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INTRODUCTION TO BUSINESS ANALYTICS

• Three developments spurred recent explosive growth in the use of analytical methods in business
applications:
• First development:
• Technological advances—scanner technology, data collection through e-commerce, Internet
social networks, and data generated from personal electronic devices—produce incredible amounts
of data for businesses
• Businesses want to use these data to improve the efficiency and profitability of their
operations, better understand their customers, price their products more effectively, and gain a
competitive advantage
• Three developments spurred recent explosive growth in the use of analytical methods in business
applications:
• Second development:
• Ongoing research has resulted in numerous methodological developments, including:
• Advances in computational approaches to effectively handle and explore massive
amounts of data
• Faster algorithms for optimization and simulation
• More effective approaches for visualizing data
• Three developments spurred recent explosive growth in the use of analytical methods in business
applications: (contd.)
• Third development:
• The methodological developments were paired with an explosion in computing power and
storage capability
• Better computing hardware, parallel computing, and cloud computing have enabled
businesses to solve big problems faster and more accurately than ever before

Decision Making
• Managers’ responsibility:
To make strategic, tactical, or operational decisions
• Strategic decisions:
• Involve higher-level issues concerned with the overall direction of the organization
• Define the organization’s overall goals and aspirations for the future
• Tactical decisions:
• Concern how the organization should achieve the goals and objectives set by its
strategy
 • Are usually the responsibility of midlevel management
• Operational decisions:
• Affect how the firm is run from day to day
• Are the domain of operations managers, who are the closest to the customer

Decision making can be defined as the following process:

1. Identify and define the problem
2. Determine the criteria that will be used to evaluate alternative solutions
3. Determine the set of alternative solutions
4. Evaluate the alternatives
5. Choose an alternative
Common approaches to making decisions
• Tradition
• Intuition
• Rules of thumb
• Using the relevant data available
Business Analytics Defined
Business analytics:
• Scientific process of transforming data into insight for making better decisions
• Used for data-driven or fact-based decision making, which is often seen as more objective
than other alternatives for decision making
A Categorization on Analytical Methods and Models
• Descriptive analytics: Encompasses the set of techniques that describes what has happened
in the past; examples:
• Data queries
• Reports
• Descriptive statistics
• Data visualization (including data dashboards)
• Data-mining techniques
• Basic what-if spreadsheet models
• Data query: A request for information with certain characteristics from a database
• Data dashboards: Collections of tables, charts, maps, and summary statistics that are updated as
new data become available
• Uses of dashboards
• To help management monitor specific aspects of the company’s performance related to their
decision-making responsibilities
• For corporate-level managers, daily data dashboards might summarize sales by region,
current inventory levels, and other company-wide metrics
• Front-line managers may view dashboards that contain metrics related to staffing levels, local
inventory levels, and short-term sales forecasts
• Predictive analytics: Consists of techniques that use models constructed from past data to predict
the future or ascertain the impact of one variable on another
• Survey data and past purchase behavior may be used to help predict the market share of a new
product
Techniques used in Predictive Analytics:
• Linear regression
• Time series analysis
• Data mining is used to find patterns or relationships among elements of the data in a large
database; often used in predictive analytics
• Simulation involves the use of probability and statistics to construct a computer model to
study the impact of uncertainty on a decision
• Prescriptive Analytics: Indicates a best course of action to take
• Optimization models: Models that give the best decision subject to constraints of the situation

Prescriptive
• Simulation optimization: Combines the use of probability and statistics to model uncertainty
with optimization techniques to find good decisions in highly complex and highly uncertain
• Decision analysis
• Used to develop an optimal strategy when a decision maker is faced with several
decision alternatives and an uncertain set of future events
• Employs utility theory, which assigns values to outcomes based on the decision
maker’s attitude toward risk, loss, and other factors
Big Data
Big data: A set of data that cannot be managed, processed, or analyzed with commonly available
software in a reasonable amount of time
• Represents opportunities
• Presents challenges in terms of data storage and processing, security, and available
analytical talent
• More companies are hiring data scientists who know how to process and analyze massive
amounts of data
• The four Vs have led to new technologies
• Hadoop: An open-source programming environment that supports big data processing
through distributed storage and processing over multiple computers
• MapReduce: A programming model used within Hadoop that performs two major steps: the
map step and the reduce step
• Data security: The protection of stored data from destructive forces or unauthorized users

