UNIT I OVERVIEW OF BUSINESS ANALYTICS

Introduction – Drivers for Business Analytics – Applications of Business Analytics:

Marketing and Sales, Human Resource, Healthcare, Product Design, Service Design,
Customer Service and Support – Skills Required for a Business Analyst – Framework for
Business Analytics Life Cycle for Business Analytics Process.

INTRODUCTION TO BUSINESS ANALYTICS:

Introduction to Business Analytics Notes (16-Marks Answer)

1. What is Business Analytics?

Business Analytics (BA) involves the use of statistical and quantitative methods, data analysis,
and predictive models to gain insights and make data-driven decisions.
It integrates data management, statistical analysis, and decision support systems.

2. Importance of Business Analytics

Enhances decision-making by providing factual insights.
Identifies trends and patterns to forecast future outcomes.
Improves operational efficiency and optimizes business processes.
Supports competitive advantage by enabling strategic planning.

3. Types of Business Analytics

Descriptive Analytics: Summarizes historical data to identify trends and patterns.
Diagnostic Analytics: Examines the causes of past outcomes.
Predictive Analytics: Uses statistical models and machine learning to predict future outcomes.
Prescriptive Analytics: Recommends actions to achieve desired results.

4. The Analytics Process

Define the Problem: Clearly outline the business question or objective.
Collect Data: Gather relevant data from internal and external sources.
Prepare Data: Clean, organize, and preprocess data for analysis.
Analyze Data: Apply statistical methods and models to extract insights.
Interpret Results: Translate analytical findings into actionable insights.
Communicate Insights: Present findings to stakeholders using visualization and reporting tools.

5. Key Tools and Technologies

Data Visualization Tools: Tableau, Power BI, QlikView.
Statistical Tools: R, Python, SAS.
Database Management Systems: SQL, NoSQL.
Big Data Platforms: Hadoop, Spark.
Machine Learning Libraries: Scikit-learn, TensorFlow, Keras.

6. Applications of Business Analytics

Marketing: Customer segmentation, campaign effectiveness, pricing strategies.
Finance: Risk assessment, fraud detection, portfolio optimization.
Operations: Supply chain optimization, demand forecasting, inventory management.
Human Resources: Employee retention analysis, workforce planning, performance
management.
7. Challenges in Business Analytics
Data Quality: Ensuring accuracy, completeness, and consistency.
Data Integration: Combining data from various sources.
Privacy and Security: Protecting sensitive information.
Skill Gap: Bridging the gap between technical and business knowledge.
Cost: Investing in tools, technologies, and skilled personnel.

8. Ethical Considerations
Ensuring data privacy and compliance with regulations.
Avoiding biases in data and analytical models.
Maintaining transparency in how data is used and analyzed.

9. Future Trends in Business Analytics

Artificial Intelligence (AI) and Machine Learning: Increasing automation of analytics
processes.
Real-Time Analytics: Providing instant insights for immediate decision-making.
Edge Analytics: Analyzing data at the source rather than a centralized system.
Integration of IoT Data: Using data from interconnected devices.

10. Case Study Examples

Retail: How predictive analytics improved inventory management at a retail chain.

Healthcare: Diagnostic analytics identifying risk factors in patient data.
Finance: Fraud detection using machine learning algorithms.

11. Key Metrics in Business Analytics

Return on Investment (ROI)

Customer Lifetime Value (CLV)
Conversion Rates
Net Promoter Score (NPS)

Conclusion
Business Analytics empowers organizations to make informed decisions, optimize processes,
and achieve strategic goals. As data continues to grow in volume and complexity, mastering
analytics tools and techniques will be essential for future business success.

Types of Business and Data Analytics

1. Descriptive Analytics: It helps in describing or summarizing what has happened in the past.
2. Diagnostic Analytics: This focuses on the past performance to ascertain why something has
happened.
3. Predictive Analytics: Using all the past gathered data tells what is likely to happen on a
granular level. The prediction of the possible outcome is made using statistical models and
machine learning techniques.
4. Prescriptive Analytics: It is a type of predictive analytics used to recommend one or more
courses of action on analyzing the data.
5. Cognitive Analytics: It brings together several intelligent technologies like artificial
intelligence, machine learning algorithms, deep learning models to mimic the human brain to
derive results from matching human thinking.
Descriptive Analytics
This first type of analytics provides the facts stating what has happened. It is the simplest type
that “allows you to condense big data into smaller, more useful nuggets of information.” It is the
most basic form of analytics performed by more than 90% of businesses. This is the starting
point of any analytics and alone comprises 80% of the business analytics. The objective is to
summarize the results and to understand what is going on.
Descriptive analytics helps a business learn from its past behavior and how it will impact the
future. It provides information that helps to understand the performance of the business on an
overall aggregate level. It is also an important step in explaining the current raw data to the
various stakeholders.

