Introduction to Problem

Name of the Chapter

Solving
Learning Objectives

1. The modern business environment

• What is a business

2. How problems are identified

• Who identifies
• How they identify

3. Analysing a problem
• Understanding key activity areas
• Attributing a problem to its constituent parts

4. Analysing data
• overview

5. Story telling / Presentation of Answers

• Delivering insight presentations

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Businesses operate in a very complex space
Problem solving in a complex environment
Ø Business environments are far more complex then they used to be
Ø Globalization, Pace of Change, Technology and the 4th industrial revolution

Ø At the same time, business objectives remain the same

Ø Generate profit, provide a benefit

Ø Failing (or the possibility of failing) to achieve a business objective = A business

problem

Ø The Business Analyst (i.e. you) is expected to provide a solution in such cases

Ø This can be overwhelming at first glance…where to start, what to do etc

Ø The rest of this Module looks to help you handle such situations
How business problems are identified
STAKEHOLDERs identify a problem

I.C.E = Mnemonic for Internal Your team

business stakeholders Your department
(connected to your Another department
company) Owner / CEO

Connected External
(invested in or have (do not have a direct
dealings with your link to your company)
company) You
Investors
Banks / Lenders
(Analyst) Government
Media
Suppliers / Service providers Social network
Customers Environmental group
How they identify a problem

Stakeholder Monitoring of Gaps between Formalized as

goal goal goal and actual a problem

Example
Goal Monitoring Gap Formalization
• Customer expects a • Did the product (or • It did not work • Escalates problem to
product (or service) service) actually retailer / customer
to work work? support for redressal

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Types of problems a stakeholder will raise
Financial

Key to stated/ Implied:

e.g. deliver a e.g.
20% increase in shareholder
sales returns Easier to measure

Stated Unstated Needs to be

/ Implied converted to
measurable metrics
e.g. safe e.g. shareholder
e.g. front-office returns à mapped
working
staff exits < to increase in share
environment
10% this year price + average
for all
dividend paid out
over a period of time

Non-financial
Examples of financial goals

TYPICAL PROBLEMS

Why are sales down?

Revenue related Why are we losing market share?
Why is our average selling price declining?

Production costs are increasing

Variable cost related Advertising costs are increasing
Gross margin issues

Overheads & fixed Office rental costs are increasing

cost related Management cost is too high
IT infrastructure costing too much

Profitability related Why are our profits down?

Interest / finance costs

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Examples of non-financial goals
Ø Employee welfare
Ø Job satisfaction, workplace safety etc

Ø Product or service quality

Ø Sales returns, internal quality measurement metrics

Ø Customer satisfaction and brand measures

Ø Satisfaction, brand awareness, brand recall etc

Ø Supplier relationships
Ø Preferred partner status, securing consistent supply

Ø Social responsibility
Ø Environmental policies, carbon footprint, CSR initiatives

Ø Business ethics and code of conduct

Analysing a problem
Problems can have varying levels of impact

Company • Financial Impact across multiple

specific • Non-financial departments, e.g. cost cutting

Department • Financial Impact across a

specific • Non-financial department, e.g. Sales

Activity Impact a specific task

specific e.g. weekly reports

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Understanding company-wide impact: Porter
Ø Porter’s value-chain model highlights key activity areas across any company
Ø Any given problem can thus be mapped to a Primary / Secondary area
Ø as well as specific activity area(s)
Ø It is a very useful prioritization and analysis tool
Using Porters model
Ø This model helps the analyst prioritize and isolate problems

Example 1: Sales returns

This is a common problem across any business that serves customers, e.g.
Ø 10% of product A returned by distributors, stating it is damaged and cannot be sold
Ø 10% of subscribers to an online “pay-per-view” streaming service have demanded refunds
due to the purchased video not playing

Ø As per Porter
Ø sales returns relate to Primary activities and should be prioritized over Secondary
Ø Problem likely to relate to “Operations” gap or “Outbound Logistics” gap, i.e.
Ø Issue relates to manufacturing defect (Production of A/ Creation or storage of video asset)
Ø Issue relating to delivery (Shipping damage of A / Bandwidth issues with streaming)
Understanding departments
Problems relating to supply chain and
manufacturing

