Data analytics

Data analytics is an important field that involves the process of collecting, processing, and
interpreting data to uncover insights and help in making decisions. Data analytics is the practice
of examining raw data to identify trends, draw conclusions, and extract meaningful information.

Types of Data Analytics

Predictive (forecasting)
Descriptive (business intelligence and data mining)
Prescriptive (optimization and simulation)
Diagnostic analytics

What Is Descriptive Analytics?

• focuses on summarizing and interpreting historical data to gain insights and understand
patterns, trends, and relationships within the data.
• involves various statistical and visualization techniques
• Describes and present data meaningfully.
Objective --provide a clear and concise understanding of what has happened in the past.
answer questions such as

‘What happened?’,
‘When did it happen?’
‘How did it happen?’.

Descriptive Analytics Process

1. Data collection
• gather relevant data from various sources such as databases, spreadsheets, surveys, or
other structured or unstructured data repositories.
• data collected - comprehensive and representative of the subject
• ensure the accuracy and integrity of the data
eg ecommerce company -- analyze customer purchasing behavior. such as customer IDs,
purchase dates, products purchased, quantities, prices, and customer demographics.
2)Cleaning and preparation
identifying and resolving issues such as missing values, inconsistencies, duplicates, and outliers.
Ensures the data is high quality, reliable, and ready for further analysis.
Involve transforming the data into a consistent format
3. Exploration
o various techniques such as summary statistics, data visualization, and exploratory
data analysis.
• Summary statistics, including measures such as mean, median, mode, and standard
deviation, provide an overview of the data’s central tendencies and dispersion.
• Data visualization techniques such as charts, graphs, and histograms help visualize the
distribution and relationships within the data to identify patterns or anomalies.
ecommerce data,
calculate summary statistics such as average purchase quantity, total sales revenue, and
customer demographics’ distribution.
4. Segmentation
• involves dividing the dataset into meaningful subsets
• segmentation based on variables such as demographics, geographic location, time
periods, or product categories.
• focused analysis and helps uncover insights specific to each segment

example segmenting customer data by age group

to analyze purchasing patterns, identify preferences, and tailor marketing strategies for
each segment.
5. Summary and key performance indicators (KPIs)
calculating summary measures such as averages, totals, percentages, or ratios relevant to the
subject being analyzed.
6 Key performance indicators (KPIs) are specific metrics that help evaluate the performance
of a business process, product, or service.
provide actionable information and serve as benchmarks to assess progress or performance
against specific goals or objectives.

Historical trend analysis

to understand how variables or metrics have changed over time. This analysis reveals patterns,
seasonality, or long-term trends.
Eg: historical sales data over the past few years to identify seasonal patterns such as increased
sales during the holiday season
Data reporting and visualization
• summarize the analysis and findings,
• includes summary statistics, visualizations, and narrative descriptions.
• Help stakeholders interpret and act upon the insights derived from the data.
• Continuous monitoring and iteration
• continuous data monitoring and regular updates to stay informed about evolving patterns
and trends.
• ecommerce context-- monitor sales data, update the analysis periodically, and track
changes in purchasing behavior, market trends, or customer preferences
Examples of Descriptive Analytics

• Sales performance analysis

• Customer segmentation
• Website analytics
• Financial analysis
 What is diagnostic analytics?
• Diagnostic analytics examines data to understand the root causes of events, behaviors,
and outcomes.
• Data analysts use diverse techniques and tools to identify patterns, trends, and
connections to explain why certain events occurred. Its main goal is to offer insights into
the factors contributing to a particular outcome or problem.
Diagnostic analytics aims to answer questions like:

Why did an event or outcome happen?

What were the key factors that influenced it?
Were there any anomalies or deviations, and what caused them?
What correlations or relationships exist?
How did actions or changes impact the outcomes?

Diagnostic analytics fills the space between knowing what happened—descriptive analytics—
and foreseeing potential outcomes—predictive analytics. These insights add context and detail to
the data, helping you make more precise choices by fully understanding influencing factors.

What is the purpose of diagnostic analytics?

