Business Intelligence T.Y.B.Sc(I.

T) SEM – VI UNIT - I

Subject: Business Intelligence

UNIT – I Syllabus

Business intelligence:

Effective and timely decisions, Data, information and knowledge, The role of
mathematical models, Business intelligence architectures, Ethics and business
intelligence

Decision support systems:

Definition of system, Representation of the decision-making process, Evolution of

information systems, Definition of decision support system, Development of a decision
support system

1 Business intelligence
Effective and timely decisions . . . . . . . . . . . . . . . . .
1.1 .
Data, information and knowledge . . . . . . . . . . . . . . .
1.2 .
The role of mathematical models . . . . . . . . . . . . . . .
1.3 .
Business intelligence architectures . . . . . . . . . . . . . . .
1.4 .
Cycle of a business intelligence analysis . . . .
1.4.1 . . . .

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Enabling factors in business intelligence

1.4.2 projects . . . .
Development of a business intelligence system
1.4.3 . . . . .
Ethics and business intelligence . . . . . . . . . . . . . . . .
1.5 .
1.6 Notes and readings . . . . . . . . . . . . . . . . . . . . . . . .

2 Decision support systems

2.1 Definition of system . . . . . . . . . . . . . . . . . . . . . . .
Representation of the decision-making process . . . .
2.2 . . . . .
Rationality and problem solving . . . . . . . . . . .
2.2.1 . .
The decision-making process . . . . . . . . . . . . .
2.2.2 .
2.2.3 Types of decisions . . . . . . . . . . . . . . . . . . . .
Approaches to the decision-making process . .
2.2.4 . . . .
Evolution of information systems . . . . . . . . . . . . . . .
2.3 .
Definition of decision support system . . . . . . . . . . . .
2.4 . .
2.5 Development of a decision support system . . . .

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Business Intelligence(BI)

• Business intelligence may be defined as a set of mathematical models and analysis

methodologies that exploit the available data to generate information and
knowledge useful for complex decision-making processes.
• Business intelligence may be defined as a set of mathematical models and analysis
methodologies that systematically exploit the available data to retrieve information
and knowledge useful in supporting complex decision-making processes.
• BI is concerned with the representation and organization of the decision-making
process, and thus with the field of decision theory; with collecting and storing the
data intended to facilitate the decision-making process.
• We can say that business intelligence systems tend to promote a scientific and
rational approach to managing enterprises and complex organizations.
• A business intelligence environment offers decision makers information and
knowledge derived from data processing, through the application of mathematical
models and algorithms.

Effective and timely decisions

• 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.
• In complex organizations, public or private, decisions are made on a continual
basis. Such decisions may be more or less critical, have long- or short-term effects
and involve people and roles at various hierarchical levels.
• The ability of these knowledge workers to make decisions, both as individuals and
as a community, is one of the primary factors that influence the performance and
competitive strength of a given organization.
Effective Decisions.

• The application of analytical methods allows decision makers to rely on

information and knowledge which are more dependable.
• As a result, they are able to make better decisions and devise action plans that
allow their objectives to be reached in a more effective way.

Timely Decisions.

• Enterprises operate in economic environments characterized by growing levels of

competition and high dynamism.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

• As a consequence, the ability to rapidly react to the actions of competitors and to

new market conditions is a critical factor in the success or even the survival of a
company.

Data, information and knowledge

• Large amount of data has been accumulated within the information systems of
public and private organizations.
• These data originate from internal transactions of an administrative, logistical and
commercial nature and partly from 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.
• They need to be processed by means of appropriate extraction tools and analytical
methods capable of transforming them into information and knowledge that can be
subsequently used by decision makers.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Data.

• Generally, data represent a structured codification of single primary entities, as

well as of transactions involving two or more primary entities.
• For example, for a retailer data refer to primary entities such as customers, points
of sale and items, while sales receipts represent the commercial transactions.

Information.

• Information is the outcome of extraction and processing activities carried out on

data, and it appears meaningful for those who receive it in a specific domain.
• For example, to the sales manager of a retail company, the proportion of sales
receipts in the amount of over ¤100 per week, or the number of customers holding
a loyalty card who have reduced by more than 50% the monthly amount spent in
the last three months, represent meaningful pieces of information that can be
extracted from raw stored data.

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.
• 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 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.
• In some instances, this activity may reduce to calculations of totals and
percentages, graphically represented by simple histograms.
• In general terms, the adoption of a business intelligence system tends to promote a
scientific and rational approach to the management of enterprises and complex
organizations.
• Classical scientific disciplines, such as physics, have always resorted to
mathematical models for the abstract representation of real systems.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

The rational approach typical of a business intelligence analysis can be summarized

schematically in the following main characteristics.
• First, the objectives of the analysis are identified and the performance indicators
that will be used to evaluate alternative options are defined.
• Mathematical models are then developed by exploiting the relationships among
system control variables, parameters and evaluation metrics.
• 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.

Advantages

• The primary objective is to enhance the effectiveness of the decision-making

process.
• The adoption of mathematical models also affords other advantages, which can be
appreciated particularly in the long term.
• First, the development of an abstract model forces decision makers to focus on the
main features of the analyzed domain, thus inducing a deeper understanding of the
phenomenon under investigation.
• The knowledge about the domain acquired when building a mathematical model
can be more easily transferred in the long run to other individuals within the same
organization, thus allowing a sharper preservation of knowledge in comparison to
empirical decision-making processes.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Business intelligence architectures

The architecture of a business intelligence system, shown in Figure , includes three major
components.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Data sources.

• In a first stage, it is necessary to gather and integrate the data stored in the various
primary and secondary sources, which are heterogeneous in origin and type.
• The sources consist for the most part of data belonging to operational systems, but
may also include unstructured documents, such as emails and data received from
external providers.
• A major effort is required to unify and integrate the different data sources
Shown in Chapter 3.
Data warehouses and data marts.

