Introduction to Business Analytics
When data is used properly,
Business Analytics
- Concerned about data driven
decision and application of analytical
approaches to decision making
Data can be collected through electronic
means (due to staggering amount of
data)
- Organizations are competing on
analytics in order to achieve key
performance indicators
Companies use data to:
- Boost business process and cost
efficiency
- Monitor and improve financial
performance
- Drive strategy and change
Example
Decision Making
Applying for a loan for the first time.
- The bank wants to know whether
you are going to pay.
- They use data such as credit
history, financial condition, and
disposable income to assess you
as a borrower (predictive model)
- They provide a forecast/prediction,
combined with the rule, becomes
a prescriptive model
- Ex. If we create a rule of the
estimated probability of default is
0.6 , then we should not award the
loan (this is prescriptive analytics)
- They rely on a set of rules, which
is called a rule based model.
3 facilitating developments
1. Technological advances (sensors,
collect data in vast quantities.)
a.
you can gain a competitive
advantage
2. Methodological development
a. Ongoing research that
includes advances in
computational approaches
b. Explores massive amounts of
data to visualize data (gain
insight)
3. Computing power and storage
capacity
a. Huge amounts of data,
where are you going to store
it? Data houses.
b. Traditional processing
systems can no longer store
huge amounts of data
c. Get a better software
because it can allow you to
solve problems faster and
accurately
- Competitive businesses make
important decisions
1. Strategic
- Higher level issue concerned with
the overall direction of the
organization
- Define the organization’s overall
goals and aspirations for the future
2. Tactical
- How the organization should achieve
the goals and objectives set by its
strategy
- Are usually the responsibility of mid
level management
3. Operational
- Affect how the firm is run from day to
day
- Are the domain of operations
managers, who are the closest to
the customer

Notice faults in a businesses and be the
first one to have the initiative to resolve
that
Deciding the nature of a business’s
marketing campaign, and using analytics
to understand which strategy to utilize
Decision making process:
1. Identify and define the problem
2. Determine the criteria that will be
used to evaluate alternative
solutions (cost-effectiveness, ease
of implementation)
3. Determine the set of alternative
solutions
4. Evaluate the alternatives
5. Choose an alternative
Common approaches to making
decisions:
1. Tradition
2. Intuition (gut feeling)
3. Rules of thumb (based from your
experience)
4. Using the relevant data available
Business Analytics Defined
- Scientific process of transforming
data into insight for making better
decisions (not all data is beneficial,
you have to prepare or clean the
data)
- Used for data-driven or fact-based
decision making
Tools of business analytics can aid
decisions making by:
- Creating insights from data
(descriptive analytics ex. Reports,
statistics)
- Improving our ability to more
accurately forecast for planning
- Helping us quantify risk (overshoot
or undershoot the amount of
inventories)
- Yielding better alternatives through
analysis and optimization
Categorization of Analytical Models
1. Descriptive Analytics
- Descriptive statistics, data
visualization, descriptive data
mining, statistical inference
- Tells us what happened in the past
(data queries, reports, descriptive
statistics, data visualization,
data-mining techniques, basic
what-if spreadsheet models)
- Dashboard: collection of tables,
charts, maps, and summary
statistics
- Help management monitor
specific aspects of the
company’s performance
- Summarize sales by region,
current inventory levels
- View dashboards that
contain metrics related to
staffing levels, local inventory
levels, and short-term sales
forecasts
- Data-mining: the use of analytical
techniques for better understanding
patterns and relationships that exist
in large data sets
- Include cluster analysis,
sentiment analysis
2. Predictive Analytics
- Linear regression, time series
forecasting, predictive data mining,
spreadsheet models
- Constructed from the past to
Forecast a future decisions
 - Ascertain the impact of one variable
to one another
- Survey data and past purchase
behavior may be used to help
predict the market share of a new
product
3. Prescriptive Analytics
- Spreadsheet models, monte carlo
simulation, linear optimization
models, integer optimization
- Indicates a best course of action
to take: (basically has a rule)
- A forecast or prediction,
combined with a rule,
becomes a prescriptive
model
- Optimization models: models that
give the best decision subject to
constraints of the situation
- Simulation optimization: combines
the use of probability and statistics
to model uncertainty with
optimizations techniques to find
good decisions in highly complex
and highly uncertain settings
- Decision analysis: used to develop
an optimal strategy when a decision
maker is faced with several decision
alternatives an uncertain set of
future events
Big Data
1. Volume
a. Any set of data collected
electronically
b. Data must be stored
c. 100 terabytes of storage
2. Velocity
a. How data are stored, and the
speed how the data is
analyzed towards decision
making
b. Streaming data, milliseconds
to seconds to respond
3. Variety
a. The more complication types
of data are now available and
are great value to businesses
b. Audio data are collected from
service calls
c. Video data: shopping stores
to analyze shopping behavior
d. Structured, unstructured
(harder to visualize), text,
multimedia
4. Veracity
a. Uncertainty due to data
inconsistency &
incompleteness, ambiguities,
latency, deception, model
approximations
Descriptive Statistics
Statistics
- Foundation in making an important
business decision
Data Preparation
- The process of cleaning and
transforming raw data prior to
processing and analysis
- Choose only quality data
- Goals: organize data, efficient
analysis, limit errors
Data
- Facts and figures collected,
analyzed, and summarized for
presentation and interpretation
- Descriptive statistics: summary of
important aspects of a data set
- How to summarize data?
