Business Analytics & Data Mining Modeling Using R

Dr. Gaurav Dixit

Department of Management Studies
Indian Institute of Technology, Roorkee

Lecture - 02
Data Mining Process

Welcome to the lecture 2 of course Business Analytics and Data Mining Modeling Using
R. In this particular course, in this particular lecture we are going to cover the data
mining process.

(Refer Slide Time: 00:30)

So, there are different phases in a typical data mining effort. So, first phase, phase is
about first phase is named as discovery. So, important activities that are part of this phase
are framing business problem. So, first we need to understand the needs of the
organization and the issues they are you know facing and the kind of resources that are
available the kind of team is available, the kind of data repository other resources are
available, and the you know try to understand the main business problem and then try to
identify the analytics component, so analytics challenge or analytics components,
component part of that particular business problem. Then we start understanding we start
to develop our understanding about the relevant phenomena the relevant concepts
constructs variables and we try to develop or formulate our initial hypothesis that are
going to be later on converted into a data mining problem.
So, this is in the discovery in the first phase these are some of the activities that we
generally have to do. The next stages, the next phase is a data preparation in this phase
we have already understood the problem especially the analytics problem that we have to
deal with therefore, we also based on our initial hypothesis formulation we will also have
you know understanding about the kind of variables that would be required to perform
the analysis therefore, we can also we can always look for the relevant data from internal
and external resources and then we can compile the data set and that can be used for the
analytics.

So, another activities that can actually be performing this stage also a data consistency
checks. For example data can come from variety of sources therefore, we need to check
the definition of fields whether they are consistent or not we need to we also need to look
for units of measurement we also need to check for you know data format whether that is
consistent or not. For example, if you have a variable gender and your data set and in one
particular source is it is recorded as male m a l e and in other male and female full form
m a l e and female and in another from another source it is recorded as capital M or
capital F. So, therefore, you have to make sure that data is consistent and when the whole
data is compiled or got together and, these consistency have to be checked.

Then time periods. So, data could be belonging to a particular you know you know
number of years so that we also need to check because the analysis or results could
actually be limited by the time period as well. Sample, now you do not always need all
the records that we prepare in our data set we normally generally we take a sample of it
because smaller sample of the you know that is generally good enough to build accurate
models.

Now a next phase in a typical data mining effort is about data exploration and
conditioning.
(Refer Slide Time: 04:05)

So, in this phase we generally do activities like missing data handling we also check for
range region ability whether the range of different variables they are in the expected,
they are as per the expectation or not. We also look for the outliers they can come due to
some human error or measurement error etcetera. Graphical or visual analysis is another
activity. So, we generally you know plot a number of a number of graphics for example,
histogram, scatter plot, that we are going to discuss in later coming lecture other
activities that we can do is transformation of variables, creation of new variables and
normalization.

So, why we require, why we might need to do some of these activities would be more
clear on as we go further in coming lectures. Transformation creation of new variable for
example, sometimes you know we might require that you know sales figures has to be
you know in more than 10 million or less than 10 million kind of format then we might
have to transform our variable. Creation of new variables, if we do some of these
transformation we will end up with some of the new variables sometimes we might use
both the forms in our analysis. Normalization sometimes a scale could pose a problem in
a particular data mining algorithm or statistic call technique, therefore, normalization
might be required. So, these are some of the activities that we have to do.

Partitioning, partitioning is another essential part of a data mining modeling. So, be

generally partition our data set our sample into training were relation and test data sets.
Training is generally the a large partition and all the models all the elevation they are
generally applied on the training data set and then fine tuning or selection of a you know
particular algorithm or particular technique happens on the validation data set test data
set is again reevaluation of that final method.

Next phase of data mining process is model planning.

(Refer Slide Time: 06:27)

So, in this particular phase you know we need to determine the task that we have to
perform whether it is a prediction task or a classification task. We also need to select the
appropriate method for that particular task if it could be regression neural network, it
could be clustering discriminant analysis and many other methods that we are going to
discuss incoming lectures.

