Subject-: Introduction to Business Analytics

Course Code – BBA206

Unit – II Notes
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Unit -II – BUSINESS ANALYTICS IN THE WORLD OF

ANALYTICS
Business Analytics
Business Analytics is the process by which businesses use statistical methods and technologies
for analyzing historical data in order to gain new insight and improve strategic decision-making.

Business Analytics begins with a data set (a simple collection of data or a file) or commonly with
the database (a collection of data files that contain information on people, locations and so on).

As databases grow, they need to be stored somewhere. Technologies such as computer clouds
(hardware and software used for data remote storage, retrieval, and computational functions) and
data warehousing (a collection of data bases used for reporting and data analysis) store data.

Database storage areas have become so large that new term was devised to described them.

• Big Data describes the collection of data sets that are so large and complex that software
systems are hardly able to process them

• Little data describes the smaller data segments or files that help individual business keep track
of customers.

• As a means of sorting through data to find useful information, the application of analytics has
found new purpose.

Three terms in business literature are often related to one another:

• ANALYTICS,

• BUSINESS ANALYTICS AND

• BUSINESS INTELLIGENCE.
Data analytics focuses on using programs, data, and computational tools to explore and discover
relevant insights in big data. Business analytics is focused on taking insights derived from data
and applying them “on the ground” by making business decisions and communicating with
stakeholders.

Analytics can be defined as the process that involves the use of statistical techniques (measures
of central tendency, graphs, and so on), information system software (data mining, sorting
routines), and operations research methodologies (linear programming) to explore, visualize,
discover and communicate patterns or trends in data.

TYPES OF ANALYTICS:

• Descriptive Analytics

• Predictive Analytics

• Prescriptive Analytics

Descriptive analytics is the application of simple statistical techniques that describe what is
contained in the data set or database.

To identify possible trends in large data sets or databases, The purpose is to get a rough picture
of what generally the data looks like and what criteria might have potential for identifying trends
or future business behavior.

• Descriptive statistics, including measures of central tendency (mean, median, mode),

measures of dispersion (standard deviation), charts, graphs, sorting methods, frequency
distributions, probability distributions, and sampling methods.

Predictive analytics is the application of advanced statistical, information software, or

operations research methods to identify predictive variables and build predictive models to
identify trends and relationships not readily observed in descriptive analytics.

Predictive : To build predictive models designed to identify and predict future trends.

Statistical methods like multiple regression. Information system methods like data mining and
sorting. Operations research methods like forecasting models.

Prescriptive analytics refers to analytics that seek to provide optimal recommendations during a
decision-making process. Unlike observational analytics or predictive analytics, prescriptive
analytics determines ways in which business processes should evolve or be modified.
To allocate resources optimally to take advantage of predicted trends or future opportunities.

Operations research methodologies like linear programming and decision theory.

ANALYTICS VS. BUSINESS ANALYTICS

It is these differences that distinguish analytics from business analytics. Whereas analytics is
focused on generating insightful information from data sources, business analytics goes the extra
step to leverage analytics to create an improvement in measurable business performance.
Whereas the process of analytics can involve any one of the three types of analytics, the major
components of business analytics include all three used in combination to generate new, unique,
and valuable information that can aid business organization decision-making. In addition, the
three types of analytics are applied sequentially (descriptive, then predictive, then prescriptive).

can be defined as a process beginning with business-related data collection and consisting of
sequential application of descriptive, predictive, and prescriptive major analytic components, the
outcome of which supports and demonstrates business decision-making and organizational
performance.

believes that BA goes beyond plain analytics, requiring a clear relevancy to business, a resulting
insight that will be implementable, and performance and value measurement to ensure a
successful business result.

Business intelligence (BI)

Business Intelligence - Architecture, Components and its Benefits
Introduction
 The current business environment is constantly evolving. The global economic scenario
is providing opportunities as well as challenges. The factors affecting business
environment are consumer needs, globalization, and government policies, etc.

 In such a business environment, organization basically has four action steps. The
organization can be reactive, anticipative, adaptive, or/and proactive. For this,
organization can develop a new strategy, get into partnership, etc.

 Today most of the businesses are having a computerized business support. This support is
in form of decision support system, business analysis, etc.
  The main objective of business intelligence is to bridge the gap between organization
current status and its desired position. Business intelligence helps organization achieve
commercial success along with sound financial management.

 Business intelligence is framework designed to support decision-making process. This

framework combines architecture, database, analytical tools and applications. Business
analytics forms an integral part of business intelligence.

Business Intelligence Definition-: can be defined as a set of processes and technologies

that convert data into meaningful and useful information for business purposes.

 While some believe that BI is a broad subject that encompasses analytics, business
analytics, and information systems others believe it is mainly focused on collecting,
storing, and exploring large database organizations for information useful to decision-
making and planning

 One function that is generally accepted as a major component of BI involves storing an

organization’s data in computer cloud storage or in data warehouses.

 Data warehousing is not an analytics or business analytics function, although the data
can be used for analysis.

 Business intelligence focuses on descriptive analytics • BI answers the questions “what”

and “how” so you can replicate what works and change what does not.

Framework of Business Intelligence

 More and more businesses are moving towards business intelligence. The reason for this
movement is the business environment.

 Organizations are forced to capture, store and interpret data. This data is at the core of
business success. Organizations require correct information for any decision-making
process.

 Business intelligence combines data warehousing, business analytics, performance,

strategy and user interface. Business receives data from various sources.

 This data is capture in the data warehouse where it is stored, organized and summarized
as per further utilization.

 Authorized users can access this data and work on it to get desired results.
  This result than are shared to executives for decision-making process. These data results
can be published through dashboards or share points.

Business Intelligence Architecture and Components

 The main components of business intelligence are data warehouse, business analytics and
business performance management and user interface.

 Data warehouse holds data obtained from internal sources as well as external sources.
The internal sources include various operational systems.

 Business analytics creates a report as and when required through queries and rules. Data
mining is also another important aspect of business analytics.

 Business performance management is a linkage of data with business objectives for

efficient tracking. This business performance is then broadcasted to an executive
decision-making body through dashboards and share-point.

Benefit of Business Intelligence

The benefits of Business intelligence are as follows:

 Business intelligence is faster more accurate process of reporting critical information.

 Business intelligence facilitates better and efficient decision-making process.

