UNIT 1

BUSINESS INTELLIGENCE
WHAT IS BUSINESS INTELLIGENCE?
• Example:
• Nowadays, massive data storage is available in low-
cost along with the wide availability of Internet
connections.
• Due to this, large amounts of data are available
which is collected and accumulated by the various
organizations over the years.
• Such data are often heterogeneous in origin, like
commercial, financial and administrative
transactions, web navigation paths, emails, texts and
hypertexts, results of clinical tests etc.
Definition:
• Business intelligence can be defined as a set of
mathematical models and analysis methodologies
that exploit the available data to retrieve information
and knowledge useful in supporting complex
decision-making processes.
EFFECTIVE AND TIMELY DECISIONS
• In organizations knowledge workers to make
decisions.
• Using experience, knowledge of the application
domain and the available information.
• This approach leads to a stagnant decision-making
style which is inappropriate for the unstable
conditions determined by frequent and rapid
changes in the economic environment.
• Today we need,
• Highly complex decision-making processes in rapidly
changing conditions.
• Example: Retention in the mobile phone industry
• Conclusion:

• The main purpose of business intelligence systems

is to provide knowledge workers with tools and
methodologies that allow them to make effective and
timely decisions.
DATA, INFORMATION AND KNOWLEDGE
• Nowadays, massive data storage is available in low-
cost along with the wide availability of Internet
connections.
• Due to this, large amounts of data are available
which is collected and accumulated by the various
organizations over the years from internal and
external sources.
• However, even if they have been gathered and
stored in a systematic and structured way, these
data cannot be used directly for decision-making
purposes.
• Data needs to be processed by
extraction tools and analytical methods
to convert them into information and
knowledge that can be later used by
decision makers.
Data
• Single primary entities
• Transactions involving two or more primary entities.
• Example: customers, points of sale and items
• Sales receipts represent the commercial
transactions
Information
• Information is the outcome of extraction and
processing activities carried out on data
• Example: the proportion of sales receipts in the
amount of over Rs. 1000 per week
• Knowledge.
• Information is transformed into knowledge when it is
used to make decisions and develop the
corresponding actions.
• Therefore, we can think of knowledge as consisting
of information put to work into a specific domain,
enhanced by the experience and competence of
decision makers in tackling and solving complex
problems.
• Example:
• Example:
• For a retail company, a sales analysis may detect
that a group of customers, living in an area where a
competitor has recently opened a new point of sale,
have reduced their usual amount of business.
• The knowledge extracted in this way will eventually
lead to actions aimed at solving the problem
detected, for example by introducing a new free
home delivery service for the customers residing in
that specific area.
THE ROLE OF MATHEMATICAL MODELS
• A business intelligence system provides decision
makers with information and knowledge extracted
from data, through the application of mathematical
models and algorithms.
• Example: Excel sheet with student marks
1. First, the objectives of the analysis are identified
and the performance indicators for alternative
options are defined.
2. Mathematical models are developed by exploiting
the relationships among system control variables,
parameters and evaluation metrics.
3. Finally, what-if analyses are carried out to evaluate
the effects on the performance determined by
variations in the control variables and changes in
the parameters.
BUSINESS INTELLIGENCE ARCHITECTURES
• Data sources: heterogeneous in origin and type
1. Operational systems
2. unstructured documents, such as emails and data
received from external providers
• Data warehouses and data marts. Using extraction
and transformation tools known as extract,
transform, load (ETL)