Now next phase is a model building, building different you know candidate models or
using or selected techniques in the previous steps and their variants. So, that is run using
training data then only we define and select the final model using the validation data then
evaluation component that happens the final model that is done on test data. So, in this
phase mainly it try out different candidate models we assess their performance we find
tuning them and then we finally, select a particular model.
(Refer Slide Time: 07:24)

Now, the next phase is results interpretation. So, once model evaluation you know
happens using performance matrix we can go on and interpret the results. So, one is the
exploratory part then another one could be the prediction part. So, all those interpretation
can actually be done in this particular phase, and they then the model deployment once
we are satisfied with the model that we have we can run a pilot project to. So, that we are
able to integrate and then the model on operational systems. So, that is the last phase.

Now, this is the typical data mining process that one has to follow. Similar data mining
methodologies were developed by SAS and IBM modeler that was previously known as
spaces (Refer Time: 08:10). So, these are the commercial software for a statistical
modeling and data mining modeling and they also follow a similar kind of data mining
mythology. So, for SAS methodology is call SEMAA, S E M A A and the IBM modelers
methodology is called crisp DM.
(Refer Slide Time: 08:29)

Now, at this point we need to understand the classification, important classification and
related to data mining techniques. So, data mining techniques can typically be divided
into supervised learning methods and unsupervised learning methods.

Now, what is supervised learning? So, in supervised learning algorithms are used to learn
the function f that can map input variables that is generally denoted by X into output
variables that is generally denoted by Y. So, algorithms they are used to learn a mapping
function, a function which can actually map input variables X into output variables Y as
you know you can also write this as Y as a function of X. Now, the main idea behind this
is we want to approximate of mapping function f such that new data on input variables
can actually be used to predict the output variables Y with minimum possible error. So,
that is the main idea. So, the whole model development that we do is and this you know
learning of this function is actually perform. So, that on new data we are able to predict
the outcome variables with minimum possible error.
(Refer Slide Time: 09:48)

Now, supervised learning problems can be further grouped into prediction and
classification problems that we have discussed before. Now, next is unsupervised
learning. So, in unsupervised learning algorithms are used to learn the underlying
structure or patterns hidden in the data. If you look at the examples again unsupervised
learning problems can be grouped into clustering and association rule learning problems.

(Refer Slide Time: 10:17)

Now, there are some other key concepts that can actually be we need to discuss before
we move further.
So, some of these concepts are related to sampling. So, we do not need to go into detail
of you know all the sampling related concepts, we will need what is mainly applicable
what is mainly relevant to a data mining process. First we need to understand the target
population. So, how we define a target population? Target population is the subset of the
population under study for example, in our sedan car example in the previous lecture it is
the household that was the target population. So, we wanted to study the household and
whether the own a sedan car or not. Now, results whenever we study a particular target
population it is generally understood that results are going to be generalized to the same
target population. Now, when we do an analysis we do not gather all the data of all the
data coming from the target population we take a sample of it, reason are as we have
discussed or indicated before cost related problems we cannot actually go about
collecting data from the whole population because it is going to be a very costly process.

So, therefore, the purpose of you know business analytics data mining modeling and
other related discipline is to reduce this cost and still have some useful insights or solved
some of the analytics problem. So, that is why we require sample. So, we generally take
a subset of a target population and then analyze the data that we have in that sample. So,
generally our data mining scope generally we might be mainly limited to simple random
sampling which is a sampling method where in each of observation has an equal chance
of being selected.

(Refer Slide Time: 12:27)

Now, what is random sampling? So, an sampling method where in each observation does
not necessarily have an equal chance of being selected. Generally simple random
sampling is used where each observation has a equal chance of being selected. The
problem with simple random sampling could be that sometimes the sampled population
could not be there represented of, could not be the proper you know representation of the
target population because of this you know equal probability of you know equal
probability of each observation being selected this could be one problem.

