain groups of people,
specific events, or objects
– Hourly, daily, weekly, monthly, quarterly, or annual observations


• Structured data
– Reside in a pre-defined, row-column format
– Spreadsheet or database applications
– Enter, store, query, and analyze
– Numerical information that is objective and not open to interpretation
• Historically, companies relied mostly on structured data.
– High cost to store and process
– Performance limitations
• Unstructured data
– Do not conform to a pre-defined, row-column format
– Textual
– Multimedia content
– Do not conform to database structures
• Human- or machine-generated
– Structured human: price, income, retail sales
– Structured machine: sensors, speed cameras, web server logs
– Unstructured human: email, text, social media, presentations
– Unstructured machine: satellite images, video data, camera images

• Businesses generate and gather more and more data at an
increasing pace: Big Data.
– A massive volume of structured and unstructured data
– Extremely difficult to manage, process, and analyze using traditional data
processing tools
– Present great opportunities to gain knowledge and game-changing
intelligence
• “[H]igh-volume, high-velocity and/or high-variety
information assets that demand cost-effective, innovative
forms of information processing that enable enhanced
insight, decision making, and process automation.”
• Does not imply complete (population) data
• Big data may not be used when available
– Inconvenient and computationally burdensome
– Benefits may not justify costs

• There are three characteristics of big data.
– Volume: immense amount of data compiled for a single or
multiple sources
– Velocity: generated at a rapid speed, management is a critical
issue
– Variety: all types, forms, granularity, structure or unstructured
• Additional characteristics
– Veracity: credibility and quality of the data, reliability
– Values: methodological plan for formulating questions,
curating the right data, and unlocking hidden potential
• Having a plethora of data does not guarantee that
useful insights or measurable improvements will be
generated.

1.3: Variables and Scales of Measurement (1/3)
• A variable is a characteristic of interest that differs in kind or degree among
various observations (records).
• There are two types of variables: categorical and numerical
• Categorical
– Also called qualitative
– Represent categories
– Labels or names to identify distinguishing characteristics
– Arithmetic operations on the labels/values are not meaningful
– Coded into numbers for data processing
– Example: marital status
• Numerical
– Also called quantitative
– Represent meaningful numbers
– Arithmetic operations are meaningful
– Discrete: assumes a countable number of values
– Example: number of children in a family
– Continuous: assumes an uncountable number of values within an interval
– Example: investment returns

• Analysis techniques depend on the type of data.
• There are four major scales: nominal, ordinal, interval, ratio
• Nominal
– Categorical
– Least sophisticated
– Values differ by label or name
– Example: marital status
• Ordinal
– Categorical
– Reflect labels or name, but can be ranked
– Cannot interpret the difference between the ranked values
– Example: reviews from 1 star (poor) to 5 stars (outstanding)
• Interval
– Numerical
– Categorize and rank, differences are meaningful
– Zero value is arbitrary and does not reflect absence of characteristic
– Ratios are not meaningful
– Example: temperature
• Ratio (numerical)
– Numerical
– Most sophisticated
– A true zero point, reflects absence of characteristic
– Ratios are meaningful
– Example: profits

• Example: The owner of a ski resort gathers data on
tweens.
• Music: nominal
• Food quality: ordinal
• Closing time: interval
• Own money spent: ratio

1.4: Data Sources and File Formats (1/1)
• 90% of the data in the world today was created in the last two years.
• Data sources for this book mostly come from Google.
– Bureau of Economic Analysis
– Bureau of Labor Statistics
– Federal Research Economic Data
– U.S. Census Bureau
– National Climatic Data Center
– Yahoo Finance
– Zillow
• There are standard file formats.
– Fixed-width format: each column starts and ends in the same place in every row
– Delimited format: a delimiter separates fields, typically a comma (csv file)
– Extensible Markup Language (XML): structured data, each piece enclosed in a pair of
tags, gives information on what the data are
– HyperText Markup Language (HTML): structured data with tags, gives information on how
to display the data
– JavaScript Object Notation (JSON): alternative to XML, transmit human-readable data in
compact files, not as verbose as XML, supports wide range of data types, parsing is faster


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LO 1.1 Explain the importance of business

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• An important first step for making decisions is to find

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