• Business intelligence methodologies. Data are

finally extracted and used to feed mathematical
models and analysis methodologies to support
decision makers.
Building blocks of a business
intelligence system
Cycle of a business intelligence
analysis
• Each business intelligence (BI) analysis follows its
own path.
• This path is decided based on application domain,
personal attitude of the decision maker and available
analytical methodologies.
• It is possible to identify an ideal cyclical path,
describing the evolution of typical business
intelligence (BI) analysis.
Analysis.
• In this phase problem is recognized and stated.
• This phase leads decision makers to ask several
questions and to obtain quick responses in an
interactive way.
Insight.
• The second phase allows decision makers to better
and more deeply understand the problem at hand,
often at a causal level.
• For example: If the analysis in the first phase shows
that a large number of customers are discontinuing
an insurance policy upon yearly expiration, in the
second phase it will be necessary to identify the
profile and characteristics shared by such
customers.
Decision.
• During the third phase, knowledge obtained as a
result of the insight phase is converted into
decisions and subsequently into actions.
• Evaluation.
• Finally, the fourth phase of the business intelligence
cycle involves performance measurement and
evaluation.
• Metrics are developed that include major
performance indicators defined for the different
company departments and other financial aspects.
Enabling factors in business
intelligence projects
• Some factors are more critical than others to the
success of a business intelligence project:
technologies, analytics and human resources.
• Technology: Microprocessor, Harddisk, Extranets or
Intranets, integration of hardware and software
purchased by different suppliers, or developed
internally by an organization
• Analytics: mathematical models and analytical
methodologies play a key role in information
enhancement and knowledge extraction from the
data available inside most organizations.
• Human resources: skilled knowledge workers,
Development of a business
intelligence system
Analysis.
• This preliminary phase is generally conducted
through a series of interviews of knowledge workers
performing different roles and activities within the
organization.
• Describe general objectives and priorities of the
project, costs and benefits of BI.
Design
• Make an assessment of the existing information
infrastructures.
• In Project Plan identify development phases,
priorities, expected execution times and costs, with
the required roles and resources.
Planning
• functions of the BI system are defined and described
in greater detail.
• central data warehouse and possibly some satellite
data marts, to be designed.
• mathematical models to be adopted should be
defined.
• create a system prototype, at low cost and with
limited capabilities, in order to uncover beforehand
any discrepancy between actual needs and project
specifications.
Implementation and control.
• First, the data warehouse and each specific data
mart are developed.
• To explain the meaning of the data contained in the
data warehouse and the transformations applied in
advance to the primary data, a metadata archive is
created
• ETL procedures are set out to extract and transform
the data existing in the primary sources, loading
them into the data warehouse and the data marts.
BI METHODOLOGIES
Ethics and business intelligence
• Respect the individuals’ right to privacy
• A company should pursue the short-term
maximization of profits for shareholders, or should
instead adopt an approach that takes into account
the social consequences of its decisions.
 CHAPTER 2
Decision support systems
DEFINITION OF SYSTEM
SYSTEM
• Every system is characterized by boundaries that
separate its internal components from the external
environment.
• A system is said to be open if its boundaries can be
crossed in both directions by flows of materials and
information. When such flows are lacking, the
system is said to be closed.
• A system receives a set of input flows and returns a
set of output flows through a transformation process
regulated by internal conditions and external
conditions.
• A system will often incorporate a feedback
mechanism.
• Systems that are able to modify their own output
flows based on feedback are called closed cycle
systems.
• it is often necessary to assess the performance of a
system.
• For this purpose categorize the evaluation metrics
into two main classes: effectiveness and efficiency.
• Effectiveness. Effectiveness measurements
express the level of conformity of a given system to
the objectives for which it was designed.
• Efficiency. Measurement associated with the quality
of the transformation process.
Decision support systems
• A decision support system (DSS) is an interactive
computer-based application that combines data and
mathematical models to help decision makers solve
semi-structured and unstructured problems.