Sampling, next is sampling with replacement. So, when we do sampling with

replacement. So, when we pick an observation then that observation is placed back in the
sample then again for the next value it again has the equal chance of being selected. So,
in sampling with replacement, sampling values are independent. So, once an observation
is has means you know once and observation or case has been selected again the next
observation does not depend on this the first selection. It can again be the same case or
some other case. So, sample values are independent. When we say sampling without
replacement sample values are independent because once a particular case or observation
has been selected because of this without replacement procedure we cannot put it back
there. So, therefore, the remaining observation we have to select from the remaining
cases therefore, the next selections are going to be dependent on the previous selection.
So, that is why sample values are not independent.

(Refer Slide Time: 14:24)

Now, whenever we do sampling it is going to result in less number of observation than
the total number of observation that are present in the data set. Now, there are some
other, there are some issues that could again further bring down the number of
observation or variables in your sample. For example, data mining algorithm, so different
data mining algorithm they could have varying limitation on number of observation on
variables. They might not be able to handle you know more than a certain number of
observation or more than a certain number of variables so that could be one limitation
that could again limit your sample size.

Now, limitation can also be your due to computing power and storage capacity. So, the
available computing power and storage that you have for your analysis purpose, can also
either lower the speed or limit the number of observation the or number of variables that
can be handled. Similarly elimination can also be due to a statistical a software,
nowadays you already understand that different software they have different versions.
So, generally if you are using a free version of you know commercial software that can
actually limit the number of variables or number of observations that can actually be
studied. So, those limitations can further bring down your sample size.

Now, while we are discussing this about you know limitation related to number of
observations we need to understand how many observations are actually required to will
accurate models because the whole idea is to build accurate models build good models.
So, that we have good enough results which could be used on production systems later
on. Especially when we understand that the, you know we cannot get the data from the
you know target population we have to take a sample. So, cost is an important factor. So,
therefore, it is always you know better for us to understand the number of observation
number of you know sample size that would be sufficient for us to build accurate model
robust models.
(Refer Slide Time: 16:32)

Now, there are many other concepts related to you know data mining process that we
need to understand at this point, sampling size we will come back again. Now, next
concept is rare event. Now, typically when you are dealing with a particular data set now
if it is you know classification problem and you have a outcome variable where you have
you know for example, ownership that we talked about whether a household owns a car
or not. So, owner you know owner or non owner. So, that kind of scenario is there.

So, typically you know you know the split between observation belonging to owner class
and observation belonging to the non owner class there would 60 40 or around 50 50 or
you know that kind of ratio. But it might so happen that in a you know in a if it is rare
event that out of let us say 1000 households only 10 or 20 household actually own a
sedan car, then in that case it will make it a rare event, that ownership of a sedan car
could actually be a rare event in a particular target population. So, in that case how do we
do our modeling.

Another example would be low response rate in advertising by traditional mail or email.
So, you might be having different promotional or marketing advertising offers through
coming to you through traditional mails post and emails as well. Now not everyone is
going to respond to this offers. So, again this can also be a rare event. So, how do we do
our modeling? What are the issues that we face in this kind of situation? So, if you have
a particular class which is which has very few observation belonging to you know very
few observation actually belong to this class. So, any kind of modeling that you are
actually going to you know do using that particular data set might not give you an you
know good enough model right, it might become very difficult for you to get a model
build a model that will satisfy your main analytics goal.

For example, if you have 100 observation in your data set and 95 belong to the non
owner class and 5 belong to the owner class and main objective of your business problem
is to identify people who are owners. So, therefore, if you even if you do not build a
model a still you classify every household as a non owner still you will get 95 percent
accuracy of your model. So, in this case modeling for the success cases is becomes an
issue. So, how do we solve these problem we do over sampling. So, we do over sampling
of success cases so that means, we include more we duplicate many of the data points
which are belong to the success case or we change the ratio that means we take the
success cases data points observation and we also take the observation which belong to
the for example, in we take observation belonging to the owner class and we take the
observation belonging to the non owner class in a 50 50 kind of ratio or similar ratio.