  Business intelligence provides timely information for better customer relationship
management.

 Business intelligence improves profitability of the company.

 Business intelligence provides a facility of assessing organization’s readiness in meeting

new business challenges.

 Business intelligence supports usage of best practices and identifies every hidden cost.

BA vs. BI
Business intelligence focuses on descriptive analytics
• BI answers the questions “what” and “how” so you can replicate what works and change what
does not

Business analytics focuses on predictive analytics

• BA answers the question “why” so it can make more educated predictions about what will
happen.

• Let’s illustrate these differences with real-world applications of BI and BA. In this example,
you sell homemade jewelry through an online store. Business intelligence provides helpful
reports of the past and current state of your business. BI tells you that sales of your blue feather
earrings have spiked in Utah the past three weeks. As a result, you decide to make more blue
feather earrings to keep up with demand.

• Business analytics asks, “Why did sales of blue feather earrings spike in Utah?” By mining
your website data, you learn that a majority of traffic has come from a post by a Salt Lake City
fashion blogger who wore your earrings. This insight helps you decide to send complimentary
earrings to a few other prominent fashion bloggers throughout the US. You use the previous
sales information to anticipate how many earrings you will need to make and how much supplies
you will need to order to keep up with demand if the bloggers were to post about the earrings.
Business Intelligence Architecture

 Business intelligence defined as a set of mathematical models and analysis methodologies

that exploit the available data to generate information and knowledge useful for complex
decision-making processes.

 A business intelligence system provides decision-makers with information and knowledge

extracted from data.

Business Intelligence system includes three major components:

 Data Source

 Data Warehouse and Data Marts

 Business Intelligence Methodologies

DATA SOURCE

 Data stored in various primary and secondary sources, which are heterogeneous types.

 The source consists of part data belonging to the operational system, but unstructured
documents such as emails and data received from external providers.

DATA WAREHOUSE AND DATA MARTS

 The term data warehouse indicates the whole set of interrelated activities involved in
designing, implementing, and using a data warehouse.

 Data marts are a system that gathers all the data required by a specific company department,
such as marketing or logistics.

ETL

 ETL performs three main functions Extraction Transformation and Loading of data into the
data warehouse.

 Extraction- Data are extracted from the available internal and external sources.

 Transformation- The goal of the cleaning and transformation phase is to improve the

quality of data extracted from the different sources.

 Loading- After extraction and transformation, data are loaded into the tables of the data
warehouse.
Using ETL tools, the data originating from different sources are stored in a database. These

databases are usually referred to as data warehouses and data marts.

BUSINESS INTELLGENCE METHODOLOGIES

 Data are finally extracted and used to feed mathematical models and analysis methodologies
intended to support decision-makers.

 In a business intelligence system, several decision support applications may be implemented,

most of which will be described as the following:

 Multidimensional cube analysis

 Exploratory data analysis

 Time series analysis

 Inductive learning models for data mining

 Optimization models

Business Analytics vs. data Analytics

Big data is transforming and powering decision-making everywhere. From large enterprises to
higher education and government agencies, data from a plethora of sources is helping
organizations expand their reach, boost sales, operate more sufficiently, and launch new products
or services.
In order to make sense of all this data and use it to be more competitive, companies must apply
both business analytics and data analytics. There’s often confusion about these two areas, which
can seem interchangeable.

Business Analytics vs. data Analytics: An overview

Both business analytics and data analytics involve working with and manipulating data, extracting
insights from data, and using that information to enhance business performance. So, what are the
fundamental differences between these two functions?
Business analytics focuses on the larger business implications of data and the actions that should
result from them, such as whether a company should develop a new product line or prioritize one
project over another. The term business analytics refers to a combination of skills, tools, and
applications that allows businesses to measure and improve the effectiveness of core business
functions such as marketing, customer service, sales, or IT.
Data Analytics involves combing through massive datasets to reveal patterns and trends, draw
conclusions about hypotheses, and support business decisions with data-based insights. Data
analysis attempts to answer questions such as, “What is the influence of geography or seasonal
factors on customer preferences?” or “What is the likelihood a customer will defect to a
competitor?”. The practice of data analytics encompasses many diverse techniques and
approaches and is also frequently referred to as data science, data mining, data modeling, or big
data analytics.

An Introduction to Business Analytics

Business analytics (BA) is the iterative exploration of an organization’s data, with a focus on
applying statistical analysis techniques to reveal information that can help drive innovation and
financial performance. Analytics-driven organizations treat big data as a valuable corporate
asset that fuels business planning and supports future strategies, and business analytics helps them
get maximum value from this goldmine of insights.
There are three main kinds of business analytics — descriptive, predictive and prescriptive. These
are usually implemented in stages and together can answer or solve just about any question or
problem a company may have.
Descriptive analytics answer the question, ‘What has happened?” This type of analytics evaluates
historical data for insights on how to plan for the future. Thanks to the widespread availability of
self-service data access and discovery tools and dashboards, executives and non-technical
professionals can reap the benefit of insights generated by big data to improve business
performance.
Predictive analytics is the next step on the path to insight. It uses machine learning and statistical
techniques to help businesses anticipate the likelihood of future events. However, because
predictive analytics is probabilistic in nature, it cannot actually predict the future; it can only
suggest the most likely outcome based on what has happened in the past.
Prescriptive analytics explores possible actions to take based on the results of descriptive and
predictive analysis. This type of analytics combines, mathematical models, and business rules to
optimize decision making by recommending multiple possible responses to different scenarios
and tradeoffs.
Organizations may use any or all of these techniques, though not necessarily in this order.
Business analytics can be implemented in any department, from sales to product development to
customer service, thanks to readily available tools with intuitive interfaces and deep integration
with many data sources. Many of these solutions offer users the ability to apply advanced
analytic models without the help of a data scientist, creating new opportunities to find hidden
insights in large datasets.
Business analytics requires adequate volumes of high-quality data, so organizations seeking
accurate outcomes must integrate and reconcile data across different systems, then determine what
subsets of data to make available to the business.