This is more like a management information system (MIS), where an MIS gathers data from
multiple online systems, analyzes the information, and reports data to aid in management
decision-making. The key techniques used are data aggregation and data mining to summarize
the past data of understanding the data’s underlying behavior and not for any predictions.
These are the start of the data analytics value chain and are the most valuable to uncover any
patterns. A simple example of descriptive analytics is to assess credit risk: we can predict a
consumer’s likely financial riskiness by seeing their balance amount against the credit limit. It is
also used to analyze the sales cycle of a store. Also, it can be used to categorize the customers
based on their product preferences, purchase transactions, how often they purchase. In the
context of social media, descriptive analytics offers an overview of the performance metrics: the
total of posts, mentions, followers, comments, page views, reviews, the average time is taken to
respond, and so on.

Diagnostic Analytics

Diagnostic Analytics is the second type of data analytics. Like descriptive analytics, this also
focuses on the past and ascertains why something has happened. It is also known as root cause
analysis because it looks deeper to understand the events’ root cause. It allows us to isolate the
patterns to identify these patterns’ source and the factors that affect the business. The diagnostic
analytics helps to understand, for instance, why there has been a sudden surge or decrease in
sales.

This type also helps detect the anomalies and determine the causal relationship for the cause and
effect present in the data. It is characterized by discovering data, data mining, and correlations.
Some of the techniques employed at this stage are feature importance, principal component
analysis, sensitivity analysis, conjoint analysis. To analysis, it mostly uses probabilities,
likelihoods, and the distribution of outcomes.

Diagnostic analytics for social media campaigns can refine the descriptive analytics stage data
into one view to see what did or did not work in the past campaigns. Retailers can break down
the sales and gross profit to various products and subcategories to understand where and why
they missed the overall profit margins. Another use case of diagnostic analytics is in healthcare.
One can identify the impact of medicines on the patients and can be used to study the effects of
before and after treatment.

This type only uncovers and provides the casual relationship, and it can not provide any
actionable insights, hence has limitations. That’s why the next two types of analytics are
important.

Predictive Analysis

Predictive analytics uses the gathered data and descriptive and diagnostic analytics results to tell
what is likely to happen in the future on a granular level. This is where the earlier steps’ insights
can be used into actionable insights for decision-making. Its use involves forecasting the future,
predicting the market trends, changing customer behaviors, and analyzing competitors to
optimize and build strategies to maximize the business results.

The predictions are made by analyzing the past data, detecting patterns, casual relationships in
the data, and then extrapolating them in the future. For instance, a bank to predict which
customer is likely to default will need all the past data about which customers have defaulted to
predict. The inferential statistics, training algorithms for regression, classification, and
segmentation come under this type of business analytics. It uses the techniques to segment the
data into groups, apply clustering methods, heuristic rules, decision trees to project future
outcomes.

The predictive analysis can also be used to generate, test, and evaluate hypotheses. It is useful to
understand whether a set of features are explaining or predicting other features. For example, it
can validate a person’s hypothesis inhibiting from a certain region, age group, gender defaults in
its credit card payments. This is especially useful when some of the features are actions
determined by the business decision-makers. One of the applications of prescriptive analysis is
sentiment analysis.

Predictive analytics is extensively used in every industry: finance, healthcare, social media,
sports, energy, manufacturing. One of the most frequent applications is in retail, where the
retailers are always using predictive analytics to predict and improve their sales positions.
Amazon’s recommendation engines are a classic example where on making one purchase, the
engine shows the list of other similar items that the buyers have purchased.

Prescriptive Analytics

Building on predictive analytics, prescriptive analysis is the next step that helps in exploiting the
future. It essentially tells the business what should be done. Using simulation and optimization,
it advises on the possible outcomes and suggests actions that can maximize the key business
metrics. The focus here is on how to make it happen.
It can be defined as a business optimization data analytics that provides insights on “what should
a business do” to solve a problem. It explores several possible outcomes and suggests actions
depending on the results of descriptive, diagnostic, and predictive analytics of the data. The
prescriptive analysis uses a feedback system that constantly learns, updates the relationship
between the action and the results.

It does not predict one possible future but rather multiple future outcomes. It is an advanced
analytics concept based on optimization and simulation. Optimization helps understand how to
achieve the best outcome and identify the data uncertainties to make better decisions. The other
approach of prescriptive analytics is a simulation in which all the key performance areas are
combined to design the correct metric goals. This ensures whether the key performance metrics
are included in the solution.

