Introduction

• The availability of massive amount of data, improvement in analytic

methodologies, and substantial increase in computing power have all
come together to results in a dramatic upsurge in the use of analytical
methods in business and reliance on the discipline of business
analytics.

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Introduction (Slide 1 of 3)
• Three developments spurred recent explosive growth in the use of
analytical methods in business applications:
• First development:
• Technological advances—scanner technology, data collection
through e-commerce, Internet social networks, and data
generated from personal electronic devices—produce incredible
amounts of data for businesses.
• Businesses want to use these data to improve the efficiency and
profitability of their operations, better understand their
customers, price their products more effectively, and gain a
competitive advantage.
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Introduction (Slide 2 of 3)
• Second development:
• Ongoing research has resulted in numerous methodological
developments, including:
• Advances in computational approaches to effectively handle and explore
massive amounts of data.
• Faster algorithms for optimization and simulation.
• More effective approaches for visualizing data.

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Introduction (Slide 3 of 3)
• Third development:
• The methodological developments were paired with an explosion
in computing power and storage capability.
• Better computing hardware, parallel computing, and cloud
computing have enabled businesses to solve big problems faster
and more accurately than ever before.

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Decision Making

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Decision Making (Slide 1 of 4)
• Managers’ responsibility:
To make strategic, tactical, or operational decisions.
• Strategic decisions:
• Involve higher-level issues concerned with the overall direction of
the organization.
• Define the organization’s overall goals and aspirations for the
future.

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Decision Making (Slide 2 of 4)
• Tactical decisions:
• Concern how the organization should achieve the goals and
objectives set by its strategy.
• Are usually the responsibility of midlevel management.
• Operational decisions:
• Affect how the firm is run from day to day.
• Are the domain of operations managers, who are the closest to
the customer.

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Decision Making (Slide 3 of 4)
Decision making can be defined as the following process:
1. Identify and define the problem.
2. Determine the criteria that will be used to evaluate alternative
solutions.
3. Determine the set of alternative solutions.
4. Evaluate the alternatives.
5. Choose an alternative.

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Decision Making (Slide 4 of 4)
Common approaches to making decisions include:
• Tradition: (“We have always done it this way”)
• Intuition: (“I have a feeling this is this the best decision”)
• Rules of thumb: (“As the restaurant owner, I schedule twice the
number of waiters and cooks on holidays”)
• Using the relevant data available: Converting the stored data
electronically so that they can be use to be more efficient and
effective in managing the managers’ business.

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Business Analytics Defined

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Business Analytics Defined (Slide 1 of 2)
Business analytics:
• Scientific process of transforming data into insight for making
better decisions.
• Used for data-driven or fact-based decision making, which is often
seen as more objective than other alternatives for decision
making.

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Business Analytics Defined (Slide 2 of 2)
Tools of business analytics can aid decision making by:
• Creating insights from data.
• Improving our ability to more accurately forecast for planning.
• Helping us quantify risk.
• Yielding better alternatives through analysis and optimization.

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A Categorization of Analytical
Methods and Models
Descriptive Analytics
Predictive Analytics
Prescriptive Analytics

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A Categorization of Analytical Methods and
Models (Slide 1 of 8)
(1) Descriptive Analytics:
• Descriptive analytics: Encompasses the set of techniques that describes
what has happened in the past; examples include:
• Data queries.
• Reports.
• Descriptive statistics.
• Data visualization (including data dashboards).
• Data-mining techniques.
• Basic what-if spreadsheet models.