Problems relating to
overall financial health,
Audit issues etc

Problems relating to sales and

marketing

Problems relating to data security, Problems relating to people, training,

privacy, accuracy etc retention etc
Analysts Role = Provide an insight / answer

Typical process followed

Define problem Identify and Organize Manipulate data Visualize Communicate

statement source data data (analyse, model) data findings

Typical skills required for each stage in the process

Frame Build EDA Excel Excel Story
Technical skills

Technical skills

Technical skills

Technical skills
Logical skills

Logical skills

hypothesis mental Pre- Python Tableau telling

model processing MS Office
SQL etc Power BI
dB’s Google
Story telling / Presenting your findings
Corporate story telling: 5 essential components
Ø The core principles of story telling apply to corporate scenarios
Ø One should look to maximize the impact of these 5 components

• The decision maker(s) in the room OR

Audience • the person(s) you will send your findings to

• The manner in which findings will be consumed, e.g. presented in

Environment a meeting room or as an email attachment

• The title of your presentation / document / spreadsheet

Context / Central Idea

• The supporting slides or sheets

Plot / Story

• The final recommendation(s) you are making

Summary
Three ways to present your findings

Basic Intermediate Advanced

(Simple Q&A) (Highlights) (Story telling)
• Simple design • Template theme • Unique theme
• No context • Some context • Unique context
• Each question • Some inferences • Answers used to
answered as per drawn beyond basic support main
brief answers context
• No summary • Summary of findings • Recommendations
or Next steps as part
of summary
What to use when?
§ Basic
§ When solution required is just presentation of data
§ Ppt should be self explanatory, can be emailed as it does not need much explanation
§ E.g. Review of sales for last month
§ Intermediate
§ When solution has an insight or take-away that needs to be highlighted
§ Can be presented or emailed with key take-aways highlighted in the email body copy
§ E.g. Impact of Diwali on last month sales
§ Advanced
§ When solution is drawn from analysing a number of interrelated problems / data sets
§ Requires presentation to be made since there are lots of inferences
§ E.g. Insights into sales performance over the past year
INTRODUCTION TO
STATISTICS
Introduction
Ø In general, statistics summarizes information about data in a meaningful
and relevant way.
• For example: What is the population of India?
• population in 20XX is 1,942,512,706
Ø That is a statistic – the sum of all residents of India

Ø What other statistics relating to population can you think of?

• “Population density”
• “Median Age”
• “Distribution by Religion”
• “Literacy Rate”

Ø Statistics is “the science of the collection, analysis, interpretation,

presentation, and organization of data.”

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Two Types of Statistics

Ø Descriptive Statistics –deals with analysis and methods

related to collection, organization, summarizing and
presentation of data.
• All data-driven roles need to be able to perform descriptive
statistical techniques
• It is essentially a “Factual Description”

Ø Inferential Statistics - makes predictions about the larger

population or audience, based on actual data that has
been collected or exists already.
• Predicting election results based on exit polls is and
example of Inferential statistics. A small sample is
measured and a prediction is made about the larger
population
• It is essentially a “Prediction”
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Statistics helps managers take ‘Informed’ decisions

“Gut feel” or Based on personal

subjective observations or
decisions perceptions

Based on factual
data
This requires “Informed” or (descriptive stats)
Business needs to
decisions to be data-backed
deliver results
taken decisions Based on a
prediction
(inferential stats)