This kind of problem again arises mainly in classification task now in other related
concept to this problem is cost of this classification. So, when we say that success class
is more important for us we are dealing with asymmetric cost here and because
identifying success class is more important for us because it is more important for us to
understand which customer is going to respond to our email you know promotional offer
and marketing offer. So, therefore, we dealing essentially dealing with asymmetric cost.

Now, generally if we are not able to identify success cases generally the cost of failing to
identify success cases or is going to be more than cost of detailed review of all cases
region being, if you are able to identify a particular customer that he or she is going to
respond to your offer then probably they are profit that you can earn by selling the
product or services to that customer would actually be more than cost of detailed review
of cases.

So, therefore, generally the benefit of identifying success cases is higher than that and
that is why modeling is modeling becomes premium. Now, other important aspect now
other important aspect of rare event is when you know success case is important for you
now prediction of success cases is always going to come at a cost of misclassifying a
failure case as a success case. Because if you out of 100 observation you have only 5
success cases you would like to identity all those 5 so that you are able to make a profit
from your offerings. So, therefore, eventually the model that you built you might end up
with you know identifying many failure cases also as a success cases. So, therefore, this
is going to be more than usual so, is usually if you have you know 50 50 case of success
case and failure success cases and failure cases your accuracy or your accuracy and error
can be on the error can be on the lower side, but in this case error would actually
increase, but the purpose is to identify success cases to in increase the profit.

Now, another important aspect of data mining process is dummy coding for categorical
variables.

(Refer Slide Time: 22:35)

Now, there could be some statistical software which cannot use categorical variables
expected in the label format. If you have format for example, if you have a variable like
you know gender where you have male or female or M or F has been those are the labels
that are they are in the data sets many a statistical software might not be able to use this
particular variable the directly. So, therefore, dummy binary you know dummy coding
might be required for these variables.

When we say dummy coding we actually create dummy binary variables. So, these are
actually having 0s and 1s, 0 indicating the absence of a particular type and 1 indicating
presence of a particular types. For example, if activity a status of individuals we have
data on activity status of individuals and has 4 (Refer Time: 23:29) and jointly
exhaustive classes for as a student unemployed, employed and retired then in that case
we can create different dummy variable wherever when a particular observation able to
belongs to if its activity status belongs to a student, it builts have the value as 1 if it does
not then it will have the value as 0, similarly for other observations and for other classes.

Now, if these types classes are usually exhaustive then we do not need to create all you
know four dummy variables. So, there are 4 types we do not need to create 4 dummy
variables because then being jointly exhaustive have been no 3 of them then the fourth
one is already known. So, therefore, we need to create only three dummy variables.

(Refer Slide Time: 24:21)

Now, another important concept is principle of parsimony. So, principle of parsimony is

about when you know a model or theory with less number of assumptions and variables,
but with high explanatory power is generally desirable. So, you are always looking to
develop a model or theory where you make as few assumptions as possible and you
include as few variables as possible and is still able to explain most of the phenomena
you know higher explanatory power. Most of the cases you are able to explain and less
number of your, you must be using less number of assumptions and variables. So, this is
a desirable property and in this particular course we will be putting more impasses,
impasses on this particular principle.
Now, another problem with you know more number of variable is that it is going to
increase your sample size requirements because you are always looking for a reliable,
you always want to estimate, you always want to compute a reliable estimate and if you
have more number of variables then your sample size requirement will increase to have
that higher reliability.

