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IIMB Predictive Analytics Course Overview

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Koteswari Kasireddy

The document discusses predictive analytics and business analytics. It provides definitions of business analytics and its components including descriptive, predictive, and prescriptive analytics. Examples of how various companies have used analytics for competitive advantage are provided. The role of data and analytics in decision making is explored through examples such as Florence Nightingale's analysis of the causes of cholera outbreak. A framework for data-driven decision making including problem identification, data collection, preprocessing, model building, and communication is also summarized.

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Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore In God we trust, all others must bring data! -W Edwards Deming
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Corporate Decision Making: The HIPPO Algorithm Highest Paid Person’s Opinion
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Business Analytics - Definition Business analytics (BA) refers to the tools, techniques and processes for continuous exploration and investigation of past data to gain insights and help in decision making. Business Analytics is an integration between science, technology and business context that assist data driven decision making.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Analytics Technology Business Context
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Data Explosion • About seven billion shares change hand in US equity markets everyday. • About 350 million photos are uploaded every day in the Facebook. • Amount of credit card debt in US: $890.91 billion. • Total amount of credit card fraud worldwide: $5.5 billion. • Number of bankruptcies filed in US in 2014 is 910, 090. • Percentage of US credit card holders who have been victims of credit card fraud: 10% • Every week, about 260 million customers visit Walmart stores.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Reference Links: https://goo.gl/s5hFFP http://goo.gl/LD4AB8 http://goo.gl/zPRZXb http://goo.gl/iRzxKt http://goo.gl/JpRcLW
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Why Analytics? • Competitive advantage. • Removes inefficiency in the system/organization. • Provides ability to make better decisions.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : https://goo.gl/7Yu0dY
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Problems faced by Flipkart • Forecast demand for each SKU. • Predict customer cancellations and returns. • Predict customer contacts at the customer service. • Predict what a customer is likely to purchase in future? • How to optimize the delivery system?
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : http://goo.gl/JH19of
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 1 – DOSA KING
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 2 – Johnson & Johnson (1992) James E Burke
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 3 – British Airways BA038 (2008) Peter Burkill URL : https://goo.gl/z4lkwp
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore DECISION MAKING Sufficient time Little Time No Time Not much Data Incomplete Data Runs into terabytes Narayanan Peter Burkill James E Burke
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore The Game Changers… • Google : Used Markov chains to rank pages (25 billion dollar eigen vector). • Proctor and Gamble : Analytics as competitive strategy. • Target : Predicts customer pregnancy (37 Billion Dollar Industry). • Capital One : Identifies the most profitable customer. • Hewlett Packard : Developed “flight risk score” for employees. • Obama’s 2012 presidential campaign : Persuasion Modelling.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore The Innovators… • OK Cupid: Predicted which online dating messages is most likely to get a response! • Polyphonic HMI: Uses “hit song science” to predict commercial success of a song. • Netflix: Predicts movie ratings by customers (RMSE is 1%). • Amazon.com: 35% of sales come from product recommendations. • Divorce360.com: Predicting success of a marriage!
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore There is a striking correlation between an organization's analytics sophistication and its competitive performance. 10 Insights: A first look at the new intelligent enterprise survey on winning with data, MIT Sloan Management Review, Vol 52, No 1, 2010 Data Scientists will be the sexiest job of 21st century! Harvard Business Review 2012
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore https://goo.gl/TytKtK http://goo.gl/omLmzq http://goo.gl/w4NRkO http://goo.gl/zPf9Xc http://goo.gl/u9Hz5K https://goo.gl/8beA2x http://goo.gl/nbJBF8 http://goo.gl/c4URBa http://goo.gl/SEdCiG Reference Links
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Descriptive Analytics Prescriptive Analytics Predictive Analytics Analytics Data synthesis and Visualization Predicting future events Optimization and decision making
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Components of Business Analytics Descriptive analytics Predictive analytics Prescriptive analytics • Communicates the hidden facts and trends in the data • Simple analysis of data can lead to business practices that result in financial rewards • Helps SMEs uncover inefficiencies and eliminate them • Predicts the probability of occurrence of a future event • Helps organizations to plan their future course of action • Most frequently used type of analytics across several industries • Assists users in finding the optimal solution to a problem • In most cases, provides an optimal solution/decision to the problem • Inventory management is one of the problems that are most frequently addressed
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Power of Descriptive Analytics
London Cholera Outbreak - 1854 Severe outbreak of cholera that occurred near Broad Street (now Broad wick street) in Soho district of London in 1854. More than 500 people died within 10 days of the outbreak, the mortality rate in some parts of the city was as high as 12.8%.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : https://goo.gl/C1FhaI
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore To understand God’s thoughts, we must study statistics, for these are the measures of his purpose. - Florence Nightingale
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Florence Nightingale’s Pie Chart
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Facebook Relationship Breakups URL : https://goo.gl/3pklyF
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Predictive Analytics deals with predicting probability of an event.
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Predictive Analytics Problems • Which product the customer is likely to buy in his next purchase ? (recommender system). • Which customer is likely to default in his/her loan payment ? (credit risk). • Who is likely to cancel the product that was ordered through e-commerce portal ?
Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore FRAMEWORK- DATA-DRIVEN DECISION MAKING • Domain knowledge is very important at this stage of the analytics project. • This will be a major challenge for many companies who do not know the capabilities of analytics. Problem or Opportunity Identification • Once the problem is defined clearly, the project team should identify and collect the relevant data. • This may be an interactive process since "relevant data" may not be known in advance in many analytics projects. • The existence of ERP systems will be very useful at this stage. Collection of relevant data • Data preparation and data processing forms a significant proportion of any analytics project. • his would include data imputation and the creation of additional variables such as interaction variables and dummy variables in the case of predictive analytics projects. Data Pre-processing • Analytics model building is an iterative process that aims to find the best model. • Several analytical tools and solution procedures will be used to find the best analytical model in this stage. Model Building • The communication of the analytics output to the top management and clients plays a crucial role. • Innovative data visualization techniques may be used in this stage. Communication of the data analysis