Looks at
Blended decision information and
applies judgement
Examples
Function à Sales Operations Fund Manager
Management ask Sales growth of 20% Generate 10% savings Increase Fund valuation
Your decision How to grow What costs to cut How to realign
Gut feel approach to
decisions
Decision taken
Informed approach to
decisions
Statistics received
Decision taken
Examples
Function à Sales Operations Fund Manager
Management ask Sales growth of 20% Generate 10% savings Increase Fund valuation
Your decision How to grow What costs to cut How to realign
Gut feel approach to Sales people work for Factory workers are lazy. Fuel prices are rising, so
decisions money only reduce exposure
Decision taken Announce an incentive Tighten factory operations Drop all auto, aviation,
policy transportation stocks
Informed approach to
decisions
Statistics received
Decision taken
Examples
Function à Sales Operations Fund Manager
Management ask Sales growth of 20% Generate 10% savings Increase Fund valuation
Your decision How to grow What costs to cut How to realign
Gut feel approach to Sales people work for Factory workers are lazy. Fuel prices are rising, so
decisions money only reduce exposure
Decision taken Announce an incentive Tighten factory operations Drop all auto, aviation,
policy transportation stocks
Informed approach to What were sales highlights Review cost heads and look Do equity valuations of fuel-
decisions the last time sales grew by at what has increased dependent companies
20%
Statistics received Both team size and Raw materials costs have 5 are undervalued, 3 are
average sales price was increased the most, also fairly valued, 2 are
10% higher than today production efficiency has overpriced
dropped
Decision taken
Examples
Function à Sales Operations Fund Manager
Management ask Sales growth of 20% Generate 10% savings Increase Fund valuation
Your decision How to grow What costs to cut How to realign
Gut feel approach to Sales people work for Factory workers are lazy. Fuel prices are rising, so
decisions money only reduce exposure
Decision taken Announce an incentive Tighten factory operations Drop all auto, aviation,
policy transportation stocks
Informed approach to What were sales highlights Review cost heads and look Do equity valuations of fuel-
decisions the last time sales grew by at what has increased dependent companies
20%
Statistics received Both team size and Raw materials costs have 5 are undervalued, 3 are
average sales price was increased the most, also fairly valued, 2 are
10% higher than today production efficiency has overpriced
dropped
Decision taken Hire 10% more people + Renegotiate raw material Hold the 5 that are
reduce discount sales can cost by 5-10% undervalued, exit the
offer by 10% Tighten factory operations remaining
Learning to create Descriptive statistics

Ø Descriptive statistics creation is an essential skill for any analyst

• They can be applied to all aspects of an organization

Primary functions like logistics, operations, sales and marketing, service etc
Support functions like HR, IT, Procurement, Infrastructure

Ø In comparison, Inferential statistics is an advanced technique used by specialists

• They are applied to specific business situations when predictions are required
• They require Descriptive Statistics as a basis for modelling predictions
• E.g. predict future share price given current share price average is XXX, range is YYY etc

Ø We will focus on the 5 basic descriptive statistics in the remainder of this session

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1. To create Statistics you need data
Ø Understanding some common terms for data types

Ø Data point: A single number e.g. 67

Ø Data series: A series of numbers that are interconnected in some manner, E.g.
• 67, 72, 74, 62, 65, 59, 61, 69, 69, 66 (all are daily temperatures)
Ø Data set : A collection of separate elements/ series that have some common theme
• Solar Radiation, Wind, Temp, Day, Month that collectively form a dataset of “daily weather"

Serial no. Solar Radiation Wind Temp Month Day

1 190 7.4 67 5 1
2 118 8 72 5 2
3 149 12.6 74 5 3
4 313 11.5 62 5 4
5 299 8.6 65 5 7
6 99 13.8 59 5 8
7 19 20.1 61 5 9
8 194 8.6 69 5 10
9 256 9.7 69 5 12
10 290 9.2 66 5 13
2. Deciding which statistic(s) to use

After looking at the data, one has to decide which Statistic(s) should be measured

1. Measure the central tendency à describes the average of the data

• Use when you want a single-value description
• Or when you want easy comparisons between data

2. Measure dispersion à describes how much a data point can vary from the average
• Use when spread or consistency is important

3. Measure shape à describes the pattern the data forms when plotted
• Use when you want to visualize the entire data set to study patterns

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The 5 basic statistics used most often
Ø Central tendency, i.e. single measure
• Mean
• Median
• Mode

Ø Dispersion, i.e. an additional measure

• Range

Ø Shape, i.e. an additional visual measure

Ø Via a Graph

Ø For any given problem, you therefore need to select one of the following
Ø Describe using 1 measure (Central Tendency)
Ø Describe using 2 measures (Central Tendency + Range)
Ø Describe using 3 measures (Central Tendency + Range + Shape)
3a. Using Central tendency = MEAN
• When to use: Most important central tendency measure, use it almost always
• Sales: e.g. Average sales / average orders
• Ops: e.g. Average units made / average cost per unit
• HR: e.g. Average attendance / average salary
• Finance: e.g. Average COGS / Average earnings per share

• When not to use

• When data has extremely low and high values (outliers)
• When looking to answer ‘what happens most often?’