The prescriptive analysis is performed when scenario analysis simulates the future under various
sets of assumptions and combines it with different optimization techniques. It uses statistical
models and machine learning algorithms to estimate the probabilities, optimizing and
recommending actions. A prescriptive model can recommend the best course of action for any
pre-specified outcome as it can predict the possible results based on a different choice of action.
Waymo, Google’s self-driving car, is an example of prescriptive analytics. Recommendation
engines are a use case of prescriptive analysis.

Prescriptive analytics can be applied to almost any industry where the population is to be
targeted or grouped. It also has its applications in marketing, financial markets, and the
transportation industry. In social media, grouping the customers under one bucket based on their
characteristics can use prescriptive analytics to optimize the offering to each group. Similarly, it
can be applied in the transportation sector to save time and resources by optimizing the best
routes. In the financial markets, the researchers heavily rely on statistical modeling to maximize
the returns and manage risk and profitability.

Cognitive Analytics

This is the most advanced type of business analytics that applies human intelligence to certain
tasks by combining many technologies such as artificial intelligence, semantics, machine, and
deep learning algorithms. The goal is to understand and mimic how a human brain makes a
decision and comes with a system or computer that does the same. Some of the tasks that can be
performed using cognitive analytics are chatbots, virtual assistants, recognizing objects in an
image, and segmentation of those images.

Cognitive Analytics works by searching the entire available “knowledge base” to locate real-time
data. It is highly dependent upon and often combines artificial intelligence techniques, machine
learning, deep learning, neural networks, and semantics. It mimics the human brain to study and
learn from the available data to extract actionable insights hidden behind data patterns. It collects
and makes real-time data sources such as text, images, audio, and video available to these
analytics tools for decision-making.

Applications of Business Analytics

Business Analytics has widespread applications across various domains, helping organizations
make data-driven decisions and improve performance. Key applications include:

Marketing and Sales:

Business Analytics enhances marketing and sales efforts by identifying customer segments,
predicting buying behavior, and evaluating campaign effectiveness. It helps optimize pricing
strategies, improve lead generation, and personalize marketing messages to increase customer
engagement and conversion rates.

Human Resources:
In HR, analytics is used to assess employee performance, predict turnover, and improve
recruitment strategies. It enables workforce planning by analyzing skill gaps and forecasting
future workforce needs. Predictive analytics helps design employee retention programs and
enhance overall productivity.
 Healthcare:
Analytics in healthcare is vital for improving patient outcomes and operational efficiency. It
supports diagnosis, treatment planning, and resource allocation. Predictive models identify at-
risk patients, enabling early interventions, while prescriptive analytics optimizes hospital
operations, such as bed occupancy and staff scheduling.

Product Design:
Analytics aids in product design by analyzing customer feedback, usage patterns, and market
trends. It helps identify features that resonate with customers, optimize design processes, and
reduce time-to-market for new products. Data-driven insights ensure products meet customer
expectations and drive innovation.

Service Design:
Service-oriented businesses use analytics to refine service offerings and improve customer
satisfaction. By understanding customer needs and preferences, businesses can design services
that address pain points, enhance user experience, and ensure quality delivery.

Customer Service and Support:

Analytics improves customer service by enabling faster issue resolution and personalized
support. It helps predict customer inquiries, optimize support resources, and enhance
satisfaction through chatbots, self-service options, and real-time feedback mechanisms.
Sentiment analysis identifies areas for improvement, fostering long-term loyalty.

Skills Required for a Business Analyst

A Business Analyst requires a diverse skill set to bridge the gap between business needs and
technical solutions. These skills include:

1. Analytical Thinking and Problem-Solving:

o The ability to analyze complex business problems, identify patterns, and propose
effective solutions.
2. Technical Skills:
o Proficiency in data visualization tools (e.g., Tableau, Power BI), database
management (SQL), and analytics software (e.g., R, Python).
o Familiarity with emerging technologies like machine learning and AI.
3. Business Knowledge:
o A deep understanding of business processes, industry trends, and organizational
goals.
o Knowledge of financial metrics, marketing strategies, and operational workflows.
4. Communication Skills:
o Strong verbal and written communication skills to convey insights clearly to both
technical and non-technical stakeholders.
o Ability to document requirements and create detailed reports.
5. Interpersonal and Collaboration Skills:
o Effective collaboration with cross-functional teams, including IT, marketing,
finance, and operations.
o Strong negotiation and conflict-resolution abilities.
 6. Critical Thinking and Decision-Making:
o Evaluating multiple options and making data-driven decisions.
o Assessing risks and potential outcomes of proposed solutions.
7. Project Management Skills:
o Expertise in managing projects, setting timelines, and ensuring successful
implementation of analytics initiatives.
o Familiarity with Agile and Scrum methodologies.
8. Attention to Detail:
o Ensuring accuracy in data analysis and reporting.
o Identifying inconsistencies or errors in data.
9. Adaptability and Continuous Learning:
o Staying updated with the latest analytics trends, tools, and methodologies.
o Being open to learning new skills and adapting to changing business needs.
10. Stakeholder Management:
o Engaging with stakeholders to gather requirements, provide updates, and align
analytics projects with business goals.

