Lecture 8: Business Intelligence

Systems

Nga.lethiquynh@ueh.edu.vn
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Study questions
Q1 Why do organizations need business
intelligence?
Q2 What business intelligence systems are
available?
Q3 What are typical reporting applications?
Q4 What are typical data-mining applications?
Q5 What is the purpose of data warehouses
and data marts?
Q6How Are Business Intelligence Applications
Delivered?

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Q1 Why do organizations
need business intelligence?

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Why do organizations need BI?
 Datacommunications and data storage
are essentially free, and enormous
amounts of data are created and
stored every day:
 12000 gigabytes per person of data,
worldwide, in 2009.

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Why do organizations need BI?
 Businesses use BI systems to:
 Process data (from operational DB, Social Data,
purchased data, etc.)
 produce patterns, relationships, and other forms of
information;
 deliverthat information on a timely basis to users
who need it.
 Example:
 Identifying changes in purchasing patterns
 BI for entertainment: Netflix has data on watching,
listening, and rental habits  determines what
people actually want

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Q2 What business
intelligence systems are
available?

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Business Intelligence systems 7

 Organization needs

Decision
Order

INFROMATION TO SUPPORT
making
OPERATIONAL DATA

BI systems Data
Inventories (tools) mining Planning

MANAGERS
Knowledge
Reporting
Management
Invoices Forecasting

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Business intelligence (BI) tools
BI systems provide valuable information for decision-
making.
Three primary BI systems.
1. Reporting tools
 integrate data from multiple systems
 sorting, grouping, summing, averaging, comparing data.
2. Data-mining tools
 use sophisticated statistical techniques, regression analysis
and decision tree analysis
 used to discover hidden patterns and relationships
 market-basket analysis.

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Business intelligence (BI) tools
3. Knowledge-management tool
 creates value by collecting and sharing human
knowledge about products, product uses, best
practices, other critical knowledge
 used by employees, managers, customers,
suppliers, others who need access to company
knowledge.

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Tools versus applications 10
versus systems

 BI tool is one or more computer programs. BI

tools implement the logic of a particular
procedure or process.
 BI application is the use of a tool on a
particular type of data for a particular
purpose.
 BI system is an information system having all
five components that delivers results of a BI
application to users who need those results.

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Q3 What are typical

reporting applications?

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Operations commonly used by reporting tools

Basic reporting operations

sorting

grouping

filtering
Raw Data
calculating

formatting

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List of sales
data

Source: textbook[1], pg 289

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Data sorted by
customer name

Source: textbook[1], pg 290

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Sales data,
sorted by
customer name and
grouped
by orders and
purchase amount

Source: textbook[1], pg 290

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Sales data filtered to show
repeat customers, and formatted
for easier understanding

Source: textbook[1], pg 291

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Reporting application 17

A reporting application is a BI
application that inputs data from one
or more sources and applies a reporting
tool to that data to produce
information.
 Important reporting applications:
 RFM analysis
 OLAP

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RFM analysis
RFM analysis allows you to analyse and rank
customers according to their purchasing
patterns:
 R = how recently a customer purchased your
products
 F = how frequently a customer purchases your
products
 M = how much money a customer typically
spends on your products.

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RFM tools classify customers
Divides customers into five groups and assigns a score
from 1 to 5:
• R score 1 = top 20 per cent of 'most recent orders'
• R score 5 = bottom 20 per cent (longest since last
order)
• F score 1 = top 20 per cent of 'most frequent orders'
• F score 5 = bottom 20 per cent of 'least frequent
orders'
• M score 1 = top 20 per cent of 'most money spent'
• M score 5 = bottom 20 per cent 'who spent least'.

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Example of RFM score data

Source: textbook[1], pg 291

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Interpreting RFM score results
 Ajax has ordered recently and orders
frequently. M score of 3 indicates it does not
order most expensive goods:
 a good and regular customer but need to attempt to
up-sell more expensive goods to Ajax.

 Bloominghams has not ordered in some time,

but when it did, ordered frequently and
orders were of highest monetary value:
 may have taken its business to another vendor
 sales team should contact this customer
immediately.

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Interpreting RFM score results
 Caruthers has not ordered for some
time, did not order frequently and did
not spend much:
 sales team should not waste any time on
this customer.
 Davidson in middle
 set up on automated contact system or use
the Davidson account as a training
exercise.

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Online analytical processing (OLAP) 23

 OLAP: more generic than RFM.

 OLAP provides the ability to sum, count,
average and perform other simple
arithmetic operations on groups of data.
 Remarkable characteristic of OLAP
reports: “dynamic”
 theviewer of the report can change report's
format.
 view online.