An Introduction to Data Analytics

Data analytics is the process of collecting and examining raw data in order to draw conclusions
about it. Every business collects massive volumes of data, including sales figures, market
research, logistics, or transactional data. The real value of data analysis lies in its ability to
recognize patterns in a dataset that may indicate trends, risks, or opportunities. Data analytics
allows businesses to modify their processes based on these learning’s to make better decisions.
This could mean figuring what new products to bring to market, developing strategies to retain
valuable customers, or evaluating the effectiveness of new medical treatments.
Most commonly-used data analysis techniques have been automated to speed the analytical
process. Thanks to the widespread availability of powerful analytics platforms, data analysts can
sort through huge amounts of data in minutes or hours instead of days or weeks using:

Data mining: Involves sorting through large data sets to identify trends, patterns, and
relationships
Predictive analytics: Aggregates and analyzes historical data to help organizations respond
appropriately to future outcomes like customer behavior and equipment failures.
Machine Learning: Uses statistical probabilities to teach computers to process data faster
than conventional analytical modeling.
Big data analytics: Applies data mining, predictive analytics, and machine learning tools to
transform data into business intelligence.
Text mining: Spots patterns and sentiments in documents, emails, and other text-based
content.
As more organizations move their critical business applications to the cloud, they are gaining the
ability to innovate faster with big data. Cloud technologies create a fast-moving, innovative
environment where data analytics teams can store more data and access and explore it more
easily, resulting in faster time to value for new solutions.
 Business Analytics vs. Data Analytics: A Comparision
Most people agree that business and data analytics share the same end goal of applying
technology and data to improve business performance. In a data-driven world where the volume
of information available to organizations continues to grow exponentially, the two functions can
even work in tandem to maximize efficiency, reveal useful insights, and help businesses succeed.
This side-by-side comparison should help clear up some of the confusion between business and
data analytics.

Business Analytics vs. Data Analytics: A Comparision of Roles

Business analysts and data analysts both work with data. The difference is what they do with it.
Business analysts use data to make strategic business decisions. Data analysts gather data,
manipulate it, identify useful information from it, and transform their findings into digestible
insights. Analyzing data is their end goal.
People in either role need to have a love of all things data, possess an analytical mind, have good
problem-solving skills, and the ability to see and work towards the bigger picture. But if you’re
trying to decide between these two career paths, it’s equally important to understand how they
differ.

1) Business analysts use data to identify problems and solutions, but do not perform a deep
technical analysis of the data. They operate at a conceptual level, defining strategy and
communicating with stakeholders, and are concerned with the business implications of
 data. Data analysts, on the other hand, spend the majority of their time gathering raw data
from various sources, cleaning and transforming it, and applying a range of specialized
techniques to extract useful information and develop conclusions.
2) Business analysts typically have extensive domain or industry experience in areas such as
e-commerce, manufacturing, or healthcare. People in this role rely less on the technical
aspects of analysis than data analysts, although they do need a working knowledge of
statistical tools, common programming languages, networks, and databases.
3) Business analysts must be proficient in modeling and requirements gathering, whereas
data analysts need strong business intelligence and data mining skills, along with
proficiency with in-demand technologies like machine learning and AI.
4) For business analysts, a solid background in business administration is a real asset. Many
business analysts come from backgrounds in management, business, IT, computer science,
or related fields. On the other hand, a math or information technology background is
desirable for data analysts, who require an understanding of complex statistics, algorithms,
and databases.

Additional Required Abilities of each Role

Aside from technical and role-specific skills, business and data analysts each need some
additional abilities to be successful.
A business analyst needs to be able to :

1) Work with individuals across the organization to get the information necessary to drive
change.
2) Develop clear, understandable business and project plans, reports, and analyses.
3) Engage and communicate with stakeholders at all levels of the organization.
4) Present recommendations clearly and persuasively for a range of audiences.

A data analyst needs to be able to:

1) Translate data into meaningful business insights.
2) Work well independently.
3) Identify relevant data sets and add them on the fly.
4) Report results in a clear and meaningful way.
5) Define new data collection and analysis processes as needed.
Descriptive Analytics: Steps, Tools and Techniques,
Use Case, Examples

What Is Descriptive Analytics?

There are four distinct kinds of business analytics: diagnostic, descriptive, predictive,

and prescriptive analytics. Each one asks a different question:

 Descriptive analytics. What happened?

 Diagnostic analytics. Why did this happen?

 Predictive analytics. Based on past data, what could happen?

 Prescriptive analytics. Taking the other three analytics together as an aggregate, what can we
do about it?

For a more fleshed-out definition, we define descriptive analytics as the most common,
fundamental form of business analytics used to monitor trends and keep track of operational
performance  — by summarizing and highlighting patterns in past and existing data.

The practice of descriptive analytics produces business metrics, reports, and KPIs (Key
Performance Indicators) to help businesses track their performance and different trends. As a
result, companies understand what's happened thus far and, when combined with the other types
of business analytics, get an idea of why things happened, what things may occur, and how to
prepare for future events.

Here’s a descriptive analytics example — a very timely one in today’s digital world — social
media engagement. Descriptive analytics provides metrics that help businesses figure out the
return rate on different social media initiatives. These initiatives include engagement rates,
numbers of followers, whether they’re growing or declining, and revenue generated via social
media platforms.

Marketing professionals can use the descriptive analytics with social media engagement to decide
which promotions work and which should be dropped. Social media metrics can also help
businesses prioritize their social media outreach campaigns.

Other descriptive analytics examples include financial metrics that assess a business's health. This
includes reports that show expenses and revenue, inventory and production logs, accounts
receivable and payable records, cash flow, movement in the supply chain, internal and external
surveys, and more. Yes, it's complex—hence—data analytics, in a descriptive way.

The purpose of descriptive analytics is to turn data into insights. It is used to understand what
happened in the past and why it happened. Descriptive analytics uses various techniques to
answer questions such as “what is the average order value?”, “how many orders were placed last
month?” or “what was the most popular product last year?”.  

There are four main steps in descriptive analytics:  

1. Data collection: Collecting data from various sources such as sales reports, customer
surveys, social media, etc. 
2. Data preparation: Cleaning and organizing the data so it can be analyzed. 
3. Exploratory data analysis: Analyzing the data to find trends, patterns, and
relationships. 
4. Data visualization: Creating graphs and charts to visualize the data and make it easy to
understand. 

The most common techniques used in descriptive analytics are statistical analysis, data
visualization, and predictive modeling. 

What Does Descriptive Analytics Tell Us?