- Frequency tables, charts
 - Central tendency (mean,
median, mode)
- Dispersion/Distance between
two observations (important
to know where error
occurred)
Terminologies
1. Elements: are the entities on which
data are collected
2. Variables: characteristic or a quantity
that can take infinite possibilities or
dimensions (quality or attribute of an
element)
3. Observation: set of values
corresponding to a set of variables
4. Variation: the difference between in
a variable measured over
observations
a. It can have a profound effect
on the business performance
b. Sales, ROI
Types of Data
Population and Sample Data
- Represents all elements of interest
- Ex. total number of students in
RVRCOB
- Sample: subset of a population
(representative sample; make sure
that there is no bias)
- Sample size: >= 30
- How to make sure there’s no bias?
Sampling Methods (random
sampling)
Quantitative and Categorical Data
- Quantitative: data can be
measured with numbers (stock
prices, # of stocks issued)
- Continuous (how much) and
discrete (how many)
- Always numeric
- Ordinary arithmetic
operations are meaningful for
quantitative data
- Qualitative: non-numerical data
that is categorical data (symbols,
qualities)
- Labels or names used to
identify an attribute of each
element
- Nominal and Ordinal
- Can be either numeric or
nonnumeric
- Appropriate statistical
analysis is rather limited
>>> The statistical analysis that is
appropriate depends on whether the data
for the variable is categorical or quantitative
(know which analysis method to use)
Structured Data
- Can be entered in a database
Unstructured Data
- Ex. text, audio, video, images
Scales of Measurement
1. Nominal (lowest information)
a. Data are labels or names
used to identify an attribute
of the element
b. A non-numerical label or
numeric code may be used
2. Ordinal (highest amount)
a. It has a property of nominal
data
b. The order or rank of the data
is meaningful
c. A non-numerical label or
numeric code may be used
d. Ex. level of satisfaction, (rich,
standard, and poor)
3. Interval
a. The data have the properties
of both nominal and ordinal
b. Distance between entities
 c. Interval data are always
numerical
d. Ex. temperature, CAT scores
e. Always numeric
4. Ratio Scale
a. The data that have all the
properties of interval data
and the ratio of two values is
meaningful
b. Variables such as distance,
height, weight, height, and
time use the ratio scale
c. The scale must contain a
zero value that indicates that
nothing exists for the variable
at the zero point
d. Extent of difference between
two values
Data Visualization
- With so much information being
collected in a business, you must
have a way to visualize or
interpret the data
1. What areas to improve on?
2. Which factors affect
customer
satisfaction/dissatisfaction?
3. Who should be the
customers that they have to
sell specific products to?
(demographics, consumer
profile)
- Provides visual contexts through
charts, tables, and maps
- Visual data to communicate
information fast, universal, and
effective
- Managers are not the one analyzing
the data, they are recipients of the
data
- Analyst must make it as simple as
possible to easier comprehend the
data
- Monitor aspects of the business (ex.
Zoo: attendance data, diff. Locations
of where visitors spend their time
most, which items they sell most)
- Highlighting the substance of your
data, taken from the raw data
- Removes errors
Data Ink Ratio
- Measures the proportion of what
total amount of ink used in a table or
chart
- Necessary to convey the meaning to
the audience
- Helpful for creating effective tables
- Low data ink ratio: use of
unnecessary vertical/horizontal lines
- Data ink ratio: minimalist, as simple
as possible
When to create a table?
1. Refer to a specific numerical
values
2. Making precise comparisons
between different values and
not just relative comparisons
3. The values being displayed
have different units or very
different magnitudes
Table Design Principles
1. Avoid using vertical lines in a
table unless they are
necessary for clarity
2. Horizontal lines are generally
necessary only for separating
column titles from data value
when indicating that a
calculation has taken place
Charts
- Visual methods of displaying data
 - Scatter chart: graphical
representation of the relationship
between two quantitative variables
- Trendline: a line that provides an
approximation of the relationship
between the variables
- Line chart: a line connects the
points in the chart (time series)
- Sparkline: displays only the line of
data (minimalist)
- Histograms: quantitative data,
variable of interest and frequency
measure
Numerical Measures
Mean
- Average value
- Observations / # of observations
Median
- Value in the middle (odd)
- Average of two middle values (even)
Mode
- Occurs most frequently
- Multimodal: at least two modes
- Bimodal: exactly two modes
Range
- Largest value minus smallest value
Variance
- Variability that utilizes all the data
- Based on the deviation about the
mean (diff. Value of each
observation and the mean)
- spread between numbers in a
data set
- how far each number in the set is
from the mean
Standard Deviation
- Positive square root of variance
- measures how much individual
data points vary from the mean or
average of a set of data.
- helps calculate margins of error in
customer satisfaction surveys, the
volatility of stock prices, and much
more
Percentile
- The value of a variable at which a
specified percentage of observations
are below that value
- Q1 = 25th percentile
- Q2 = 50th percentile (median)
- Q3 = 75th percentile
Z-score
- Measures the relative location of a
value
- Helps determine how far a particular
value is from the mean relative to
the data set’s standard deviation
- Standardized value
- Less than -3 and greater than +3
is an outlier
EXCEL CODING
Mean =AVERAGE
Median =MEDIAN
Mode =MODE.MULTI
Range =MAX()-MIN()
Variance =VAR
Stand. Dev =STDEV
Coefficient of Var =STDEV/VAR
Q1 =QUARTILE.EXC(xxx,1)
Q2 =QUARTILE.EXC(xxx,2)
Q3 =QUARTILE.EXC(xxx,3)
Z-score =STANDARDIZE