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A Categorization of Analytical Methods and
Models (Slide 1 of 8)
• Data query: A request for information with certain characteristics from a
database.
• Example: A report summarizing relevant historical information for
management might be conveyed by the use of descriptive statistics,
(means, measure of variation, …) and data visualization tools (tables and
charts)

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A Categorization of Analytical Methods and
Models (Slide 2 of 8)
Descriptive Analytics (cont.):
• Data dashboards: Collections of tables, charts, maps, and summary
statistics that are updated as new data become available.
• Uses of dashboards:
• To help management monitor specific aspects of the company’s performance
related to their decision-making responsibilities.
• For corporate-level managers, daily data dashboards might summarize sales by
region, current inventory levels, and other company-wide metrics.
• Front-line managers may view dashboards that contain metrics related to
staffing levels, local inventory levels, and short-term sales forecasts.

© 2019 Cengage. All Rights Reserved.

A Categorization of Analytical Methods and
Models (Slide 3 of 8)
Descriptive Analytics (cont.):
• Data mining: The use of analytical techniques for better understanding
patterns and relationships that exist in large data sets.
• Examples of data-mining techniques include:
• Cluster analysis.
• Sentiment analysis.

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A Categorization of Analytical Methods and
Models (Slide 3 of 8)
Clustering is the process of making a group of abstract objects into classes of
similar objects.
•Cluster analysis: It is broadly used in many applications such as market
research, pattern recognition, data analysis, and image processing.
• Clustering can also help marketers discover distinct groups in their
customer base. And they can characterize their customer groups based on
the purchasing patterns.

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A Categorization of Analytical Methods and
Models (Slide 3 of 8)
Example:
• By analyzing text on social network platform like Twitter, data mining
techniques (including cluster analysis and sentiment analysis) are used by
companies to better understand their customers.
• By categorizing certain words as positive or negative and keeping track of how
often those words appear in tweets, a company like Apple can better understand
how often its customers are feeling about its products like the Apple watch.

© 2019 Cengage. All Rights Reserved.

A Categorization of Analytical Methods and
Models (Slide 3 of 8)
• Sentiment analysis: A type of data mining that measures the inclination of
people’s opinions through natural language processing (NLP),
computational linguistics and text analysis, which are used to extract and
analyze subjective information from the Web - mostly social media and
similar sources.
• The analyzed data quantifies the general public's sentiments or reactions
toward certain products, people or ideas and reveal the contextual polarity
of the information.
• Sentiment analysis is also known as opinion mining.

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A Categorization of Analytical Methods and
Models (Slide 3 of 8)
Example:
• Sentiment Analysis on Twitter for determining the sentiment of tweets on
the whole or on a very narrow topic like sentiment of one particular
person's tweets.
• It can also be applied on datasets of Amazon to find the average sentiment
score of a particular product based on user reviews, or for any restaurant
review data.

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A Categorization of Analytical Methods and
Models (Slide 4 of 8)
(2) Predictive Analytics:
• Predictive analytics: Consists of techniques that use models constructed
from past data to predict the future or ascertain the impact of one variable
on another.
• Survey data and past purchase behavior may be used to help predict the
market share of a new product.

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A Categorization of Analytical Methods and
Models (Slide 5 of 8)
Predictive Analytics (cont.):
• Techniques used in Predictive Analytics include:
• Linear regression.
• Time series analysis.
• Data mining is used to find patterns or relationships among elements of the
data in a large database; often used in predictive analytics.
• Simulation involves the use of probability and statistics to construct a
computer model to study the impact of uncertainty on a decision.

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A Categorization of Analytical Methods and
Models (Slide 6 of 8)
(3) Prescriptive Analytics:
• Prescriptive Analytics: Indicates a best course of action to take:
• Provide a forecast or prediction, but do not provide a decision.
• A forecast or prediction, when combined with a rule, becomes a prescriptive
model.
• Prescriptive models that rely on a rule or set of rules are often referred to as
rule-based models.

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A Categorization of Analytical Methods and
Models (Slide 6 of 8)
(3) Prescriptive Analytics
Other examples are:
• Optimization models
• Simulation optimization
• Decision analysis

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A Categorization of Analytical Methods and
Models (Slide 7 of 8)
Prescriptive Analytics (cont.): Other examples
Model Field Purpose
Portfolio models Finance Use historical investment return data to determine the mix of
investments that yield the highest expected return while controlling
or limiting exposure to risk.