Businesses utilize descriptive analytics in various areas of their operations to assess how well they
are performing and if they are on track to meet their objectives. Common financial measurements
generated by descriptive analytics, such as quarterly increases in sales and expenses, are
monitored by business executives and financial experts. By tracking stats like conversion rates
and the number of social media followers, marketing teams may assess the effectiveness of their
campaigns. Production line throughput and downtime are among the variables that manufacturing
companies keep an eye on. 

There are several uses for the metrics generated by descriptive analytics, including: 

1. Reports: Descriptive analytics is used to provide the primary financial indicators found

in a company's financial statements. Descriptive analytics are often used in other typical
reports to emphasize specific areas of business performance.
2. Visualizations: Metrics can be more effectively communicated to a larger audience by
being displayed in charts and other graphic forms.
 3. Dashboards: Dashboards are a tool that executives, managers, and other staff members
can use to monitor progress and organize their daily workload. Dashboards offer a
selection of KPIs and other crucial data that are catered to the needs of each individual. To
help people quickly digest the information, it may be presented as charts or other
visualizations.

Alright, so descriptive analytics gives businesses essential information about how it’s doing,
where it’s going, and how it’s stacking up against the competition. But there’s much more to the
story. So what does this tell companies and aspiring professionals in the field?

 The company’s current performance: Descriptive analytics helps businesses keep track of
critical metrics involving individuals, groups and teams, and the company as a whole. For
instance, descriptive analytics can show how a specific sales rep is doing this quarter or which
of the rep’s products sells the most.

 The business’s historical trends: Descriptive analytics gathers information over long periods,
and that accumulated information can be used to track the company's progress by comparing
the metrics for different periods. For example, the corporate bean counters can track sales or
expenses by comparing the results of various quarters, calculating revenue growth by
percentages, and rendering the results on easy-to-read charts.

 The company’s strong and weak points: Descriptive analytics gives professionals the tools to
compare the performances of various business groups using metrics like employee-generated
revenue or expenses as a percentage of revenue. It will also compare these results with known
industry averages or published results from other businesses. These comparisons help
companies see where they’re doing well and where they need to improve. 

How Does Descriptive Analytics Work?

Descriptive analytics breaks down into five steps, including: 

1. State the Business Metrics

For starters, the business must identify the metrics that it wants to generate based on the essential
business goals of each group within the company or the company's overall goals. For instance, a
company emphasizing growth may emphasize measuring quarterly revenue increases. At the same
time, the company's accounts receivable department might monitor great days' sales and other
metrics that show how much time it takes to collect money from their customers.
2. Identify the Data Required

Next, the company must find the data needed to generate the desired metrics. This task is a
potential challenge since the relevant data may be scattered across many files and applications.
However, companies that employ an Enterprise Resource Planning (ERP) system may have
an easier time because they will already have most or all the needed data in their systems'
databases. Furthermore, some metrics may also need data from external sources, like e-commerce
websites, industry benchmarking databases, or social media platforms.

3. Extract and Prepare the Data

Extracting, combining, and preparing the relevant data for analysis is potentially time-consuming
if the needed analysis data originates from multiple sources. However, this is a crucial step to
ensure accuracy. Furthermore, this may involve data cleansing to eliminate inconsistencies and
mistakes in the data, a reasonable effort considering the information coming from an eclectic
group of sources and rendering data into a suitable format for analysis tools. Advanced data
analytics types use a process known as data modeling, a framework residing within information
systems to help prepare, arrange, and organize the company's information. Data modeling defines
and formats complex data, turning it into a usable, actionable resource.

4. Analyze the Data

Companies have various tools at their disposal to apply descriptive analytics, ranging
from business intelligence (BI) software to spreadsheets such as ones found in Excel.
Descriptive analytics usually involves using fundamental mathematical operations to one or more
of the variables. For instance, a sales manager might like to monitor the average sales revenue or
the monthly revenue from either established or recently acquired customers.

5. Present the Data

Once business analysts have gone through the necessary steps, all that's left is presenting the
data. First, however, the information must be presented so that everyone can understand it, from
stakeholders to finance specialists. Stakeholders usually appreciate seeing the report in
compelling visual forms, like bar charts, pie charts, or line graphs. Visible data is easier to grasp.
Finance specialists on the other hand, may want the information presented through numbers and
tables.
Descriptive Analysis Techniques

The techniques for descriptive analysis are the most common descriptive methods of data analysis
for qualitative data. Descriptive data analysis techniques are used to describe the subjects of a
study in detail, identifying patterns and trends, and providing insights into how subjects behave. 

Some of the most common descriptive analysis methods for descriptive analysis statistics are: 

 The frequency distribution is a method that provides an overview of all the responses to a
question. 
 The bar chart is a visual representation that displays how responses vary on different
dimensions. 
 The pie chart displays how responses vary on different dimensions. 
 A scatterplot displays how two variables relate to each other. 
 A histogram provides an overview of all the responses to a question, with each response
grouped into bins according to some criterion such as age or income level. 

The Advantages and Disadvantages of Descriptive

Analytics in Data Science

Even though it is one of the more straightforward analytical strategies, descriptive analysis
in data science has many benefits: 

 Gives access to information that would otherwise be difficult to understand. 

 gives a precise estimation of how frequently important data points occur. 
 Is cheap, and it only calls for rudimentary mathematical knowledge. 
 Is easier to complete, particularly with the aid of programs like Python or Microsoft
Excel. 
 Relies on information that businesses already have, so getting new information is not
necessary. 
 Compared to inferential statistics, it considers the entire population (rather than a data
sampling). 
The following are some drawbacks of descriptive
analytics: 

 Although you can summarize the data sets you have access to, they might not provide the
full picture. 
 Descriptive analytics can't be used to test a theory or figure out why data is presented in a
certain way. 
 Descriptive analytics cannot be used to make future predictions. 
 Your results cannot be applied to a larger population as a whole. 
 Descriptive analytics provide no information regarding the method of data collection, so
the data set may contain errors.

Now, let’s look at the stand-out benefits of descriptive

analytics.

 It’s easy to do: Descriptive analysis doesn’t require great expertise or experience in
statistical methods or analytics.
 There are a lot of tools available: There is a cornucopia of analytics tools available to
choose from, products that do most of the heavy lifting. Come to think of it, that helps
explain why it’s easy to perform descriptive analytics!
 It answers the most common business performance questions: Most stakeholders and
salespeople want to know things like "How are we doing?" or "What should we be doing
differently?" Descriptive analytics provides the data needed to answer those questions
efficiently, no matter when or how often they're asked.