Using extraction and transformation tools known as extract, transform, load (ETL), the
data originating from the different sources are stored in databases intended to support
business intelligence analyses. Subject of Chapter 3.
These databases are usually referred to as data warehouses and data marts, and they will
be the.

Business intelligence methodologies.

Data are finally extracted and used to feed mathematical models and analysis
methodologies intended to support decision makers.

In a business intelligence system, several decision support applications may be

implemented, most of which will be described in the following chapters:

• multidimensional cube analysis;

• exploratory data analysis;
• time series analysis;
• inductive learning models for data mining;

• optimization models.

Data exploration.

At the third level of the pyramid we find the tools for performing a passive business
intelligence analysis, which consist of query and reporting systems, as well as statistical
methods.

These are referred to as passive methodologies because decision makers are requested to
generate prior hypotheses or define data extraction criteria, and then use the analysis tools
to find answers and confirm their original insight.

Statistical techniques for exploratory data analysis will be described in Chapters 6 and 7.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Data mining.

The fourth level includes active business intelligence methodologies, whose purpose is
the extraction of information and knowledge from data.

These include mathematical models for pattern recognition, machine learning and data
mining techniques.
Models of an active kind do not require decision makers to formulate any prior
hypothesis to be later verified. Their purpose is instead to expand the decision makers’
knowledge.
Optimization.

By moving up one level in the pyramid we find optimization models that allow us to
determine the best solution out of a set of alternative actions, which is usually fairly
extensive and sometimes even infinite.

Other optimization models applied in marketing and logistics will be described in

Chapters 13 and 14.

Decisions.

Finally, the top of the pyramid corresponds to the choice and the actual adoption of a
specific decision, and in some way represents the natural conclusion of the decision-
making process.

Even when business intelligence methodologies are available and successfully adopted,
the choice of a decision pertains to the decision makers

Cycle of a business intelligence analysis

• Each business intelligence analysis follows its own path according to the
application domain, the personal attitude of the decision makers and the available
analytical methodologies.
• It is possible to identify an ideal cyclical path characterizing the evolution of a
typical business intelligence analysis, as shown in Figure

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Analysis.

• During the analysis phase, it is necessary to recognize and accurately spell out the
problem at hand. Decision makers must then create a mental representation of the
phenomenon being analyzed, by identifying the critical factors that are perceived
as the most relevant.

Insight.

• The second phase allows decision makers to better and more deeply understand
the problem at hand.
• For instance, if the analysis carried out 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.
• The information obtained through the analysis phase is then transformed into
knowledge during the insight phase.

Decision.

• During the third phase, knowledge obtained as a result of the insight phase is
converted into decisions and subsequently into actions.
• The availability of business intelligence methodologies allows the analysis and
insight phases to be executed more rapidly so that more effective and timely
decisions can be made that better suit the strategic priorities of a given
organization.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

• This leads to an overall reduction in the execution time of the analysis – decision –
action – revision cycle, and thus to a decision-making process of better quality.

Evaluation.

• Finally, the fourth phase of the business intelligence cycle involves performance
measurement and evaluation.
• Extensive metrics should then be devised that are not exclusively limited to the
financial aspects but also take into account the major performance indicators
defined for the different company departments.
• Chapter 15 will describe powerful analytical methodologies for performance
evaluation.

Development of a business intelligence system

• The development of a business intelligence system can be assimilated to a project,

with a specific final objective, expected development times and costs, and the
usage and coordination of the resources needed to perform planned activities.
• Figure shows the typical development cycle of a business intelligence architecture.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Analysis.

• During the first phase, the needs of the organization relative to the development of
a business intelligence system should be carefully identified.
Design.

• The second phase includes two sub-phases and is aimed at deriving a provisional
plan of the overall architecture, taking into account any development in the near
future and the evolution of the system in the midterm.
Planning.

• The planning stage includes a sub-phase where the functions of the business
intelligence system are defined and described in greater detail.
• Sub-sequently, existing data as well as other data that might be retrieved
externally are assessed.
Implementation and Control.

• The last phase consists of five main sub-phases. First, the data warehouse and each
specific data mart are developed. These represent the information infrastructures
that will feed the business intelligence system.
• Figure provides an overview of the main methodologies that may be included in a
business intelligence system, most of which will be described

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Ethics and business intelligence

• The term ‘ethics’ defines the standards that bear on right and wrong issues of
society.
• Business ethics is thus a set of professional standards, which emphasize principles
of honesty and duty to the business and the general public.
• The adoption of business intelligence methodologies, data mining methods and
decision support systems raises some ethical problems that should not be over-
looked.
• Indeed, the progress toward the information and knowledge society opens up
countless opportunities, but may also generate distortions and risks which should
be prevented and avoided by using adequate control rules and mechanisms.
• The other significant principles included in business ethics are:
▪ Fairness
▪ Integrity
▪ Commitment to agreements
▪ Broad-mindedness
▪ Considerateness
▪ Importance given to human esteem and self-respect
▪ Responsible citizenship
▪ Attempt to excel
▪ Accountability

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College

 Business Intelligence T.Y.B.Sc(I.T) SEM – VI UNIT - I

Question Bank

1) What is business intelligence? Explain effectively and timely decisions.

2) Write a short note on Data, Information and knowledge w.r.t BI?
3) Explain mathematical models and its advantages.
4) Draw and explain business intelligence architecture.
5) Explain development of business intelligence system.
6) Explain Cycle of a business intelligence analysis.

Prepared By: Prof. Ansari Mohd. Shahid ([email protected]) Maharashtra College