Diagnostic analytics provides deeper insights into why specific events, outcomes, or behaviors
occurred. It aims to reveal the origins and elements that led to particular results.
Some primary objectives of diagnostic analytics include:
Finding the root cause: Identify the main drivers influencing events, problems, or successes.
Identifying and resolving issues: By pinpointing the factors that contributed to an issue, you
can fix the problems and prevent them from reoccurring.
Improving processes: Insights can highlight inefficiencies or bottlenecks so you can optimize
workflows and operations.
Evaluating performance: Assess the effectiveness of strategies, campaigns, or initiatives by
analyzing what worked well and what didn’t.
Validating hypotheses: Test your hypotheses against actual data to validate or refine your
understanding.
 How Does Diagnostic Analytics Work?
Diagnostic analytics uses a variety of techniques to provide insights into the causes of
trends. These include:

▪ Data drilling: Drilling down into a dataset can reveal more detailed information about
which aspects of the data are driving the observed trends. For example, analysts may
drill down into national sales data to determine whether specific regions, customers or
retail channels are responsible for increased sales growth.

▪ Data mining hunts through large volumes of data to find patterns and associations
within the data. For example, data mining might reveal the most common factors
associated with a rise in insurance claims. Data mining can be conducted manually or
automatically with machine learning technology.

▪ Correlation analysis examines how strongly different variables are linked to each
other. For example, sales of ice cream and refrigerated soda may soar on hot days.

Three Diagnostic Analytics Categories

The diagnostic analytics process of determining the root cause of a problem or trend
typically comprises three primary stages.

1. Identify anomalies: Trends or anomalies highlighted by descriptive analysis

may require diagnostic analytics if the cause isn’t immediately obvious. In
addition, it can sometimes be difficult to determine whether the results of
descriptive analysis really show a new trend, especially if there’s a lot of
natural variability in the data. In those cases, statistical analysis can help to
determine whether the results actually represent a departure from the norm.

2. Discovery: The next step is to look for data that explains the anomalies: data
discovery. That may involve gathering external data as well as drilling into
internal data. For example, searching external data might reveal changes in
 supply chains, new regulatory requirements, a shifting competitive landscape or
weather patterns that are associated with the anomalous data.

3. Causal relationships: Further investigation can provide insights into whether

the associations in the data point to the true cause of the anomaly. The fact that
two events correlate doesn’t necessarily mean one causes the other. Deeper
examination of the data associated with the sales increase can indicate which
factor or factors were the most likely cause.

Sectors that use diagnostic analysis

Human Resources
HR professionals can use diagnostic analytics to understand employee turnover rates, identify
factors leading to low employee engagement, and pinpoint the causes of workplace conflicts.
Healthcare
Diagnostic analytics can help healthcare practitioners spot the patterns and identify the causes of
patient readmissions, analyze the effectiveness of treatments, and detect anomalies in patient data
that might indicate health risks.
Manufacturing
Manufacturing companies can use diagnostic analysis to identify production inefficiencies,
analyze equipment failure patterns, and optimize supply chain operations.
IT
IT departments use diagnostic analysis to troubleshoot and resolve technical issues.
Retail
Diagnostic analysis enables retail leaders to understand customer behaviors, like purchasing
trends and factors influencing buying decisions.
Diagnostic analytics tools
Businesses use tools and software to perfom
R: A programming language and software environment specifically designed for statistical
analysis and data visualization.
Python: Provides several libraries for data manipulation, analysis, and statistical modeling.
Tableau: A data visualization tool that helps create interactive and insightful visualizations for
diagnostic analysis.
Microsoft Excel: Used for basic diagnostic analysis tasks such as creating charts, performing
correlation analysis, and running regression models.
SAS: Provides a suite of analytics tools for data analysis, including advanced statistical methods
and machine learning capabilities.
Alteryx: A platform for data blending, preparation, and advanced analytics.
QlikView: A business intelligence (BI) tool that offers interactive data visualization and analysis
features.
 What Is Prescriptive Analytics?
Prescriptive analytics:

• It goes beyond predicting future outcomes

• Provides actionable recommendations and decision-making guidance
• Prescriptive analytics analyzes historical data—such as browsing behavior, past
purchases, and business interactions—to identify unique patterns and preferences.
o In addition to predictive and descriptive analytics, which identify what happened
in the past and what's likely to occur, prescriptive analytics gives you insights into
making the best possible decisions to reach desired outcomes.
• Focuses on answering
“What should we do?”
“What is the best decision to make given the circumstances?”
• The primary goal of prescriptive analytics is to support decision-makers in determining
the next course of action. It helps businesses understand the best steps to achieve a
desired goal, navigate the likelihood of worst-case outcomes, and determine how to
navigate uncertainty.