But, like any other tool, descriptive analysis isn’t perfect. Here are
the two chief drawbacks:

 It’s limited to simple analysis: Descriptive analysis examines the relationship between a

handful of variables, and that’s all.
 It tells you what, but not why: Descriptive analysis reports events as they happened, not
why they happened or what could possibly happen next.
Descriptive vs. Predictive vs. Prescriptive Analytics

We mentioned at the beginning of our story that there are several distinct types of business
analytics. The following chart highlights the differences between descriptive, predictive, and
prescriptive analytics.

Descriptive Analysis Predictive Analysis Prescriptive Analysis

 What happened? What’s going to What should happen?
Summary
happen?

It uses data mining and data
aggregation to discover
Function historical data.
It looks at historical It takes the conclusions
data and analyzes past gleaned from descriptive and
data trends to predict predictive analysis and
what could happen. recommends the best future
course of action.

It’s easy to employ in daily It’s a valuable It offers critical insights into
Pros operations. Little experience forecasting tool. making the best, most
is needed. informed decisions.

It offers a limited view, and
doesn't go beyond the data’s
Cons
surface.
It needs lots of It requires a lot of past data
historical data to work. and often cannot account for
It will never be 100% all possible
accurate.
Conclusion

For businesses to understand the vast amounts of historical data, descriptive analytics is a
crucial tool. By tracking KPIs and other metrics, it enables you to keep an eye on performance
and trends. Companies can learn more about the reasons behind events, their likely future
outcomes, and potential courses of action by combining descriptive analytics with diagnostic,
predictive, and prescriptive analysis. This will help them perform their businesses more
effectively.

Descriptive analytics tools

Relatively simple tools like an Excel spreadsheet and some knowledge of business
management are enough to craft basic descriptive analytics. However, teams may see greater
value across the organization by scaling various types of tools to democratize analytics
development and promote the sharing of business intelligence.

Business intelligence tools like  Power BI, Tableau and Qlik can simplify many steps of the
descriptive analytics process.

Descriptive analytics tools provide various ways for reorganizing raw data to see new patterns
by calculating characteristics such as averages, frequencies, variations, rankings, ranges and
deviations. While these basic techniques are baked into essential BI tools, a team may turn to
more sophisticated data science tools for complex statistics, including the following:

 the programming language R;

 IBM's Statistical Package for the Social Sciences;

 SAS Institute Inc.'s analytics software; and

 open source software from  Knime.

Data wrangling tools can help automate data engineering processes to cleanse, reformat and
combine data from many different sources. Popular tools include offerings from Alteryx,
Cambridge Semantics, Trifacta, Talend and Tamr.
5 EXAMPLES OF DESCRIPTIVE ANALYTICS

1. TRAFFIC AND ENGAGEMENT REPORTS

One example of descriptive analytics is reporting. If your organization tracks engagement in

the form of social media analytics or web traffic, you’re already using descriptive analytics.

These reports are created by taking raw data—generated when users interact with your
website, advertisements, or social media content—and using it to compare current metrics to
historical metrics and visualize trends.

For example, you may be responsible for reporting on which media channels drive the most
traffic to the product page of your company’s website. Using descriptive analytics, you can
analyze the page’s traffic data to determine the number of users from each source. You may
decide to take it one step further and compare traffic source data to historical data from the
same sources. This can enable you to update your team on movement; for instance,
highlighting that traffic from paid advertisements increased 20 percent year over year.

The three other analytics types can then be used to determine why traffic from each source
increased or decreased over time, if trends are predicted to continue, and what your team’s
best course of action is moving forward.

2. FINANCIAL STATEMENT ANALYSIS

Another example of descriptive analytics that may be familiar to you is financial statement
analysis. Financial statements are periodic reports that detail financial information about a
business and, together, give a holistic view of a company’s financial health.

There are several types of financial statements, including the  balance sheet, income
statement, cash flow statement, and statement of shareholders’ equity. Each caters to a
specific audience and conveys different information about a company’s finances.

Financial statement analysis can be done in three primary ways: vertical, horizontal, and
ratio.

Vertical analysis involves reading a statement from top to bottom and comparing each item to
those above and below it. This helps determine relationships between variables. For instance,
if each line item is a percentage of the total, comparing them can provide insight into which
are taking up larger and smaller percentages of the whole.
Horizontal analysis involves reading a statement from left to right and comparing each item to
itself from a previous period. This type of analysis determines change over time.

Finally, ratio analysis involves comparing one section of a report to another based on their

relationships to the whole. This directly compares items across periods, as well as your
company’s ratios to the industry’s to gauge whether yours is over- or underperforming.

Each of these financial statement analysis methods are examples of descriptive analytics, as
they provide information about trends and relationships between variables based on current
and historical data.

3. DEMAND TRENDS
Descriptive analytics can also be used to identify trends in customer preference and behavior
and make assumptions about the demand for specific products or services.

Streaming provider Netflix’s trend identification provides an  excellent use case for

descriptive analytics. Netflix’s team—which has a track record of being heavily data-driven—
gathers data on users’ in-platform behavior. They analyze this data to determine which TV
series and movies are trending at any given time and list trending titles in a section of the
platform’s home screen.

Not only does this data allow Netflix users to see what’s popular—and thus, what they might
enjoy watching—but it allows the Netflix team to know which types of media, themes, and
actors are especially favored at a certain time. This can drive decision-making about future
original content creation, contracts with existing production companies, marketing, and
retargeting campaigns.

4. AGGREGATED SURVEY RESULTS

Descriptive analytics is also useful in market research. When it comes time to glean insights
from survey and focus group data, descriptive analytics can help identify relationships
between variables and trends.

For instance, you may conduct a survey and identify that as respondents’ age increases, so
does their likelihood to purchase your product. If you’ve conducted this survey multiple times
over several years, descriptive analytics can tell you if this age-purchase correlation has
always existed or if it was something that only occurred this year.

