BUSINESS ANALYTICS AND MODELLING

Prof. (Dr) Alpana Srivastava

B. Com. (H) Program Director
Head: Operation Management, Statistics,
Economics
Amity Business School , Amity University,
Lucknow
 WHAT IS 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
 IMPLEMENTING BUSINESS
ANALYTICS
8-step cycle (LinkedIn’s Big Data initiative)

1.Understand the company’s products in depth

2. Establish tracking mechanisms to retrieve the data about the
products
3. Deploy good quality data throughout the enterprise
4. Apply real time analysis to the data
5. Use business intelligence to standardize reporting
6. Use more advanced analytics functions to discover important
patterns
7. Obtain insights to extract relevant knowledge from the patterns
8. Make decisions to derive value using the knowledge discovered
 SCOPE OF BUSINESS ANALYTICS

Descriptive analytics
- uses data to understand past and
present
Predictive analytics
- analyzes past performance
Prescriptive analytics
- uses optimization techniques
 SCOPE OF BUSINESS ANALYTICS

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
 DATA FOR BUSINESS ANALYTICS

 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

Records

Entities Fields or Attributes

 WHAT IS BIG DATA?

• Information from multiple internal and

external sources:

 Transactions
 Social media
 Enterprise content
 Sensors
 Mobile devices
• 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 individuals 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 2.
1. Categorical orOrdinal
levels of
measurement: (Nominal)
3. Interval 4. Ratio
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 Categorical (Nominal)
data
•Nominal or categorical data is data that
comprises 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.
Categories bear no quantitative relationship to one
another
 Examples:
- customer’s location (America, Europe, Asia)
- employee classification (manager, supervisor,
associate)
•No mathematical operations can be
performed on the data relative to each other.
•Therefore, nominal data reflect qualitative
differences rather than quantitative ones.
 Nominal data
•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.
Examples:

What is your
Did you enjoy
gender? (please
the film? (please
tick)
tick)

Male
Yes
Female
No
 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)
 Ordinal data
Example:

How satisfied are you with the

level of service you have received?
(please tick)

Very satisfied
Somewhat satisfied
Neutral
Somewhat dissatisfied
Very dissatisfied
 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
 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.
• CAT scores
 Ratio data
• Ratio data measured on a continuous scale
and does have a natural zero point.
Ratios are meaningful
Examples:
• monthly sales
• delivery times
• Weight
• Height
• Age
 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
 1-31

DECISION MODELS
Nature of Decision Models

Figure 1.4

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 1-32

DECISION MODELS

• 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.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

 1-33

DECISION MODELS

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.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

 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

What should occur?

• 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.
 1-35

DECISION MODELS

• Deterministic prescriptive models have inputs that are known with

certainty.
• Stochastic prescriptive models have one or more inputs that are not
known with certainty.
• Algorithms are systematic procedures used to find optimal solutions to
decision models.
• Search algorithms are used for complex problems to find a good solution
without guaranteeing an optimal solution.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

 1-36

PROBLEM SOLVING AND DECISION

MAKING
 BA represents only a portion of the overall problem solving and decision
making process.
 Six steps in the problem solving process
1. Recognizing the problem
2. Defining the problem
3. Structuring the problem
4. Analyzing the problem
5. Interpreting results and making a decision
6. Implementing the solution

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

 NORMALITY TEST,
• I have used Chi Squared, Kolmogorov-Smirnov and Shapiro-Wilk in the
past, all these tests are available as packages in R and are possibly
implemented in NumPy.
• graphical tools:
1) Graphical way: Histogram
2) Graphical way: Quantile-quantile(qq) plots
• A quantile-quantile plot(qq plot) is a scatter plot where we plot the
dataset values vs normal distribution values for quantiles determined
from the dataset. The y-coordinate of a qq plot is the dataset values, the
x coordinates are values from the normal distribution.
GRAPHICAL REPRESENTATION OF
NORMAL DATA
 HOMOGENEITY TEST
• The assumption of homogeneity of variance means that the level of
variance for a particular variable is constant across the sample. If you’ve
collected groups of data then this means that the variance of your
outcome variable(s) should be the same in each of these groups (i.e.
across schools, years, testing groups or predicted values).
• The assumption of homogeneity is important for ANOVA testing and in
regression models. In ANOVA, when homogeneity of variance is violated
there is a greater probability of falsely rejecting the null hypothesis. In
regression models, the assumption comes in to play with regards to
residuals (aka errors). In both cases it useful to test for homogeneity and
that’s what this tutorial covers.
 TEST
• Visualization: Assessing homogeneity through visualization.
• Bartlett’s test: A good first test for homogeneity of variance across
groups.
• Levene’s test: More robust to departures from normality than the
Bartlett’s test.
• Fligner-Killeen’s test: A non-parametric test for homogeneity of variance
across groups.
VISUALIZING HOMOGENEITY
 GRAPHICAL CHARTS
• Histogram,
• Box plots,
• Bar plots,
• Scatterplot