• The analysis tools provided by a business

intelligence architecture can be regarded as DSSs
capable of transforming data into information and
knowledge helpful to decision makers.
• DSSs are a basic component in the development of
a business intelligence architecture.
Development of a decision
support system
• DSSs are usually not available as standard
programs.
• Developed as per requirement.
• The logical flow of the activities is shown by the solid
arrows.
• The dotted arrows in the opposite direction indicate
revisions of one or more phases during
development.
 Planning
• understand the needs and opportunities, sometimes
characterized by weak signals, and to translate them
into a project and later into a successful DSS.
• Planning usually involves a feasibility study to
address the question: Why do we wish to develop a
DSS?
• planning phase should be followed by the definition
of the activities, tasks, responsibilities and
development phases
 Analysis
• What should the DSS accomplish, and who will use
it, when and how?
• The analysis also involves mapping out the actual
decision processes and imagining what the new
processes will look like once the DSS is in place.
 Design.
• How will the DSS work?
• Entire architecture of the system is defined, through
the identification of the hardware technology
platforms, the network structure, the software tools
to develop the applications and the specific
database to be used.
• make-or-buy choice – whether to subcontract the
implementation of the DSS to third parties, in whole
or in part.
 Implementation.
• To reduce the risk of failure rapid prototyping
development is used.
• Other development methods can be effectively
adopted in order to speed up the implementation of
the software. These include agile development
techniques and extreme programming techniques.
• overall impact on the organization monitored using
change management techniques
• Integration. The design and development of a DSS
require a significant number of methodologies, tools,
models, individuals and organizational processes to
work in harmony.
• Involvement. involvement of decision makers and
users during the development process is of primary
importance to avert their inclination to reject a tool
that they perceive as alien.
• Uncertainty. reduce the project uncertainty through
prototyping, user friendliness, system tests during
the preliminary stages
Rationality and problem solving
(reasonability / wisdom).
• A decision is a choice from multiple alternatives,
usually made with a fair degree of rationality.
• The decision-making process is part of a problem
solving, which refers to the process through which
individuals try to bridge the gap between the current
operating conditions of a system (as is) and the
better conditions to be achieved in the future (to be).
• Factors/ Constraints influencing a rational choice.
• Economic Factor aimed at the minimization of
costs or the maximization of profits.
• Technical. Options that are not technically feasible
must be discarded.
• Legal. before adopting any choice the decision
check legal requirements
• Ethical. Abide ethical principles and social rules of
the community
• Procedural. Organizational procedures should be
checked before finalizing project.
• Political. The decision maker must also assess the
political consequences of a specific decision among
individuals, departments and organizations.
THE DECISION-MAKING PROCESS
• Model includes three phases, termed intelligence,
design and choice with two additional phases,
implementation and control .
TYPES OF DECISIONS
• Decisions can be classified in terms of two main
dimensions, according to their nature and scope.
• According to their nature, decisions can be classified
as structured, unstructured or semi-structured.
• Depending on their scope, decisions can be
classified as strategic, tactical and operational.
Structured Decisions Semi-Structured Unstructured
Decision
Standard and typically These are This type of decision
repetitive decisions combinations standard solves fuzzy, strategic
procedure and and complex problems
unstructured elements. .
Requires some human
judgment
can be reduced to well- it contains both not reducible to well-
defined rules "Structured" and defined rules.
"Unstructured"
decisions.
Decision making Some of decision None of the decision
phases are structured. making phases are making phases are
structured some structured.
unstructured.
In structured decision a structured decision if input flows, output
input flows, output input flows, output flows and the
flows and the flows and the transformation
transformations transformations processes cannot be
performed by the performed by the described in detail and
system can be clearly system can be partially reduced to a predefined
described in the three described in the three sequence of steps.
phases of intelligence, phases of intelligence,
design and choice. design and choice.
Often taken at Often taken at Middle Often taken at Top
Operational management level Management Level
Management level
Example: Decision to Example: Development Example: Dealing with a
send a reminder notice of Annual plan showing labor strike in factory
to a customer for an forecast for different
overdue payment market areas
Mr. A is a Waking up is subject to Mr. A thinks that he has t
soldier and he has to wa clock alarm (procedure), o wake up at any time in
ke at 6 in but it can be turned off the morning
the morning when army as waking
bugle is played/blown. up at that time
This procedure will be fo is also subject to some
llowed no matter what. sort
of individual judgment
Strategic Decision Tactical Decisions Operational Decisions
affect the entire affect only parts of an Affects specific activities
organization enterprise and carried out in
or at least a substantial are usually restricted to organizations.
part a single department
Often taken at Top Often taken at Middle Often taken at
Management Level management level Operational
Management level
These decisions have These decisions are Concerns with day-to-
long term impact short term day work
Involves introduction of Involves decisions Involves timing
new rules and products, related to production, schedules, amount of
amendments, finance, marketing, remuneration, setup of
regulations and policies. personal and getting machines and tools.
task done.
Example: Our product Example: We will have Example: We'll hire a
will become one of the three new production new development officer
country's top ten in the centres for the center.
field