Insights like this can pave the way for diagnostic analytics to explain why certain factors are
correlated. You can then leverage predictive and prescriptive analytics to plan future product
improvements or marketing campaigns based on those trends.
5. PROGRESS TO GOALS
Finally, descriptive analytics can be applied to track progress to goals. Reporting on progress
toward key performance indicators (KPIs) can help your team understand if efforts are on
track or if adjustments need to be made.

For example, if your organization aims to reach 500,000 monthly unique page views, you can
use traffic data to communicate how you’re tracking toward it. Perhaps halfway through the
month, you’re at 200,000 unique page views. This would be underperforming because you’d
like to be halfway to your goal at that point—at 250,000 unique page views. This descriptive
analysis of your team’s progress can allow further analysis to examine what can be done
differently to improve traffic numbers and get back on track to hit your KPI.

USING DATA TO IDENTIFY RELATIONSHIPS AND TRENDS

“Never before has so much data about so many different things been collected and stored
every second of every day,” says Harvard Business School Professor Jan Hammond in the
online course Business Analytics. “In this world of big data, data literacy—the ability to
analyze, interpret, and even question data—is an increasingly valuable skill.”

Leveraging descriptive analytics to communicate change based on current and historical data
and as a foundation for diagnostic, predictive, and prescriptive analytics has the potential to
take you and your organization far.

PREDICTIVE ANALYTICS FOR BUSINESS: TYPES, USE

CASES, EXAMPLES

Survival of the fittest is by no means a misnomer in the present situation. Every business has
competitors, and each organization needs to stay in business despite stiff competition for its
survival and growth. The uncertainty and changing needs of business metrics have to be
studied, and suitable actions need to be taken to achieve the above objective.   

Analysis of this scenario is a must and for which sufficient and relevant information is
required. Fortunately, the availability of big data has come to the rescue. Analysis of past and
current relevant data, can help to plan suitable measures at the right time for achieving the
goals. Every business has its own infrastructure and an adequate workforce for all stages like
planning, design, production, sales, and  marketing, but these needs to be adjusted and
adequately managed.  

Data analytics (a branch of Data Science) is a powerful and sure means to take needed
measures from time to time. However, predictive analytics is an important type of data
analytics as it depends on many challenging aspects and can help other stages of analytics.
Knowledge gained from predictive analytics can guide other analytics sections to give proper
inputs for the overall success of a business. Companies can use predictive analytics for
businesses to answer questions like what the customer churn is, how to optimize marketing
strategies, what do the customers expect and so on. 

In this article, we will talk in-depth about predictive analytics, its objectives, techniques, and
correct steps needed to achieve vital information the company or business seeks to stay
proactive and progressive.  However, it is essential to have a strong foundation in Data
Science before handling Data Analytics. Try  Data Science with Python tutorial  to get
started with your Data Science journey. 

What is Predictive Analytics? 

Predictive analytics is a planned and thoughtfully executed activity in any business. It starts
with collecting past and current data, a proper study of this data, and then applying statistical
or machine learning tools on this data to predict the future needs of any business.   

It is essential to plan all business activities, such as  management of inventory, workforce,

infrastructure, sales, and  marketing. This is further critical for the growth of any business,
increasing profits, reducing losses, and optimum utilization of resources. It is now rare to find
any organization in the world, small or big, that is not practicing predictive analytics at some
level since it has become impossible to survive without it in this highly competitive world.  
Predictive analytics for retailers can help them manage their inventories better by forecasting
possible future demands using historical and real-time data. This way they can make
provisions for adequate resources on a timely basis. 

How Does Predictive Analytics Work? 

The following steps or phases are required for predictive analytics to be

successful: 

1. Deciding the Objective: A company has to first decide its aim for performing this
analysis. Let us say whether to increase market share or increase profit, improve an
existing product or launch a new one, and similar considerations corresponding to their
business. Thus, it applies to all types of industries like manufacturing, trading,
agriculture, healthcare, academics, etc. Once the objective is finalized, then further
steps are taken. 
2. Data Collection: This is a crucial step involving collecting past and existing data
from relevant sources. This information reveals shortcomings, hurdles, strengths,
threats, and opportunities. Hence, this data must be appropriate, correct, and adequate.
This is referred to as the descriptive analysis phase. 
3. Diagnosis Phase: The analysis of correctly accumulated and formatted data involves
diagnosis, which aims at applying a cause-and-effect approach, getting all the facts
about past records together with current ones so that patterns and trends can be
identified later.  
4. Predictive Phase: Once these essential key factors are known, it is possible to
predict what will happen in the future based on the identified issues. But this is tricky
and requires applying statistical tools or machine learning models based on proper
algorithms and some assumptions related to the marketing scenario. Many tools are
developed by reputed data companies to make predictions suitable to the needs of a
particular business and its objectives. 
5. Prescriptive Phase: After getting hints of possible happenings in the future, suitable
measures are taken at appropriate locations to achieve the objective thought earlier.   

Let us consider all this for an educational institute: 

1. Objective: A reputed educational institute wants to start a new technology course like
‘medical diagnostics.’
 
2. Data Collection: This will be the descriptive phase in which: 
 a. The institute will estimate the demand for such a course in the current scenario
or in the recent past. To achieve this, they can discuss it with reputed hospitals,
medical research institutes; perform surveys among public and industries, etc.  
b. Next, the institute needs to evaluate the existing infrastructure adequacy, like
land, buildings, machinery, IT setup, etc. 
c. Additionally, it is also necessary to evaluate the existing expertise and staff for
conducting the coursework and labs for the course of this medical diagnostic.  
d. It is also essential to estimate the needed finance to run this course in the
institute efficiently. 
e. It is important to understand the government regulations and policies as this is a
healthcare-related course. 
3. Diagnosis Phase:  Based on the data collected, the institute can clearly understand
what is available at the institute and what they need to procure or set up early if they
decide to introduce the course at the institute.  
4. Predictive Analysis Phase:  The institute can use a suitable prediction model like
regression to predict the probability of success in setting up the course based on
relevant features or factors. This prediction will assist in deciding about further
measures to be taken for surety of success with good accuracy. 
5. Prescriptive Phase:   In this phase, the institute can arrange for any needed
adjustments, procurement of essentials, etc., like new mandatory equipment, expert
staff, etc. 