• What it does In Excel, use AVERAGE( ) function

• Reduces data to its numerical centre, i.e. average value

• How to calculate
Mean = Sum of numbers = 19+4+33…+2+4+1 = 17.41
Count of numbers 12
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3b. Using Central tendency = MEDIAN
• When to use: When working with salary or income data
• Household income data, salary data, investment data etc typically have significant outliers
• Median is a better indicator than Mean in such cases

• What it does
• Reduces data to its positional centre, i.e. central value
• Gives a value close to Mean, ignores outliers

• How to calculate
1. Arrange data in ascending order
2. Count the number of data points
3. If count is odd, Median = Value of middle number
If even, Median = Average of middle 2 numbers
Step1: Order = 1,2,2,2,4,4,18,19, 32,33, 41, 52 (ascending) In Excel, use MEDIAN( ) function
Step2: Count of numbers = 12 = Even number
Step3: Median= Average of 6th and 7th position = (4+18)/2 = 11
3c. Using Central tendency = MODE
• When to use: When you want to know what happens most often, e.g.
• In Sales: Most common item purchased, most common price offered
• In Inventory management: Most common shoe size, most common shirt size etc
• In Ops: Most common packing size when planning logistics

• What it does:
• Reduces data to its most frequent value
• Ignores most data, hence value can differ from Mean or Median

• How to calculate
1. Identify all unique values in the data set
2. Count the number of times each value occurs
3. Select the value that occurs the most time

Step1: 9 unique values in 19,4,33,2,51,32,2,41,18,2,4,1 In Excel, use MODE( ) function

Step2: Frequency = 2 @ 3 times, 4 @ 2 times, rest @ 1 time
Step3: Mode = 2
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4. Using Dispersion
• When to use: When a single Central tendency is not enough to take a decision
• E.g. which stock to buy from 4 stocks with similar price bands
• Or what is the spread of sales orders that a company receives

• What it does:
• Represents the data in terms of its spread
• Measured by Range (most common), Variance, Standard Deviation (most accurate) etc

• How to calculate Range

= Largest value– Smallest value
= 19,4,33,2,51,32,2,41,18,2,4,1
Range = 51 -1 = 50

• Describing the distribution (2 descriptors)

• Average (mean) of 17.41 and a range of 50

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5. Using Shape
• When to use: When you want to see underlying patterns in the data
• E.g. the sales pattern for seasonal products like ice creams
• Or the pattern of daily bandwidth usage across all company offices

• What it does:
• Represents the data as a frequency distribution

• How to calculate
1. Divide data range into a number of equal classes (usually between 4 to 7 classes are ideal)
2. Count the frequency, i.e. the number of data points, that fall into each class
3. Optionally, also count the cumulative frequency from lowest to highest class
E.g. 19,4,33,2,51,32,2,41,18,2,4,1 divided into 4 equal classes (1-15, 16-30, 31-45, 46-60)
Tabulated =
Class 1-15 16-30 31-45 46-60
Frequency 6 2 3 1
Cumulative Freq. 6 6+2=8 8+3=11 11+1=12

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Working with Graphs
Visualizing the descriptive statistic(s)

“A picture says more than a 1000 words”

Graphs are the business equivalent of a picture

There are some basic thumb rules regards graphs that you need to be aware of

1. First define the statistics -à the choose which graph to use

2. Graphs can be edited by you to improve their visual impact

• just like pictures can be touched up, tagged, cropped etc

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Types of common graphs
Bar Horizontal bar Line

Histogram Scatter Pie

Understanding the basics of graphs

Statistical graphs are used to visualize statistical data

Pie charts are unique in that they can represent only proportions
• E.g. proportion of sales contributed by each sales person in a given period of time
• Or proportion of costs incurred during production

Line, Bar and Scatter represent data on two dimensions, called x and y axis
• E.g. sales amounts on one axis and month of the year on the other axis
• Each data point therefore has 2 associated value, typically quantity and time
• They can also represent only proportions
• In this case one axis shows the proportion and the other simple shows the name of the data field
• E.g. % on one axis, name of sales-person on other axis

Histograms are a special two dimensions graphs where the area or size of the bar holds a
special meaning
• i.e. frequency (height) and class interval size (width)
Examples

Scatter plot

Bar showing sales per year

Next steps / Big Picture
Problem
solving

Final assessment Titanic case Descriptive

for module stats
(Ppt + Excel)

Excel Advanced Excel basics