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Features of OLAP reports
OLAP reports
 Have:
 measures: the data item of interest
Example: Total sales, average sales, and
average cost
 Dimension: a characteristic of a measure
Example: Purchase date, customer type,
customer location, and sales region

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OLAP product family and store type

Source: textbook[1], pg 292

A presentation like above is Also called OLAP cube:

 presentation of measure with associated dimensions.
 Users can alter format.
 Users can drill down into data, i.e. divide data into more
detail.
 May require substantial computing power.

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OLAP product family and 26
store location by store type

Source: textbook[1], pg 293

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OLAP product family and store location by store type, drilled
down to show stores in California 27

Source: textbook[1], pg 295

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OLAP servers
 Developed to perform OLAP analysis.
 Server:
 reads data from operational database
 performs calculations
 stores results in OLAP database.
 Third-partyvendors provide software
for more extensive graphical displays.

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OLAP SERVER 29

Source: textbook[1], pg 296

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Q4 What are typical data-

mining applications?

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Data mining application 31

 Data mining is the application of statistical

techniques to find patterns and relationships
among data for classification and prediction.

Source: textbook[1], pg 296

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Data mining application 32

 Data Mining = Knowledge Discovery in

Database (KDD)
 Categories:
 Unsupervised Data Mining
 supervised Data Mining

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Unsupervised Data Mining
 Analysts do not create model before running analysis.
 Apply data-mining technique and observe results
 Analysts create hypotheses after analysis to explain
patterns found.
 No prior model about the patterns and
relationships that might exist
 Common statistical technique used:
 Cluster analysis to find groups of similar customers
from customer order and demographic data

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Supervised Data Mining
 Model developed before analysis
 Statistical
techniques used to estimate
parameters
 Examples:
 Regression analysis—measures impact of set
of variables on one another
 Used for making predictions

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Market-Basket Analysis
 Market-basket analysis is a data-mining technique
for determining sales patterns.
 Uses statistical methods to identify sales
patterns in large volumes of data
 Shows which products customers tend to buy
together
 Used to estimate probability of customer
purchase
 Helps identify cross-selling opportunities
 "Customers who bought book X also bought book Y”

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Market-Basket Analysis
 Terms:
 Support: the probability that two items A
and B will be purchased together
 Confidence: the probability that a
customer will buy B if he/she bought A
 Lift = Confidence/base Support
 shows how much the base probability
increases or decreases when other products are
purchased

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Market-Basket Analysis example
Mask and Fins
Buy together
Support = 250/400
= 0.625
Buy mask  will buy fins
Confident= 250/270=
0.926

Lift= 0.926/0.7=
1.322

Source: textbook[1], pg 298

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Market-Basket Analysis

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Market-Basket Analysis

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Q5 What is the purpose of

data warehouses and data
marts?

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What Is the Purpose of Data Warehouses and Data Marts? 41

 Purpose:
 To extract, clean and prepare data from
various operational systems and other
sources
 To store and catalog data for BI processing
 Stored in data-warehouse DBMS

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Components of a Data Warehouse 42

Source: textbook[1], pg 304

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Data Warehouse Data Sources
 Internal operations systems
 External data purchased from
outside sources
 Data from social networking, user-
generated content applications
 Metadata concerning data stored in
data-warehouse meta database

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Data Warehouses vs. Data Marts
Data mart is a collection of data
 Created to address particular needs
 Business function
 Problem
 Opportunity

 Smaller than data warehouse

 Users may not have data management
expertise
 Need knowledgeable analysts for specific function
 Data extracted from data warehouse for a
functional area

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Data Warehouse vs. Data Marts 45

Source: textbook[1], pg 307

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Q6 How Are Business

Intelligence Applications
Delivered?

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How Are Business Intelligence 47
Applications Delivered?

Source: textbook[1], pg 312

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BI Server - Management Functions 48

 the authorized allocation of BI results to

users
 BI servers can be:
 Website from which users can download, or
pull, BI application results
 Portal server with customizable user
interface.
A BI application server: to support user
subscriptions to particular BI application
results. (e.g. alerts via email or phone
whenever a particular event occurs)

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BI Server – Delivery Functions 49

 use metadata to determine what results

to send to which users and, on which
schedule.
 BIresults can be delivered to “any”
device. .
 exception alert
a dramatic fall in a stock price or
exceptionally high sales volume.

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Summary
Q1 Why do organizations need business
intelligence?
Q2 What business intelligence systems are
available?
Q3 What are typical reporting applications?
Q4 What are typical data-mining applications?
Q5 What is the purpose of data warehouses
and data marts?
Q6How Are Business Intelligence Applications
Delivered?

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Additional Resources
 What is Business Intelligence?
 RFM analysis for customer segmentation
and loyalty marketing
 5 Techniques that make RFM analysis wo
rk for
you

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Q&A