Supply network Operations Provide the cost-minimizing plant and distribution center locations
design models subject to meeting the customer service requirements.

Price-markdown models Retailing Use historical data to yield revenue-maximizing discount levels and
the timing of discount offers when goods have not sold as planned.

• Optimization models: Models that give the best decision subject to

constraints of the situation.

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A Categorization of Analytical Methods and
Models (Slide 8 of 8)
Prescriptive Analytics (cont.):
• Simulation optimization: Combines the use of probability and statistics
to model uncertainty with optimization techniques to find good
decisions in highly complex and highly uncertain settings.
• Decision analysis:
• Used to develop an optimal strategy when a decision maker is faced with
several decision alternatives and an uncertain set of future events.
• Employs utility theory, which assigns values to outcomes based on the
decision maker’s attitude toward risk, loss, and other factors.

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Big Data
Volume
Velocity
Variety
Veracity

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Big Data (Slide 1 of 7)
• Big data: Any set of data that is too large or too complex to be
handled by standard data-processing techniques and typical desktop
software.
• IBM describes the phenomenon of big data through the four Vs (as
shown in Figure 1.1):
• Volume.
• Velocity.
• Variety.
• Veracity.
https://www.youtube.com/watch?v=xLSbgqXrBxw

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Big Data (Slide 2 of 7)
Figure 1.1: The 4 Vs of Big Data

Source: IBM

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Big Data (Slide 3 of 7)
Volume:
• Because data are collected electronically, we are able to collect more of it.
• To be useful, these data must be stored, and this storage has led to vast
quantities of data.
Velocity:
• Real-time capture and analysis of data present unique challenges both in
how data are stored and the speed with which those data can be analyzed
for decision making.

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Big Data (Slide 4 of 7)
Variety:
• More complicated types of data are now available and are proving to be of
great value to businesses.
• Text data are collected by monitoring what is being said about a company’s
products or services on social media platforms.
• Audio data are collected from service calls.
• Video data are collected by in-store video cameras and used to analyze
shopping behavior.
• Analyzing information generated by these nontraditional sources is more
complicated in part because of the processing required to transform the
data into a numerical form that can be analyzed.

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Big Data (Slide 5 of 7)
Veracity:
• Veracity has to do with how much uncertainty is in the data.
• Inconsistencies in units of measure and the lack of reliability of responses
in terms of bias also increase the complexity of the data.

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Big Data (Slide 6 of 7)
• Represents opportunities.
• Presents challenges in terms of data storage and processing, security,
and available analytical talent.
• The four Vs have led to new technologies:
• Hadoop: An open-source programming environment that supports big
data processing through distributed storage and processing on clusters
of computers.
• To handle massive amount of data, hadoop divides the storage and
processing over multiple computers.

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Big Data (Slide 6 of 7)
• Represents opportunities.
• MapReduce: A programming model used within Hadoop that performs
two major steps: the map step and the reduce step.
• The map step divides the data into manageable subsets and distributes
it to the computers in the cluster (named nodes) for storing and
processing.
• The reduce step collects the answers from the nodes and combines
them into an answer to the original problems.
• Without these technologies, processing big data would not be cost-
effective or possible.

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Big Data (Slide 7 of 7)
• Data security, the protection of stored data from destructive forces or
unauthorized users, is of critical importance to companies.
• The complexities of the 4 Vs have increased the demand for analysts,
but a shortage of qualified analysts has made hiring more challenging.
• More companies are searching for data scientists, who know how to
process and analyze massive amounts of data.
• The Internet of Things (IoT) is the technology that allows data,
collected from sensors in all types of machines, to be sent over the
Internet to repositories where it can be stored and analyzed.

