Topic 1 Introduction to Analytics

Vincent Hoang (2022), Lecture 1

Camn et al (2016), Chapter 1
Vidgen, R.T., 2020. Creating Business Value from Big Data and Business Analytics: Organizational,
Managerial and Human Resource Implications
Learning goals

WHAT IS BUSINESS TYPES OF BUSINESS DATA FOR BUSINESS VALUE CREATION

ANALYTICS? ANALYTICS ANALYTICS
 Analytics
Analytics can be
considered any
data – driven
process that
provides insight.

Vidgen, R.T., 2020. Creating Business Value from Big Data and Business Analytics: Organizational, Managerial and Human Resource Implications.
Vidgen, R.T., 2020. Creating Business Value from Big Data and Business Analytics: Organizational, Managerial and Human Resource Implications.
Analytics
• Reporting (business intelligence) & performance management tend to focus on
what happened—that is, they analyse and present historical information.
• Advanced analytics aims to understand why things are happening and predict
what will happen.
• The distinguishing characteristic between these two is the use of higher-order
statistical and mathematical techniques including
◦ Operations research
◦ Parametric or nonparametric statistics
◦ Multivariate analysis
◦ Algorithmically based predictive models (such as decision trees, regressions, etc.)
Business Analytics
• Business analytics leverages all forms of analytics to achieve
business outcomes.
• Business analytics adds to analytics by requiring:
◦ Business relevancy – BA makes distinction between relevant and irrelevant
knowledge for improved business operation.
◦ Actionable insight – BA to identify insights that can guide actions.
◦ Performance measurement – Performance or improvement in performance
need to be “measurable”
◦ Value measurement – BA needs to create values.
Analytics vs Business Analytics
• Analytics provides insights (new knowledge) and answer(s) to a question
(at a time)
• BA provide relevant and valuable insights (real and measurable) given the
business’ strategic and tactical objectives.
• More importantly, BA is about sustained deliveries of values to the
organisations.
• Consider a model that is 80 percent accurate but can be acted on creates
far more value than an extremely accurate model that cannot be
deployed.
 Measurable
Outcomes
(Values)
Actionable
Insights

Relevant Knowledge

New Knowledge

Existing Information & Knowledge

Define Business Analytics
• Business analytics is the use of data-driven insight to generate
value. It does so by requiring business relevancy, the use of
actionable insight, and performance measurement and value
measurement.
• Source: Stubbs, E., 2011. The Value of Business Analytics :
Identifying the Path to Profitability. John Wiley, Hoboken, N.J.
Define Business Analytics
• Business analytics is a process of transforming data into actions through
analysis and insights in the context of organizational decision making and
problem solving.
• Business 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.
• Source: Evans, J. R. Business Analytics, Global Edition, 3rd Edition
Business Analytics

(Business) 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.
Common examples of applications
• Pricing: setting prices for consumer and industrial goods, government contracts, and maintenance
contracts
• Customer segmentation: identifying and targeting key customer groups in retail, insurance, and credit
card industries
• Merchandising: determining brands to buy, quantities, and allocations
• Location: finding the best location for bank branches and ATMs, or where to service industrial
equipment
• Supply Chain Design: determining the best sourcing and transportation options and finding the best
delivery routes
• Staffing: ensuring appropriate staffing levels and capabilities, and hiring the right people
• Health care: scheduling operating rooms to improve utilization, improving patient flow and waiting
times, purchasing supplies, and predicting health risk factors
Learning goals

WHAT IS BUSINESS TYPES OF BUSINESS DATA FOR BUSINESS VALUE CREATION

ANALYTICS? ANALYTICS ANALYTICS
Types of BA
• Descriptive (& diagnostic) analytics: the use of data to understand
past and current performance and make informed decisions.
• Predictive analytics: predict the future by examining historical data,
detecting patterns or relationships in these data, and then
extrapolating these relationships forward in time.
• Prescriptive analytics: identify the best alternatives to minimize or
maximize some objective.
Dimension Descriptive Predictive Prescriptive
Analytics Analytics (Advanced
(Business (Advanced Analytics)
Intelligence) Analytics)
Relevant What happened? What will happen? What should I do?
Questions What is happening? Why will it happen? Why should I do it?

Enables Business reporting; Data mining; Optimization;

Dashboards; Text mining; Simulation;
Scorecards; Web/media mining; Decision modelling;
Data warehousing Machine learning Network science

Outcomes Well-defined business Accurate projections of Best possible business

problems and future events and decisions and actions
opportunities outcomes
Visual
Perspective of
Business
Analytics
Covered Topics
Source: Silva, António João; Paulo Cortez; Carlos Pereira and
André Pilastri. 2021. "Business Analytics in Industry 4.0: A
Systematic Review." Expert Systems, 38(7).
Drivers of BA growth
1. A need to make better decisions (how about faster decisions?)
2. Cultural change towards evidence-based management
3. The availability of large volumes of data, or “big data”
4. Advances in computing power and machine learning algorithms.
Source: Delen, D., Ram, S., 2018. Research Challenges and Opportunities in Business Analytics.
Journal of Business Analytics 1, 2-12
Not all BA projects are successful….
• In 2017, Gartner’s Nick Heudecker: the actual failure rate in large organizations
closer to 85%.
• Harvard Business Review: A four-year study of major analytics initiatives in large
companies (n=36) reported that less than half reported measurable results and
only a third had met their objectives of widespread adoption.
• “Through 2022, only 20% of analytic insights will deliver business outcomes” by
Andrew White, a key Gartner analyst.
 BA capability is very crucial