Business Analytics in Practice

Financial Analytics
Human Resource (HR) Analytics
Marketing Analytics
Health Care Analytics
Supply-Chain Analytics
Analytics for Government and Nonprofits
Sports Analytics
Web Analytics
 •

Predictive and prescriptive analytics are sometimes referred to as advanced analytics

Financial analytics
• Use of predictive models to:
• Forecast future financial performance
• Assess the risk of investment portfolios and projects
• Construct financial instruments such as derivatives
• Construct optimal portfolios of investments
• Allocate assets
• Create optimal capital budgeting plans
• Simulation is also often used to assess risk in the financial sector
Human resource (HR) analytics
• New area of application for analytics
• The HR function is charged with ensuring that the organization:
• Has the mix of skill sets necessary to meet its needs
• Is hiring the highest-quality talent and providing an environment that retains it
• Achieves its organizational diversity goals
Marketing analytics
• Marketing is one of the fastest growing areas for the application of analytics
• A better understanding of consumer behavior through the use of scanner data and data
generated from social media has led to an increased interest in marketing analytics
• A better understanding of consumer behavior through marketing analytics leads to:
• Better use of advertising budgets
 • More effective pricing strategies
• Improved forecasting of demand
• Improved product line management
• Increased customer satisfaction and loyalty
• Health care analytics
• Descriptive, predictive, and prescriptive analytics are used to improve:
• Patient, staff, and facility scheduling
• Patient flow
• Purchasing
• Inventory control
• Use of prescriptive analytics for diagnosis and treatment
• Supply chain analytics
• The core service of companies such as UPS and FedEx are the efficient delivery of goods,
and analytics has long been used to achieve efficiency
• The optimal sorting of goods, vehicle and staff scheduling, and vehicle routing are all key to
profitability for logistics companies such as UPS, FedEx, and others like them
• Companies can benefit from better inventory and processing control and more efficient
supply chains
• Analytics for government to:
• Drive out inefficiencies
• Increase the effectiveness and accountability of programs
• Analytics for non-profit agencies to ensure their effectiveness and accountability to their donors and
clients
• Sports analytics
• Professional sports teams use to:
• Assess players for the amateur drafts
• Decide how much to offer players in contract negotiations
• Professional motorcycle racing teams that use sophisticated optimization for gearbox design
to gain competitive advantage
• Teams use to assist with on-field decisions such as which pitchers to use in various games of
a MLB playoff series
• The use of analytics for off-the-field business decisions is also increasing rapidly
• Using prescriptive analytics, franchises across several major sports dynamically adjust ticket
prices throughout the season to reflect the relative attractiveness and potential demand for
each game
Web analytics
• The analysis of online activity, which includes, but is not limited to, visits to web sites and
social media sites such as Facebook and LinkedIn
• Leading companies apply descriptive and advanced analytics to data collected in online
experiments to determine the best way to:
• Configure web sites
• Position ads
• Utilize social networks for the promotion of products and services
https://www.youtube.com/watch?v=zsew1Y3JKmc
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CASE STUDY ANALYSIS