If the outcome of this exercise shows good potential, then the institute can proceed with its
objective of setting up the course of the medical diagnostic. If reasonably good accuracy is
not seen in this exercise, the institute can reconsider its model to improve accuracy.  
Why is Predictive Analytics Important for Business? 
Every business strives for sustainable existence and continuous growth. This is very important
in the stiff competition and changing scenario in the marketing sector. If a particular business
does not keep track of what is happening, what has happened, and what is likely to occur in
the immediate future, it may face various problems like customer churning, loss of revenue,
wrong investment, etc.  

If a company takes the help of predictive analytics, it is constantly aware of what steps are to
be taken. These steps will help to tackle any uncertainty or special requirements the business
needs to maintain its status and growth. For example, if the predictive analytics hints at
increasing demand in the next quarter for inverters due to likely load shedding in a particular
state, the business can procure additional inventory.  

They can also plan for more production hours in advance and try to push their product in that
state suitably. Hence, there can be no denying that predictive analytics  is necessary for any
business. If you want to dive deeper into Data Science and want to know how much time it
takes to get certified as a data scientist, please refer  Data Science course duration .  
Types of Predictive Analytical Models for Business  

The six most commonly used predictive analytics models are as below.  

1. Classification Model 

The classification model is the relatively simplest of the various types of predictive analytics
models in consideration. It allocates data into categories based on what it has learned from
historical data. 

Based on available historical data, classification models are best suited to answer yes-or-no
questions. They provide comprehensive guidelines comparing various features in making a
final decision. For example, it can be used to answer a few questions like: 

 A perfume manufacturer wants to launch a new product: will it see a good demand? 
 A bank sanctioning a housing loan wants to know whether this particular person will
repay the loan promptly. 
 A sports club wants to hire a reputed player from another club at a higher price. Will
this deal prove successful? 

The scope of possibilities with the classification model and the simplicity by which it can be
trained and retrained with new data clearly indicates that it can be used for predictive
analytics in many different industries. 

2. Regression Model 

In a regression model, based on available numerical data and the current scenario, factors can
be identified that are likely to influence the outcome with a strong positive probability.   

For example; 
 Based on the number of bedrooms, floor level, square ft. area, nearby amenities, etc., a
model can be built to predict the price of a house in a particular area with very good
accuracy.  
 A shopping mall wants to know how many products and quantities will likely be sold
in the first week of every month? The main factors are salary week and other
considerations related to the level of people, location of the mall, etc. 
 Along similar lines, a nursing home may need to know; the number of patients likely
to visit in typical months based on season severity, etc. 
  The government may want to arrange for food supplies in public distribution systems,
such as how many tons of rice are required. 

 A general hospital wants to know how many beds may be required in the hard months
of winter.  

Many such examples can be cited. 

3. Clustering Model 

The clustering model segregates or divides data into separate, densely populated groups based
on similar features or characteristics for making a particular decision.   

For example; 
 If a women's fashion wear brand wants to conduct focused marketing campaigns for its
clients, they cannot consider checking purchase history data of each individual to
determine a specific strategy. They can easily and quickly segment their customers
into similar groups based on common but different characteristics evident from the
data. Then they can come up with proper strategies for each group, favoring a
particular brand by adopting the clustering model.  
 Other use cases of this clustering model can be cited as grouping students based on
their IQ and interest in a particular career, say science, research, engineering, medical,
or marketing. 

4. Forecast Model 

This is one of the most used predictive analytics models. This model attempts to estimate the
numerical value of new data based on prior data. This model may be used wherever there is
historical numerical data. 

For example; 
 A travel agency can estimate the possible number of tourists likely to visit a specific
famous hill station based on the records of a few previous years. 
 A prominent temple administration wants to know the number of pilgrims likely to
visit in the summer vacation months based on the interpretation of earlier year's
records. 
 Many such examples, like the sale of cars, two-wheelers, etc., are a good fit for this
model. 
5. Outliers Model 

The outlier’s model focuses on typical values in a dataset that are anomalous in nature,
meaning that they are absolutely mismatched or far away from most of the other values. For
example, in a data set of fiction books, a comic book is an anomaly that can be easily
identified. This model is very important in the finance sector to detect fraudulent transactions
or fictitious cases for money transfers, loans, and insurance claims. 

6. Time Series Model 

The time series model requires an adequate sequence of the earlier recorded data points, using
time as an input parameter for a specific period. It can use an entire last year's data to develop
a numerical metrics model and, based on it, can predict the values for the next month or few
weeks. Many cases where this model is applicable can be: 

 If rainfall from July to August in a particular city like Mumbai for the last three years
is studied, then can it be predicted what it will be this year? 
 The amount of air traffic expected during the important festival season. 

This model will now not only focus on average values but may also consider past and current
data available on various issues. These can be seasonal fluctuations, newly built hotels or
popular tourist spots in that city or location, bonuses or allowances, or increment declaration
as a multi-variant analysis mode.  

However, as any trend is not static or linear, the time series model can also consider
exponential growth and adjust the model to suit the company's trend. It can forecast many
projects or multiple locations in the country or world at the same time. 

Best Practices for Better Predictive Modelling Results for Business 

Here are some best practices companies tend to follow to extract more from data using
predictive analytics: 

1. Identify and Collect from Best Data Sources: This indicates that companies need
to identify high-quality data sources to feed into their predictive analytics interface
while including any new data sources that become available from time to time.  
 2. Building the Right Team: Even though a predictive analytics tool sounds like a
solution, it is also critical to identify the available staff expertise and the coordination
among them. Rather than focusing on the analytics provider, companies need to focus
on building the right team involving BI and data analysts, data engineers, machine
learning engineers, business analysts, etc.   
3. Making Predictions Visually Clear: Companies need to invest some time in
carefully considering how they can integrate the forecasts visually so that they are
effective for specific users and objectives. 
4. Selecting a Model for Prediction and Setting Acceptable Accuracy: It might be
a good idea to set limits for the predictive analytics accuracy provided by the model.
Companies can aim for higher accuracy. Sometimes, when the model has slightly
lower accuracy, it can still be used as a general guideline for decision-making.  
5. Continuously Monitor and Evaluate Data: As data changes are dynamic in nature,
suitable modifications or alterations must be made in the model selected for predictive
analytics. 
6. Flexibility in the Approach: Apart from the above, running different AI/ML
workloads on the cloud provides the flexibility required for a cost-effective, scalable,
and secure AI solution.  