Vidgen, R.T., 2020. Creating Business Value from Big Data and Business Analytics: Organizational, Managerial and Human Resource Implications.
Learning goals

WHAT IS BUSINESS TYPES OF BUSINESS DATA FOR BUSINESS VALUE CREATION

ANALYTICS? ANALYTICS ANALYTICS
Data for Business Analytics

 Data: numerical or textual facts and figures that are collected

through some type of measurement process.
 Information: result of analyzing data; that is, extracting meaning
from data to support evaluation and decision making.
Examples of Data Sources and Uses

 Annual reports
 Accounting audits
 Financial profitability analysis
 Economic trends
 Marketing research
 Operations management performance
 Human resource measurements
 Web behavior
 page views, visitor’s country, time of view, length of time, origin and destination paths, products
they searched for and viewed, products purchased, what reviews they read, and many others.
Data Sets and Databases
• Data set - a collection of data.
◦ Examples: Marketing survey responses, a table of historical stock prices, and a
collection of measurements of dimensions of a manufactured item.

• Database - a collection of related files containing records on people,

places, or things.
◦ A database file is usually organized in a two-dimensional table, where the
columns correspond to each individual element of data (called fields, or
attributes), and the rows represent records of related data elements.
Example 1.2: A Sales Transaction Database File

Records

Entities Fields or Attributes

Big Data
• Big data to refer to massive amounts of business data from a wide variety of
sources, much of which is available in real time, and much of which is uncertain
or unpredictable. IBM calls these characteristics volume, variety, velocity, and
veracity.
• “The effective use of big data has the potential to transform economies,
delivering a new wave of productivity growth and consumer surplus. Using big
data will become a key basis of competition for existing companies, and will
create new competitors who are able to attract employees that have the critical
skills for a big data world.” - McKinsey Global Institute, 2011
Metrics and Data Classification

 Metric - a unit of measurement that provides a way to objectively

quantify performance.
 Measurement - the act of obtaining data associated with a metric.
 Measures - numerical values associated with a metric.
 Types of Metrics
• Discrete metric - one that is derived from counting something.
◦ For example, a delivery is either on time or not; an order is complete or
incomplete; or an invoice can have one, two, three, or any number of errors.
Some discrete metrics would be the proportion of on-time deliveries; the
number of incomplete orders each day, and the number of errors per invoice.

• Continuous metrics are based on a continuous scale of

measurement.
◦ Any metrics involving dollars, length, time, volume, or weight, for example, are
continuous.
Measurement Scales

 Categorical (nominal) data - sorted into categories according to

specified characteristics.
 Ordinal data - can be ordered or ranked according to some
relationship to one another.
 Interval data - ordinal but have constant differences between
observations and have arbitrary zero points.
 Ratio data - continuous and have a natural zero.
Example 1.3: Classifying Data Elements
 Data Reliability and Validity
• Reliability - data are accurate and consistent.

• Validity - data correctly measures what it is supposed to measure.

• Examples:
◦ A tire pressure gage that consistently reads several pounds of pressure below the true value is not
reliable, although it is valid because it does measure tire pressure.
◦ The number of calls to a customer service desk might be counted correctly each day (and thus is a
reliable measure) but not valid if it is used to assess customer dissatisfaction, as many calls may be
simple queries.
◦ A survey question that asks a customer to rate the quality of the food in a restaurant may be neither
reliable (because different customers may have conflicting perceptions) nor valid (if the intent is to
measure customer satisfaction, as satisfaction generally includes other elements of service besides
food).
Learning goals

WHAT IS BUSINESS TYPES OF BUSINESS DATA FOR BUSINESS VALUE CREATION

ANALYTICS? ANALYTICS ANALYTICS
Value Creation
• Value: what does this mean to you?
• Value creation:
◦ New value creation: BA can create something entirely new
◦ New product, new service, new market
◦ More value creation: BA can make existing process more efficient
◦ Lower costs  (holding revenues constant)  more profit
◦ Higher revenue (through higher prices, more quantities of sales, etc.)  (holding cost increases less) 
more profit
◦ Better value creation: BA can make existing process “better”
◦ Better customer services through higher product quality, better quality control, faster responses to
customers’ needs, etc.
The value of BA: without action there is no value
• Companies that put data at the center of marketing and sales decisions
improve marketing ROI by 12 – 20% (McKinsey, “Big Data, Analytics, and the
Future of Marketing and Sales”, 2013)
• Companies that successfully use data outperform peers by up to 20% (EY,
“Ready for takeoff”, 2014).
• Companies that adopt data-driven decision making have output and
productivity that is 5-6% higher than what would be expected given other
investments (MIT, “Strength in Numbers: How does DDD Affect a Firm’s
Performance”, 2011).
The Gartner Business Value Model
• 3 business aspects: aggregate measures, each has many prime
metrics
Values: the perspective of firms
• To increase the efficiency of converting inputs into value – added outputs
◦ Cost, revenue, profits, productive efficiency, productivity, profitability
◦ Innovations, new products and services, etc.
◦ Market share and other competitive advantages including customer relationships

• To deliver a return to shareholders

• To jointly benefit other stakeholders in the supply chain and the economy
Values: the perspective of public sectors
• Public Sector Perspective
◦ To intervene to mediate and resolve various forms of market failure
◦ Natural environment: pollution, natural resources, natural disasters, climate change, etc.
◦ Health and safety and others
◦ To increase social welfare
◦ To provide for national security and economic stability