A case study analysis requires you to investigate a business problem, examine the alternative
solutions, and propose the most effective solution using supporting evidence.
These guidelines will help you prepare and understand the case study:
1. Read and examine the case thoroughly
 Take notes, highlight relevant facts, underline key problems.
2. Focus your analysis
 Identify two to five key problems
 Why do they exist?
 How do they impact the organization?
 Who is responsible for them?
3. Uncover possible solutions
 Review course readings, discussions, outside research, your experience.
4. Select the best solution
 Consider strong supporting evidence, pros, and cons: is this solution realistic?
Steps in Case Study Analysis:
1. Read the given Case not just once but twice and understand the details provided.
2. Identify the main problem or problems and sub-problems mentioned in the case very clearly.
3. Also make sure you understand the situation clearly.
4. Note down the facts of the case separately. This includes things like factual statements, statistical
data, quotations and diagrams, etc.
5. Explore the case and arrive at a possible solution.
6. Comment on the SWOT on the basis of the details provided in the case.
7. Decide and recommend, a course of action to the case not only with the details provided in the
case but also the depth of knowledge you have acquired about the other Management subjects
relevant to the matter discussed in the case.
8. While giving the possible solutions to the case one of the main points to be considered is keep it
short and sweet. Limit your answer. Instead of paragraphs, if possible, use bullet point numbering.
Your interpretation to the case should be unbiased and not a one-sided argument.
9. Support your decision and recommendations with you own exhibits, quantitative analysis, graphs,
tables, charts, etc to present the data clearly and precisely.
10. Follow a sequence of Facts, Observation, Recommendations and Conclusions.
11. If there are direct Questions asked, use the above method only (preferred) and relate your
answers to the question with respect to your facts, observations, recommendations in short.

Case Study Analysis Format

I. Time Context
It is the time when the situation is to be analyzed. It can also be the last-mentioned date in the case.
II. Statement of the Problem
This defines the perceived problem in the case which becomes the subject of the analysis. It may be
presented in declarative or question form.
III. Point of View
Who will solve the given problem? Is it the CEO? Manager? Ordinary employee? It depends on the
situation of the case. It is like putting your shoe in the person who will be responsible to solve the
problem of the given case.
IV. Statement of the Objectives
These are the goals which the case analysis hopes to achieve. The basically satisfy the test of
SMART (Specific, Measurable, Attainable, Realistic, and Time-bound)
V. Areas of Consideration
State the internal and external environment of the company/firm through SWOT (Strengths,
Weaknesses, Opportunities, and Threats) Analysis.
VI. Alternative Courses of Action (ACA)
These are the possible solutions to the problem identified. Each ACA must stand alone and must be
able to solve the stated problem and achieve the objectives. Each ACA must be mutually exclusive,
I.e., the student must choose an ACA to the exclusion of the others.
Each ACA must be analyzed in the light of the SWOT analysis and assumptions, if there are any.
Advantages and disadvantages of each ACA should be clearly stated. If the case contains enough
information/data, advantages and disadvantages should be supported quantitatively to minimize bias.
VII. Conclusion/Recommendation
Based on the analysis of the ACAs, the conclusion, recommendation/decision can be made. There is
no need to repeat the analysis done in the ACA section of the analysis.
VIII. Plan of Action
The plan of action delineates the series of actions to be undertaken to operationalize the adopted
ACA. To ensure that the analysis is done comprehensively, it would be best to program the plan
according to the basic functional areas and to present the plan by having column headings for
activity, person/unit responsible/ time frame, and budget.
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DATA ANALYTICS
What’s Data Analytics?
Analytics is the use of:
data,
information technology,
statistical analysis,
quantitative methods, and
mathematical or computer-based models
to help managers gain improved insight about their business operations and make better, fact-based
decisions.
Business Analytics (BI) is a subset of Data Analytics
Business Analytics Applications
 Management of customer relationships
 Financial and marketing activities
 Supply chain management
 Human resource planning
 Pricing decisions
 Sport team game strategies
Importance of Business Analytics
 There is a strong relationship of BA with:
- profitability of businesses
- revenue of businesses
- shareholder return
 BA enhances understanding of data
 BA is vital for businesses to remain competitive
 BA enables creation of informative reports
Scope of Business Analytics
 Descriptive analytics
- uses data to understand past and present
 Predictive analytics
- analyzes past performance
 Prescriptive analytics
- uses optimization techniques
Retail Markdown Decisions
 Most department stores clear seasonal inventory by reducing prices.
 The question is: When to reduce the price and by how much?
 Descriptive analytics: examine historical data for similar products (prices, units sold,
advertising, …)
 Predictive analytics: predict sales based on price
 Prescriptive analytics: find the best sets of pricing and advertising to maximize sales
revenue
Data for Business Analytics
 DATA
-collected facts and figures
 DATABASE
-collection of computer files containing data
 INFORMATION
-comes from analyzing data

 Metrics are used to quantify performance.