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IIMB Predictive Analytics Course Overview

  • 1. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 2. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore In God we trust, all others must bring data! -W Edwards Deming
  • 3. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Corporate Decision Making: The HIPPO Algorithm Highest Paid Person’s Opinion
  • 4. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Business Analytics - Definition Business analytics (BA) refers to the tools, techniques and processes for continuous exploration and investigation of past data to gain insights and help in decision making. Business Analytics is an integration between science, technology and business context that assist data driven decision making.
  • 5. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Analytics Technology Business Context
  • 6. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Data Explosion • About seven billion shares change hand in US equity markets everyday. • About 350 million photos are uploaded every day in the Facebook. • Amount of credit card debt in US: $890.91 billion. • Total amount of credit card fraud worldwide: $5.5 billion. • Number of bankruptcies filed in US in 2014 is 910, 090. • Percentage of US credit card holders who have been victims of credit card fraud: 10% • Every week, about 260 million customers visit Walmart stores.
  • 7. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Reference Links: https://goo.gl/s5hFFP http://goo.gl/LD4AB8 http://goo.gl/zPRZXb http://goo.gl/iRzxKt http://goo.gl/JpRcLW
  • 8. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 9. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Why Analytics? • Competitive advantage. • Removes inefficiency in the system/organization. • Provides ability to make better decisions.
  • 10. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : https://goo.gl/7Yu0dY
  • 11. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Problems faced by Flipkart • Forecast demand for each SKU. • Predict customer cancellations and returns. • Predict customer contacts at the customer service. • Predict what a customer is likely to purchase in future? • How to optimize the delivery system?
  • 12. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : http://goo.gl/JH19of
  • 13. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 14. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 1 – DOSA KING
  • 15. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 2 – Johnson & Johnson (1992) James E Burke
  • 16. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore STORY 3 – British Airways BA038 (2008) Peter Burkill URL : https://goo.gl/z4lkwp
  • 17. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore DECISION MAKING Sufficient time Little Time No Time Not much Data Incomplete Data Runs into terabytes Narayanan Peter Burkill James E Burke
  • 18. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 19. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore The Game Changers… • Google : Used Markov chains to rank pages (25 billion dollar eigen vector). • Proctor and Gamble : Analytics as competitive strategy. • Target : Predicts customer pregnancy (37 Billion Dollar Industry). • Capital One : Identifies the most profitable customer. • Hewlett Packard : Developed “flight risk score” for employees. • Obama’s 2012 presidential campaign : Persuasion Modelling.
  • 20. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore The Innovators… • OK Cupid: Predicted which online dating messages is most likely to get a response! • Polyphonic HMI: Uses “hit song science” to predict commercial success of a song. • Netflix: Predicts movie ratings by customers (RMSE is 1%). • Amazon.com: 35% of sales come from product recommendations. • Divorce360.com: Predicting success of a marriage!
  • 21. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore There is a striking correlation between an organization's analytics sophistication and its competitive performance. 10 Insights: A first look at the new intelligent enterprise survey on winning with data, MIT Sloan Management Review, Vol 52, No 1, 2010 Data Scientists will be the sexiest job of 21st century! Harvard Business Review 2012
