1.1.

2 The Data Analytics Revolution

What began with a small number of organizations using analytics to uncover insights into
customer and employee behaviors has become an outright revolution in how business
decisions are made. Until recently, data analytics involved looking at historical data to
uncover trends, patterns and other descriptive information about an organization. Data sets
used for this type of analysis—called descriptive analytics—contain static data such as
customer transactions, inventory levels, or defect reports. This type of data is not usually
analyzed immediately; in fact, most of it is compiled and analyzed on a monthly or quarterly
basis.

The primary goal of traditional data analysis is to present information in a way that is easy
for non-technical decision makers to understand. The results of descriptive analytics are
highly accurate because the data usually doesn’t change during the analysis. Examples of
insights uncovered through traditional analytics include past product performance,
company profitability, inventory lead times, and advertising program success.

While traditional descriptive analytics still play an important role in decision-making support
for all types of organizations, it is no longer enough only to run descriptive analysis on data
from the previous fiscal year. To remain competitive, organizations must be able to use data
analytics to react quickly to current conditions and make reliable predictions of future
behaviors. This is where next-generation analytics comes in.

Advances in the collection, storage and retrieval of real-time data make possible the analysis
of all types of data from many sources, such as documents, images, entries in social media
or e-commerce sites, and even sensors inside home appliances.

Due to the vast amount of data now being collected, new insights can be gained from
analyses to inform more effective decision making. Examples of organizations using
advanced analytics to improve their operations include:

 A bank immediately analyzing each account transaction to identify potentially

fraudulent activity.
 A manufacturer constantly monitoring defect reports in order to modify production
processes as quickly as possible.
 A retailer instantly responding to customer reviews and adjusting products or sales
strategies accordingly.

Now, rather than relying on management instinct and past performance, organizations can
use real-time data to achieve rapid, transformative change in their operations and
processes. Data analysts and other data science professionals are at the forefront of this
revolution!
Data analytics helps organization to reach better decisions and answer questions like :
 What is the state of our market and our competitors?
 What has happened in the past that can inform future growth?
 What is currently happening?
 What does the future hold for our business?
 Why did something occur

1.1.4 Different Types of Analysis

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In a technical sense, data analytics can be described as the process of using data to answer
questions, identify trends, and extract insights. There are multiple types of analytics that can
generate information to drive innovation, improve efficiency, and mitigate risk.

There are four key types of data analytics, and each answers a different type of question:

 Descriptive analytics asks, “What happened?”

 Predictive analytics asks, “What might happen in the future?”
 Prescriptive analytics asks, “What should be done next?”
 Diagnostic analytics asks, “Why did this happen?”

Each of the above types has its own unique insights, advantages, and disadvantages. Used in
combination they provide a more complete understanding of the business's needs and
opportunities.

Descriptive Analytics
Descriptive analytics primarily uses observed data to identify key characteristics of a data
set. It relies solely on historical data to provide reports on past events. This type of analysis
is also used to generate ad hoc (as needed) reports that summarize large amounts of data to
answer simple questions like “how much?” or “how many?” It can also be used to ask
deeper questions about a specific problem. Descriptive analytics is not used to draw
inferences or predictions from its findings; it is just a starting point used to inform decisions
or to prepare data for further analysis.

The descriptive analytics process is as follows:

1. Ask a historical question that needs an answer, such as “How much of product X did
we sell last year?”
2. Identify required data to answer the question
3. Collect and prepare data
4. Analyze data
5. Present results
Examples of descriptive analytics include:

 Summarizing historical events such as sales, inventory, or operations data

 Understanding engagement data such as likes and dislikes or volume of page views
over time
 Reporting general trends like revenue growth or employee injuries
 Collating survey results

Predictive Analytics
Predictive analytics utilizes real-time and/or past data to make predictions based on
probabilities. It can also be used to infer missing data or establish a predicted future trend.
Predictive analytics uses simulation models and forecasting to suggest what could happen
going forward, which can guide realistic goal setting, effective planning, management of
performance expectations, and avoiding risks. This information can empower executives
and managers to take a proactive and fact-based approach to strategy and decision making.

The predictive analytics process is as follows:

1. Ask a forward-thinking question, such as “Can we predict how much product X we

will sell next year?”
2. Collect and prepare data
3. Develop predictive analytics models
4. Apply models to the prepared data
5. Review models and present results

Examples of predictive analytics include:

 Forecasting customer behavior, purchasing patterns, and identifying sales trends

 Predicting customer preferences and recommending products to customers based
on past purchases and search history
 Predicting the likelihood that a given customer will purchase another product or
leave the store
 Identifying possible security breaches that require further investigation
 Predicting staffing and resourcing needs

Prescriptive Analytics
Prescriptive analytics builds on descriptive and predictive analysis by recommending courses
of action that will reap the greatest benefit for the organization. In short, prescriptive
analytics tells you what should be done in a given situation. It helps executives, managers,
and employees make the best decisions based on available data.
A good example of prescriptive analytics is the field of GPS-based map and direction
applications. These applications provide route options to a destination based on traffic
volume, road conditions, and maximum speed. It can then prescribe the best route based on
user-defined objectives such as shortest distance or quickest time.

Diagnostic Analytics
Diagnostic analytics enhances the descriptive analytics process by digging in deeper and
attempting to discover the cause(s).

The diagnostic analytics process is as follows:

1. Identify anomalies (inconsistencies) in data sets

2. Collect data related to the anomalies
3. Use statistical techniques to uncover relationships and trends that could explain the
anomalies
4. Present possible causes

An example of diagnostic analytics is using subscription cancellations, correlated with

customer comments and ratings, to determine the most common reasons why users cancel
subscriptions. Another example would be determining whether there is a correlation
between the demographics of consumers and their purchasing patterns at specific times of
year.