 Measures are numerical values of metrics.
 Discrete metrics involve counting
-on time or not on time
-number or proportion of on time deliveries.
 Continuous metrics are measured on a continuum
- delivery time
- package weight
- purchase price
A Sales Transaction Database File

What is Big Data?

-Information from multiple internal and external sources:
 Transactions
  Social Media
 Enterprise content
 Sensors
 Mobile device
-Companies leverage data to adapt products and services to:
• Meet customer needs
• Optimize operations
• Optimize infrastructure
• Find new sources of revenue
• Can reveal more patterns and anomalies

-IBM estimates that by 2015 4.4 million jobs will be created globally to support big data
• 1.9 million of these jobs will be in the United States

TYPES OF DATA
• When collecting or gathering data we collect data from individual cases on particular variables.
•A variable is a unit of data collection whose value can vary.
• Variables can be defined into types according to the level of mathematical scaling that can be
carried out on the data.
• There are four types of data or levels of measurement:

Classifying Data Elements in a Purchasing Database

Categorical (Nominal) data
 Nominal or categorical data is data that compromises of categories that cannot be rank
ordered – each category is just different.
• The categories available cannot be placed in any order and no judgement can be made
about the relative size or distance from one category to another.
o Categories bear no quantitative relationship to one another
o Examples:

- customer’s location (America, Europe, Asia)

- employee classification (manager, supervisor, associate)
• What does this mean? No mathematical operations can be performed on the data
relative to each other.
•Therefore, nominal data reflect qualitative differences rather than quantitative ones.

 Systems for measuring nominal

data must ensure that each category is mutually exclusive and the system of
measurement needs to be exhaustive.
• Variables that have only two responses i.e. Yes or No, are known as dichotomies.

Ordinal Data
 Ordinal data is data that comprises of categories that can be rank ordered.
 • Similarly with nominal data the distance between each category cannot be calculated but the
categories can be ranked above or below each other.
-No fixed units of measurement
-Examples:
-college football rankings
-survey responses (poor, average, good, very good, excellent)
 What does this mean? Can make statistical judgements and perform limited maths.

Interval and ratio data

 Both interval and ratio data are examples of scale data.

• Scale data:
• data is in numeric format ($50, $100, $150)
•data that can be measured on a continuous scale
• the distance between each can be observed and as a result measured
• the data can be placed in rank order.

Interval Data
 Ordinal data but with constant differences between observations

• Ratios are not meaningful

• Examples:
•Time – moves along a continuous measure or seconds, minutes and so on and is without a
zero point of time.
• Temperature – moves along a continuous measure of degrees and is without a true zero.
•SAT scores
Ratio Data
• Ratio data measured on a continuous scale and does have a natural zero point.
-Ratios are meaningful
-Examples:
-monthly scales
-delivery times
-Weight
-Height
-Age

TYPES OF ANALYTICS
Decision Models
Model:
 An abstraction or representation of a real system, idea, or object.
 Captures the most important features
 Can be a written or verbal description, a visual display, a mathematical formula, or a spreadsheet
representation

Decision Models

 A decision model is a model used to understand, analyze, or facilitate decision making.

 Types of model input.

-data
-uncontrollable variables
-decision variables(controllable)
Descriptive Decision Models
-Simple tell “what is” and describe relationships
-Do not tell manager what to do
An Influence Diagram for Total Cost
 Descriptive analytics, such as reporting/OLAP, dashboards, and data visualization, have been
widely used for some time.

• They are the core of traditional BI.

What has occurred?

Descriptive analytics, such as data visualization, is

important in helping users interpret the output
from predictive and predictive analytics.