Business Analytics Life Cycle Framework

The Business Analytics Life Cycle is a systematic process that helps businesses leverage data to
make informed decisions, enhance operations, and gain competitive advantage. The framework
for the business analytics life cycle includes several stages, each contributing to transforming
raw data into actionable insights. Here's a detailed explanation of the stages of the Business
Analytics Life Cycle:

1. Problem Definition (Business Understanding)

 Objective: Clearly define the business problem or opportunity that needs to be addressed
using analytics.
 Steps:
o Collaborate with business stakeholders to understand the problem.
o Identify the key performance indicators (KPIs) that measure success.
o Set clear, measurable objectives and desired outcomes.
o Understand business processes, goals, and challenges.
 Outcome: A well-defined business problem that guides the entire analytics process.

2. Data Collection and Acquisition

 Objective: Gather relevant and quality data from multiple sources.

 Steps:
o Identify and access internal and external data sources (databases, ERP systems,
social media, third-party services).
o Collect structured data (spreadsheets, relational databases) and unstructured data
(text, images).
o Ensure data is relevant, representative, and timely.
 Outcome: A comprehensive dataset that includes all necessary variables for analysis.
3. Data Preparation (Data Wrangling)

 Objective: Clean and organize the data to make it suitable for analysis.
 Steps:
o Handle missing values (impute or remove missing data).
o Remove duplicates, outliers, and inconsistencies in the data.
o Transform data types as needed (e.g., date formats, categorical encoding).
o Normalize or standardize data to ensure comparability.
o Feature engineering (creating new variables to improve model performance).
 Outcome: A clean, well-organized dataset ready for analysis.

4. Exploratory Data Analysis (EDA)

 Objective: Gain insights from the data to understand its patterns and relationships.
 Steps:
o Use statistical methods (e.g., mean, variance, correlation) to summarize data.
o Visualize data through histograms, boxplots, scatter plots, and heatmaps.
o Identify trends, outliers, and initial patterns in the data.
o Explore relationships between variables and distributions.
 Outcome: Initial insights into the data, helping refine hypotheses and analysis.

5. Model Building

 Objective: Develop predictive or descriptive models that address the business problem.
 Steps:
o Select the appropriate model type based on the problem (e.g., regression for
continuous variables, classification for categorical outcomes, clustering for
segmentation).
o Split data into training and testing sets to evaluate model performance.
o Train the model using algorithms such as linear regression, decision trees, random
forests, or machine learning methods.
o Fine-tune the model parameters to improve accuracy.
 Outcome: A trained model that can make predictions or derive insights from the data.

6. Model Evaluation

 Objective: Assess the model's performance and determine its effectiveness in solving the
business problem.
 Steps:
o Evaluate the model's accuracy and reliability using performance metrics (e.g.,
accuracy, precision, recall, F1 score, RMSE, AUC).
o Test the model using an unseen test set or through cross-validation to ensure
robustness.
o Compare multiple models to choose the best one based on performance metrics.
 Outcome: A validated model with reliable performance metrics that are aligned with
business objectives.
7. Deployment and Implementation

 Objective: Deploy the model into a production environment for real-time use.
 Steps:
o Integrate the model with business systems or applications (e.g., dashboards,
decision support systems).
o Automate data pipelines to ensure continuous input and model updates.
o Set up a system for stakeholders to access insights and predictions.
 Outcome: A fully operational model that delivers insights or automates decisions in real-
time.

8. Monitoring and Maintenance

 Objective: Continuously monitor the model's performance and maintain its relevance.
 Steps:
o Track the model's performance over time to detect any degradation.
o Retrain the model periodically with new data or refine it to reflect changing
business conditions.
o Monitor the input data for shifts in patterns or outliers that may affect the model's
accuracy.
 Outcome: A model that adapts to new data and maintains its effectiveness over time.

9. Reporting and Visualization

 Objective: Communicate the insights and results of the analytics process to stakeholders.
 Steps:
o Use visualization tools (e.g., Tableau, Power BI) to present data and insights in an
accessible and meaningful way.
o Create interactive dashboards that allow stakeholders to explore data in real-time.
o Provide clear, concise reports tailored to business decision-makers.
 Outcome: Actionable insights presented in a way that is easy to understand and act upon.

10. Decision Making

 Objective: Use the analytical results to guide business decisions and strategies.
 Steps:
o Present findings to key stakeholders and decision-makers.
o Provide recommendations based on data-driven insights.
o Use insights to drive strategies, optimize processes, and improve decision-
making.
 Outcome: Informed business decisions that are backed by data and analytics.