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Business Analytics in Practice
Financial Analytics Supply-Chain Analytics
Human Resource (HR) Analytics Analytics for Government and Nonprofits
Marketing Analytics Sports Analytics
Health Care Analytics Web Analytics

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Business Analytics in Practice (Slide 1 of 11)
Figure 1.2: The Spectrum of Business Analytics

Source: Adapted from SAS

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Business Analytics in Practice (Slide 2 of 11)
• Predictive and prescriptive analytics are sometimes referred to as
advanced analytics.
Financial Analytics:
• Use of predictive models to:
• Forecast financial performance.
• Assess the risk of investment portfolios and projects.
• Construct financial instruments such as derivatives.
• Construct optimal portfolios of investments.
• Allocate assets.
• Create optimal capital budgeting plans.
• Simulation is also often used to assess risk in the financial sector.

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Business Analytics in Practice (Slide 3 of 11)
Human Resource (HR) Analytics:
• New area of application for analytics.
• The HR function is charged with ensuring that the organization:
• Has the mix of skill sets necessary to meet its needs.
• Is hiring the highest-quality talent and providing an environment that
retains it.
• Achieves its organizational diversity goals.

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Business Analytics in Practice (Slide 4 of 11)
Marketing Analytics:
• Marketing is one of the fastest-growing areas for the application of
analytics.
• A better understanding of consumer behavior through the use of scanner
data and data generated from social media has led to an increased
interest in marketing analytics.

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Business Analytics in Practice (Slide 5 of 11)
Marketing Analytics (cont.):
• A better understanding of consumer behavior through marketing
analytics leads to:
• Better use of advertising budgets.
• More effective pricing strategies.
• Improved forecasting of demand.
• Improved product-line management.
• Increased customer satisfaction and loyalty.

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Business Analytics in Practice (Slide 6 of 11)
Health Care Analytics:
• Descriptive, predictive, and prescriptive analytics are used to improve:
• Patient, staff, and facility scheduling.
• Patient flow.
• Purchasing.
• Inventory control.
• Use of prescriptive analytics for diagnosis and treatment may prove to be
the most important application of analytics in health care.

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Business Analytics in Practice (Slide 7 of 11)
Supply-Chain Analytics:
• The core service of companies such as UPS and FedEx is the efficient
delivery of goods, and analytics has long been used to achieve efficiency.
• The optimal sorting of goods, vehicle and staff scheduling, and vehicle
routing are all key to profitability for logistics companies such as UPS and
FedEx.
• Companies can benefit from better inventory and processing control and
more efficient supply chains.

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Business Analytics in Practice (Slide 8 of 11)
Analytics for Government and Nonprofits:
• Analytics for government to:
• Drive out inefficiencies.
• Increase the effectiveness and accountability of programs.
• Analytics for nonprofit agencies to ensure their effectiveness and
accountability to their donors and clients.

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Business Analytics in Practice (Slide 9 of 11)
Sports Analytics
• Professional sports teams use to:
• Assess players for the amateur drafts.
• Decide how much to offer players in contract negotiations.
• Professional motorcycle racing teams use sophisticated optimization for
gearbox design to gain competitive advantage.
• Teams use to assist with on-field decisions such as which pitchers to use
in various games of a MLB playoff series.

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Business Analytics in Practice (Slide 10 of 11)
Sports Analytics (cont.):
• The use of analytics for off-the-field business decisions is increasing
rapidly.
• Using prescriptive analytics, franchises across several major sports
dynamically adjust ticket prices throughout the season to reflect the
relative attractiveness and potential demand for each game.

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Business Analytics in Practice (Slide 11 of 11)
Web Analytics:
• The analysis of online activity, which includes, but is not limited to, visits
to web sites and social media sites such as Facebook and LinkedIn.
• Leading companies apply descriptive and advanced analytics to data
collected in online experiments to determine the best way to:
• Configure web sites.
• Position ads.
• Utilize social networks for the promotion of products and services.

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