A Break-even Decision Model

TC(manufacturing) = $50,000 +
$125*Q
TC(outsourcing) = $175*Q
Breakeven Point:
Set TC(manufacturing)
= TC(outsourcing)
Solve for Q = 1000 units

• Predictive Decision Models often incorporate uncertainty to help managers analyze risk.
• Aim to predict what will happen in the future.
• Uncertainty is imperfect knowledge of what will happen in the future.
• Risk is associated with the consequences of what actually happens.
PREDICTIVE ANALYTICS
• Algorithms for predictive analytics, such as regression analysis, machine learning, and neural
networks, have also been around for some time.
• Prescriptive analytics are often referred to as advanced analytics.
•

What will occur?

Marketing is the target for many predictive analytics applications.

• Descriptive analytics, such as data visualization, is important in helping users interpret the output
from predictive and prescriptive analytics.
A Linear Demand Prediction Model
As price increases, demand falls.

A Nonlinear Demand Prediction Model

Assumes price elasticity (constant ratio of % change in demand to % change in price)
Prescriptive Decision Models help decision makers identify the best solution.
 Optimization - finding values of decision variables that minimize (or maximize) something such
as cost (or profit).
 Objective function - the equation that minimizes (or maximizes) the quantity of interest.
 Constraints - limitations or restrictions.
 Optimal solution - values of the decision variables at the minimum (or maximum) point.

PRESCRIPTIVE ANALYTICS
• Prescriptive analytics are often referred to as advanced analytics.
• Regression analysis, machine learning, and neural networks
• Often for the allocation of scarce resources

• For example, the use of mathematical programming for revenue management is common for
organizations that have “perishable” goods (e.g., rental cars, hotel rooms, airline seats).
• Harrah’s has been using revenue management for hotel room pricing for some time.
Organizational Transformation
• Brought about by opportunity or necessity
• The firm adopts a new business model enabled by analytics
• Analytics are a competitive requirement

2013 Academic Research

• A 2011 TDWI report on Big Data Analytics found that 85% of respondents indicated that their firms
would be using advanced analytics within three years
• A 2011 IBM/MIT Sloan Management Review research study found that top performing companies in
their industry are much more likely to use analytics rather than intuition across the widest range of
possible decisions.
Conditions that Lead to Analytics-based Organizations
• The nature of the industry
• Seizing an opportunity
• Responding to a problem
Complex Systems
• Tackle complex problems and provide individualized solutions
• Products and services are organized around the needs of individual customers
• Dollar value of interactions with each customer is high
• There is considerable interaction with each customer
• Examples: IBM, World Bank, Halliburton
Volume Operations
• Serves high-volume markets through standardized products and services
• Each customer interaction has a low dollar value
• Customer interactions are generally conducted through technology rather than person-to-
person
• Are likely to be analytics-based
• Examples: Amazon.com, eBay, Hertz
The Nature of the Industry: Online Retailers
BI Applications
• Analysis of clickstream data
 • Customer profitability analysis
• Customer segmentation analysis
• Product recommendations
• Campaign management
• Pricing
• Forecasting
• Dashboards
The Nature of the Industry
• Online retailers like Amazon.com and Overstock.com are high volume operations who rely on
analytics to compete.
• When you enter their sites, a cookie is placed on your PC and all clicks are recorded.
• Based on your clicks and any search terms, recommendation engines decide what products to
display.
• After you purchase an item, they have additional information that is used in marketing campaigns.
• Customer segmentation analysis is used in deciding what promotions to send you.
• How profitable you are influence how the customer care center treats you.
• A pricing team helps set prices and decides what prices are needed to clear out merchandise.
• Forecasting models are used to decide how many items to order for inventory.
• Dashboards monitor all aspects of organizational performance
Analytics Help the Cincinnati Zoo Know Its Customers
• What management, organization, and technology factors were behind the Cincinnati Zoo losing
opportunities to increase revenue?
• Why was replacing legacy point-of-sale systems and implementing a data warehouse essential to
an information system solution?
• How did the Cincinnati Zoo benefit from business intelligence? How did it enhance operational
performance and decision making? What role was played by predictive analytics?
• Visit the IBM Cognos Web site and describe the business intelligence tools that would be the most
useful for the Cincinnati Zoo.
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Business Model Canva

Which Question Comes First?