  • 22. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore https://goo.gl/TytKtK http://goo.gl/omLmzq http://goo.gl/w4NRkO http://goo.gl/zPf9Xc http://goo.gl/u9Hz5K https://goo.gl/8beA2x http://goo.gl/nbJBF8 http://goo.gl/c4URBa http://goo.gl/SEdCiG Reference Links
  • 23. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 24. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Descriptive Analytics Prescriptive Analytics Predictive Analytics Analytics Data synthesis and Visualization Predicting future events Optimization and decision making
  • 25. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Components of Business Analytics Descriptive analytics Predictive analytics Prescriptive analytics • Communicates the hidden facts and trends in the data • Simple analysis of data can lead to business practices that result in financial rewards • Helps SMEs uncover inefficiencies and eliminate them • Predicts the probability of occurrence of a future event • Helps organizations to plan their future course of action • Most frequently used type of analytics across several industries • Assists users in finding the optimal solution to a problem • In most cases, provides an optimal solution/decision to the problem • Inventory management is one of the problems that are most frequently addressed
  • 26. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Power of Descriptive Analytics
  • 27. London Cholera Outbreak - 1854 Severe outbreak of cholera that occurred near Broad Street (now Broad wick street) in Soho district of London in 1854. More than 500 people died within 10 days of the outbreak, the mortality rate in some parts of the city was as high as 12.8%.
  • 28. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 29. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore URL : https://goo.gl/C1FhaI
  • 30. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore To understand God’s thoughts, we must study statistics, for these are the measures of his purpose. - Florence Nightingale
  • 31. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Florence Nightingale’s Pie Chart
  • 32. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Facebook Relationship Breakups URL : https://goo.gl/3pklyF
  • 33. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore
  • 34. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Predictive Analytics deals with predicting probability of an event.
  • 35. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore Predictive Analytics Problems • Which product the customer is likely to buy in his next purchase ? (recommender system). • Which customer is likely to default in his/her loan payment ? (credit risk). • Who is likely to cancel the product that was ordered through e-commerce portal ?
  • 36. Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB © All Rights Reserved, Indian Institute of Management Bangalore FRAMEWORK- DATA-DRIVEN DECISION MAKING • Domain knowledge is very important at this stage of the analytics project. • This will be a major challenge for many companies who do not know the capabilities of analytics. Problem or Opportunity Identification • Once the problem is defined clearly, the project team should identify and collect the relevant data. • This may be an interactive process since "relevant data" may not be known in advance in many analytics projects. • The existence of ERP systems will be very useful at this stage. Collection of relevant data • Data preparation and data processing forms a significant proportion of any analytics project. • his would include data imputation and the creation of additional variables such as interaction variables and dummy variables in the case of predictive analytics projects. Data Pre-processing • Analytics model building is an iterative process that aims to find the best model. • Several analytical tools and solution procedures will be used to find the best analytical model in this stage. Model Building • The communication of the analytics output to the top management and clients plays a crucial role. • Innovative data visualization techniques may be used in this stage. Communication of the data analysis