Pros and Cons of Predictive Analytics for Business  

Pros 

1. Makes an Organization Future-ready: A company can plan for different

adjustments needed to cope with the likely dynamic changes in the market. 
2. Saves Money: Due to logical future information available beforehand, it is possible to
avoid unnecessary investments and losses.  
3. Reliable Decision-making: Due to numerous ready-made accurate models with
advanced technical algorithms suitable to company needs, there is little scope for
faltering. 
4. Customer Retention and Increased Share of the Market: Due to proper and
timely steps taken befitting to changing scenarios, chances of dissatisfaction amongst
customers on any account like late deliveries or improper product or its packaging is
prevented. This further increases the retention of existing customers, and word-of-
mouth publicity may attract new customers. 
Cons 
1. Failure of Correct Analytics: Improper and inadequate data might result in wrong
decisions. 
2. Dependence on a Competent Workforce and Coordination: A lack of this issue
might prove detrimental in achieving the desired objective. 
 3. Tool Dependent: The success of predictive analytics depends on the selection of the
correct and best-fitting model. An improper tool used may affect the outcome
adversely. 
4. Expensive: Predictive analytics being complex is a costly affair.
  
Real-world Examples of Predictive Analytics in Business
Intelligence 

Initially, it might be difficult to believe in the power of predictive analytics for making critical
business decisions related to real-world problems. Many organizations have now turned to
data analytics as an integral part of their growth strategy. Let us look at some companies that
are efficiently utilizing predictive analytics for: 

1. Amazon: The e-commerce giant Amazon employs predictive analytics to upsell

products. Through predictive analytics, Amazon tends to know the purchasing
behavior of each customer. This is also evident in the customized ads displayed based
on the users' previous purchases and their provided product feedback and ratings. For
example, Amazon knows that customers who buy a refrigerator are likely to purchase
accessories like fridge mounts, ice trays, bottles, or containers to store food items.
Hence, when users search for refrigerators on the Amazon website, they are
simultaneously shown recommendations for products that are usually bought together.  
2. Coca-Cola: The Company collects data on customers to increase the current
consumption of their products and upsell new items. The collected data can assist in
identifying purchasing habits, what appeals to individuals in a specific
location, favored tastes, etc. For this, Coca-Cola listens to its customers' feedback on
social media, such as their thoughts on the product. Using this data, the organization
can modify and fine-tune its product marketing strategy to stay relevant to its
customers' interests and desires. It then launches its products and provides users with a
more tailored product experience. Coca-Cola also uses the gathered information to
improve the brand experience and boost consumer loyalty. 
3. Netflix: According to Statistics, Netflix has more than 220 million subscribers. The
company uses AI-powered algorithms based on the user's watch history, search
history, demographics, ratings, and preferences to predict what the users are likely to
watch next. These predictions reveal what the viewer would be interested in seeing
next, with an accuracy of 80%. Thus, Netflix predicts user behavior and recommends
TV series and movies using predictive analytics algorithms in its recommendation
engine.  
Predictive Analytics Use Cases 

In fact, predictive analytics is being used by a broad spectrum of businesses. Here, we list
some domains and their respective uses of predictive analytics: 

1. Manufacturing Industries 

Regular log maintenance and sensor records can help identify possible breakdown locations in
a manufacturing firm and take preventive steps to reduce these possibilities.  

2. Financial Services 

Banks, housing loan lending institutions, and insurance companies use machine learning and
statistical tools to predict credit risk and fraud detection cases before finalizing loan
approval.  

3. Healthcare 

Predictive analytics in healthcare is used to detect and treat patients with chronic diseases and
predict the possibility of the spread of certain diseases in the future based on environmental
and other causes. 

4. Human Resources (HR) 

HR teams use predictive analytics to select the most suitable workforce and predict the
performance of all employees.  

5. Marketing and Sales 

Predictive analytics can be used for launching a new product into the market or determining
the need for likely changes in an existing product based on information collected from
different sources. 
6. Retail 

Retail businesses use predictive analytics to analyze customers behavior and product demand

to ensure proper inventory management. 

7. Logistics and Supply Chain 

Businesses use predictive analytics to arrange the proper size, warehouse locations, and an
adequate fleet of transport vehicles to ensure a timely and smooth supply of necessary goods
to customers. 

8. Educational Institutes 

Looking at the past trends regarding choices of parents and students along with the upcoming
demand of a particular workforce, educational institutions can plan for all the necessary
resources to stay ahead in starting new courses. Predictive analytics can be an excellent tool
for this purpose. 
Predictive Analytics Resources 

With the rapid growth in computational technology applications, it is now possible to use
readily available software tools developed by top IT companies for predictive analytics. Each
such tool has various capabilities essential to give correct predictions related to a particular
type of business and the data provided by the business. 

Let us list some widely available tools from top predictive analytics companies with their
current uses. You can explore their features and offer conditions listed on their websites:  

1. SAP Analytics Cloud: This is the most popular overall predictive analytics solution
offered by SAP. 
2. SAS Advanced Analytics: Another well-known analytics tool by SAS Institute Inc.
is SAS predictive analytics which delivers accurate insights at the right time,
leveraging the power of the available data. 
3. RapidMiner: This is an open-source end-to-end Data Science platform that provides
predictive analytics models. 
 4. Alteryx: Alteryx offers an analytical platform for team collaboration. This platform
provides predictive analytics within the complete analytics workflow.  

5. IBM SPSS: This tool offered by IBM offers a good predictive analytics option for
researchers. 
6. TIBCO Spotfire: Tibco offers a free predictive analytics software to predict the
behavior of businesses and customers. Companies can then improve their analytics
knowledge throughout the organization.  
7. H2O.ai: This is a good open-source tool that is in-memory, distributed, fast, and
scalable machine learning and predictive analytics platform. 
8. Emcien: This is a leading predictive analytics tool for marketing. 
9. Sisense: This is popular business intelligence software for data scientists that offers
advanced machine learning algorithms for predictive analytics. 
10. Tableau: A very popular data visualization and dashboarding tool that also offers
predictive modelling functions for building models and making predictions about data
by regression. 

Conclusion 

Predictive analytics has become an indispensable activity for survival and growth in all types
of organizations. Understanding its benefits and then accepting it for implementation is,
hence, crucial. Fortunately, as it proved to be more beneficial when used along with business
intelligence, many reputed data science companies have developed suitable models.