 What data are available in our organization?
 What decisions do we need to make in our organization?

Ans: We need to identify the decisions that we need to make then identify the data that we will need
to make these decisions.

What is a Business Model?

 A business model describes the rationale of how an organization creates, delivers and
captures value.
 The business model canvas was initially proposed by Alexander Osterwalder based on his
early work on Business Model Ontology

The Building Blocks

(1)Customer Segments, (2)Value Propositions, (3)Channels, (4)Customer Relationships, (5)Revenue
Streams, (6)Key Resources, (7)Key Activities, (8)Key Partnerships, (9)Cost Structure

 Customer Segments
 Different groups of people or organizations an enterprise aims to reach and serve

Questions
*For whom are we creating value?
*Who are our most important customers?
Customer Segments
*Mass market
*Niche market
*Segmented
*Diversified
*Multi-sided

 Value Propositions

 It seeks to solve customer problems and satisfy customer needs with value propositions
 The bundle of products and services that create value for a specific Customer Segment
Questions
* What value do we deliver to the customer?
* Which one of our customer’s problems are we helping to solve?
* Which customer needs are we satisfying?
* What bundles of products and services are we offering to each Customer Segment?
Elements to Adding Value
*Newness
*Performance
*Customization
*Getting the job done
*Design
*Brand/Status
*Price
*Accessibility

 Channels
 How a company communicates with and reaches its Customer Segments to deliver a Value
Proposition

Questions
* Through which channels do our Customer Segments want to be reached?
* How are we reaching them now?
* Which ones work best?
* Which ones are the most efficient?
* How are we integrating them with customer routines?

Channel Phases
1. Awareness
2. Evaluation
3. Purchase
4. Delivery
5. After sales
Channel Types
1. Own or Partner
2. Direct or Indirect

 Customer Relationships
 The types of relationships a company establishes with specific Customer Segments

Questions
*What type of relationship does each of our Customer Segments expect us to establish and maintain
with them?
*Which ones have we established?
*How costly are they?
*How are they integrated with the rest of our business model?
Categories of Relationships
*Personal assistance
*Dedicated personal assistance
*Self-service
*Automated services
*Communities
*Co-creation

 Revenue Streams
 The cash a company generates from each Customer Segment (one-time or recurring)

Questions
* For what value are our customers really willing to pay?
* For what do they currently pay?
* How are they currently paying?
* How would they prefer to pay?
* How much does each Revenue Stream contribute to overall revenues?
Generating Revenue
*Asset sale
*Usage fee
*Subscription fees
*Lending/Renting/Leasing
*Licensing
*Brokerage
*Advertising

 Key Resources
 The most important assets required to make a business model work

Questions
*For what value are our What Key Resources do our Value Propositions require?
*What do our Channels require?
*Our Customer Relationships?
*Our Revenue Streams?
Categories
*Physical
*Intellectual
*Human
*Financial

 Key Activities
 The most important things a company must do to make its business model work

Questions
*What Key Activities do our Value Propositions require?
*Our Channels?
*Customer Relationships?
*Revenue Streams?
Categories
*Production
*Problem solving
*Platform/Network
 Key Partnerships
 The network of suppliers and partners that make the business model work

Questions
*Who are our Key Partners?
*Who are our key suppliers?
*Which Key Resources are we acquiring from partners?
*Which Key Activities do partners perform?
Types of Partnerships
*Strategic alliances between non-competitors
*Competition
*Joint ventures
*Buyer-supplier

 Cost Structure
 All costs incurred to operate a business model

Questions
*What are the most important costs inherent in our business model?
*Which Key Resources are most expensive?
*Which Key Activities are most expensive?
Classes of Structure
*Cost-driven
*Value-driven