Business Analytics

18-July-2016

Evaluation
Component

Weight (%)

Group Assignment

20

Mid Term Exam

35

End Term Exam

45

What else

Attendance
Grades
Exams (open book / closed book ?)
Assignments
CR

Group Assignments
8-10 groups
Few in-class assignments
MS-Excel, XLMiner, SPSS, R, etc.

Data Mining
Data mining is the process of
discovering meaningful new correlations, patterns
and trends
by sifting through large amounts of data stored in
repositories
using pattern recognition technologies as well as
statistical and mathematical techniques
(Gartner Group, as reported in Data Mining book)

Business Analytics
Analytics
Extensive use of data, statistical and quantitative
analysis
Explanatory and predictive models
Fact-based analytical decision making

Analytical competitor

Categories of Analytics
Descriptive analytics

Prepares and analyzes historical data

Identifies patterns from samples for reporting of trends

Predictive analytics

Predicts future probabilities and trends

Finds relationships in data that may not be readily apparent

with descriptive analysis
Prescriptive analytics

Evaluates and determines new ways to operate

Targets business objectives

Balances all constraints

Analytics for
CRM
customer segmentation and targeting
understand customer behavior and predict needs
customer acquisition and retention

Supply Chain and Operations

Optimize inventory levels and delivery routes

Human Resources
Hiring and employee retention

Finance and Accounting

Identify, monitor and reduce risk

Models to predict
a long-distance customers likelihood of switching to a
competitor
loyal versus disloyal

an insurance claims likelihood of being fraudulent

legitimate versus fraudulent

a patients susceptibility to a certain disease

susceptible versus indeterminate versus unsusceptible

the likelihood someone will place a catalog order

buyer versus non-buyer

the revenue a customer will generate during the next year

a number from a wide range of possible values

Drivers for Data Mining

Managerial decisions --> need for relevant data
Internet, e-commerce, electronic banking, pointof-sale devices, bar-code readers, and intelligent
machines --> Electronic data capture is
inexpensive; vast data
Data mining: techniques to make intelligent use of
this vast data.
Recognizing patterns and making predictions from
an applications perspective

Analytics Techniques in a Nutshell

Continuous Response Categorical Response
Variables
Variables

No Response
Variables

Continuous
Predictor
Variables

Linear Regression
K-nearest neighbors

Logistic Regression
Discriminant Analysis
K-nearest neighbors

Principal
components
Cluster analysis

Categorical
Predictor
Variables

Linear Regression
Regression trees

Classification trees
Logistic Regression

Association rules

Steps
Organizing datasets

Sampling, over-sampling
Preprocessing and data-cleaning
Categorical variables coding
Variable selection
Outliers, missing values
Normalizing, standardization
Partitions

Training
Validation
Test
New data

Capturing Data

Nominal
Ordinal
Interval
Ratio

Capturing Data
Categorical data
Nominal
Ordinal

Numerical data
Interval
Ratio

IV / DV
Independent variable

Dependent variable

Input variable

Output variable; Outcome variable

Predictor variable

Response variable

Attribute, Feature

Target variable

Topics
Simple methods
Association rules
kNN
RFM

Multiple Linear Regression

Logistic Regression
Discriminant Analysis
Cluster Analysis
Conjoint Analysis

Explanatory vs Predictive Modeling

Explanatory Modeling

Predictive Modeling

Models to fit data closely

Models to predict new cases accurately

Scarce data; entire data is used to

estimate best-fit model

More data; divide into training and

validation set

Credit Scoring/Rating
To assess the credit worthiness of a loan applicant
What are the chances that the borrower will default
a payment for mortgage, credit card, or other loan
Models need to identify characteristics that are
associated with credit worthiness

Fraud Detection
Credit cards: 10,000 payment transactions per
second
Statistical techniques
Calculating statistical parameters (averages,
performance metrics, probability distributions) to track
deviations (e.g. average length of call, average number
of calls per month)
Models and probability distributions of various
business activities
Clustering and classification to find patterns and
associations

Fraud Detection
Artificial intelligence
Expert systems
Pattern recognition to match given inputs
Machine learning techniques using sample
suspicious cases

Insurance
Analyze and predict customer attrition
Recruiting and monitoring agents
Lifetime value of customers and profitability
analysis
Cases of fraud
Risk models for loss estimation and portfolio risk

CRM
Customer acquisition, retention and
expansion
RFM (Recency-Frequency-Monetary value) cube
Customer Life-time Value (profitability analysis)
What-if scenarios
Predictive modeling
Personalization

Revenue Analytics
Optimal Pricing: Demand forecast, competitor rates,
and price sensitivity
Hotel rooms (airlines)
Rooms unsold, how many guests are expected, any special
events, how are competitors doing, is this high season or
low season, any regular customers
Season, day of the week, competition, pickup/denial (with
price changes), promotions and customer feedback

Supply Chain
Actionable insights to:
Understand inventory trends (optimize inventory
levels)
Track vendor performance to develop relationship
Quick response to market information
Analyze supply chain efficiency

Talent Analytics *
Human Capital
Key indicators for overall organizational health
Investment actions (recruitment and retention)

Workforce forecasts
Predict future headcount for each business unit, and guide
recruitment decisions

Talent Value Model

Managing employee aspirations and retention

Matching Supply and Demand

Call center and nurses scheduling
* Davenport, Harris and Shapiro (HBR, October-2010)

Retail
Customer Profiles
Identify best customers, profitability analysis

Targeting
Whom to target, communication channel and content;
response to direct marketing

Pricing
Demand forecasting, Price optimization and promotions

Stocking and store design

Product assortment selection and category management
Store clustering and price zone definition

Sports
Sabermetrics
Objective knowledge about baseball using
statistics
SABR (Society for American Baseball Research)
To predict player performance based on
current form and related statistics
Useful in team selection and development.

Sabermetrics for football and cricket

Other
Text analytics
Linguistic, statistical and machine learning
techniques
Extract meaningful information from textual
sources like customer feedback, emails,
conversation transcripts, blogs, etc.

Web analytics
visits, page views, pages per visit
bounce rates and average time on site

Analytics Techniques in a Nutshell

Continuous Response Categorical Response
Variables
Variables

No Response
Variables

Continuous
Predictor
Variables

Linear Regression
K-nearest neighbors

Logistic Regression
Discriminant Analysis
K-nearest neighbors

Principal
components
Cluster analysis

Categorical
Predictor
Variables

Linear Regression
Regression trees

Classification trees
Logistic Regression

Association rules

Putting Analytics to Work

The Analytical DELTA *
D for accessible, high-quality data
E for an enterprise orientation
L for analytical leadership
T for strategic targets
A for analytical talent
* Davenport, Harris, Morison in Analytics At Work (Harvard Business Press, 2010)

Analytical Capability
The Five Stages of Analytical Capability
Analytically Impaired
Localized Analytics
Analytical Aspirations
Analytical Companies
Analytical Competitors
* Davenport, Harris, Morison in Analytics At Work (Harvard Business Press, 2010)

Competing on Analytics
Widespread use of modeling and optimization
(recurring decisions are automated)
Enterprise-wide approach (information based
strategy)
Top management support (knowledge culture, right
processes, skills)

Analytics: The Down Side

Privacy issues
Stalking Customers
Incorrect data
Data Security
Learned response from customers

Thank you