Now, another related problem is over fitting. So, what is over fitting? So, over fitting
generally arises when you know a model is built using a complex function that fits the
data perfectly. So, if your model is fitting the data perfectly then probably it might be
over fitting the data. So, what actually happens is you in the over fitting you in the fitting
the noise your model end up fitting the noise and explaining the chance variations. So,
you would ideally you would actually look to avoid explaining chance variations because
you are looking to understand the relationship which can then be used to predict the
future values all right. So, therefore, over fitting is something that is not desirable. Over
fitting can also arise due to more number of iterations, if we you do more number of
iteration that can result in excessive learning of data. So, that can also lead to over fitting.

(Refer Slide Time: 26:32)

If you have more number of variables in model some of those you know variables might
have a spurious relationship with your outcome variables all right. So, that can also lead
to over fitting.
Now, the next concept is related to sample size. So, how many observation should
actually be good enough for us to build, for you to build an accurate mode? So, domain
knowledge is the you know is important here to understand a sample choice because as
you do more and more modeling, more and more analytics you would be you know able
to understand different phenomenas the construct concepts variables you will have a
better hunch on or better rule of thumbs to understand how many observation will
actually be we will to build a model for a particular analytics problems. So, domain
knowledge is always going to be the crucial part.

We also have rule of thumbs for example, if you have p number of predictors 10 into p.
So, for 10 observation for predictor can actually be a good enough rule of thumb to
determine the sample size. Similarly for classification task also many researchers are
suggested some rule of thumb for example, 6 into m into p observation, where m is the
number of classes in the outcome variable and p is the number of predictors. So, that can
actually help you you know determine a sample size.

Now, another relevant concept is, another element concept is outlier.

(Refer Slide Time: 28:19)

Now, what is an outlier? So, outlier can briefly be defined as a distance distant data point
now important thing for us to understand is whether this distant data point is valid point
or erroneous point because if a particular data point is distance from the majority of the
values or very distance from the mean more than 3 d standard deviation away from the
mean then it could be you know it could be due to human error or measurement error. So,
we need to find out whether a particular data point is because of the human error or
measurement error for example, at you know a temperature a room value of you know
100 or 150 for a room temperature or temperature in a city you know could be you know
human error or measurement error. Sometimes there would be you know errors due to
decimal points and related you know typing error and all that. So, we need to identify
whether outlier whether it is a valid point or erroneous value.

So, how do we do that? So, generally you can do some manual inspection you can sort
your values and find out if anything looks out of place you can also do I mean you can
also look at the minimum and maximum value and form their you can try and identify
whether they are outliers whether they are errors clustering can also help you. So, you
can do clustering you could be able to see and whether a particular point is outline or not.
Domain knowledge, domain knowledge also going to help about this.

Now, next related concept is missing values you might come across a data set which is
very important for your particular you know your particular business analytics problems,
but few records you know few records have missing values. So, if those records are few
in numbers then probably you can remove those records and then go ahead with your
analysis, but if the number of records are more than probably that can end up eliminating
most of your observations. So, therefore, you need to handle those missing values.

Imputation is one way, so you impute those missing values with the average with the
average value of that particular variable right so that could be one solution. You can also
if that is also not, if that is also not desirable then another option is if you have many
missing values then you can identify the variables where the missing values are there and
if those variables are not very important for your analysis then probably you can think
about you know dropping them. If those variables are important for your analysis then
probably you can a look for proxy variable which is having less number of missing
variables and replace that particular variable with their appropriate proxy variables.
(Refer Slide Time: 31:15)

Another important concept is normalization. Many times in many techniques would

actually require different variables you know you would require for you to normalize
different variables. For example, distance based you know techniques you know
clusterings and other where distance is an important computation important part of the
process and, important part of the algorithm different you know variables having data
and different units can actually create problem they can actually dominate the
computation later with distance and we can influence the results.

So, in any scenarios normalization is the desired thing and the data mining process. So,
there are two popular ways of normalization one is standardization using z-score where
you subtract these values these value you know subtracted by mean and divided by
standard deviation. Then there is another min max normalization where you subtract
each value by the minimum value and then divide by the difference of max and min.
(Refer Slide Time: 32:35)

So, these are the key references.

Thank you.