• How prescriptive analytics work?

• Prescriptive analytics uses advanced techniques, including data analysis, predictive
modeling, optimization algorithms, and decision-making frameworks.
General Approach To Prescriptive Analytics

Data collection and integration: The first step is gathering relevant data from various sources.
This can include historical data, real-time data streams, customer data, market data, and any
other information pertinent to the decision. The data is integrated and stored in a centralized
repository for analysis.
Data exploration and preparation: The data should be cleaned, processed, and prepared before
performing prescriptive analysis. This involves handling missing values, resolving
inconsistencies, and transforming the data into a suitable format for modeling.
Predictive modeling: Prescriptive analytics builds on predictive analytics. In this step, statistical
and machine learning models are applied to the prepared data to predict future outcomes or
behaviors. These models use historical patterns and trends to forecast what's likely to happen.
Optimization techniques: Predictive models alone aren't enough for prescriptive analytics, so
optimization techniques help determine the best course of action. These algorithms consider
various constraints, objectives, and potential trade-offs.
Decision analysis: The optimization results are combined with business rules and constraints to
evaluate scenarios and potential decisions. Prescriptive analytics compares each option's
predicted outcomes to uncover which will yield the best results.
Scenario simulation: Prescriptive analytics also involves simulating various scenarios to explore
the consequences of different decisions under multiple conditions, addressing decision-maker's
'what-if' queries.
Actionable insights and recommendations: The ultimate goal of prescriptive analytics is to
provide actionable insights and recommendations to decision-makers. These insights are
presented clearly and understandably, highlighting the best actions.
Implementation and monitoring: Once leaders make decisions based on the prescriptive
analytics recommendations, the business implements their choices in real-world operations. The
decision's impact is continuously monitored and evaluated to see how well it's doing and if the
business should make any changes.

Benefits of prescriptive analytics

Informed decision-making: Considers different scenarios and outcomes, helping minimize
uncertainties and risks associated with decision-making.
Optimized resource allocation: Identifies the most efficient and effective distribution of
resources, improving business operations and reducing costs.
Enhanced productivity: Highlights bottlenecks or areas for improvement so that organizations
can eliminate wasteful practices.
Real-time responsiveness: Provides real-time insights and recommendations so decision-
making responds swiftly to market opportunities and changes.
Personalized customer experiences: Enables businesses to understand individual preferences
and behaviors to offer relevant product recommendations, targeted marketing messages, and
customized pricing.
Improved customer satisfaction and loyalty: Improved customer experiences through
prescriptive analytics means satisfied customers are more likely to stay loyal to the brand and
drive positive word of mouth.
Competitive advantage: Helps businesses outperform competitors by making data-driven
decisions, being more agile, and identifying growth opportunities.
Risk management and mitigation: Simulates various scenarios so businesses can develop
contingency plans and better prepare for uncertainties.
Innovation and long-term development: Highlights customer needs and market demands so
businesses can focus innovation efforts on areas with high success potential.
 Prescriptive analytics examples
Customer analytics
Take an ecommerce platform—it can use prescriptive analytics to analyze their customers'
actions, such as browsing and buying habits, to give the most spot-on product recommendations.
Media and Entertainment
By using prescriptive analytics to analyze viewers’ watch habits and recommend the perfect
content, streaming platforms create a personal show picker that leaves users hooked and
engaged.
Ecommerce
analyze past sales, demand forecasts, and delivery times to keep levels right. They can focus on
smooth operations and efficiency without stockouts or excess items cluttering their warehouses
B2B
Businesses can analyze their information and use the insights to score and prioritize leads,
allocate resources, and land deal-closing strategies.
Healthcare
Providers can use the technology for personalized treatment plans by looking at the patient's
medical history, genetic data,

Prescriptive vs predictive analytics

Predictive analytics:
Uses historical data and statistical modeling techniques to make predictions about future events
or outcomes
Identifies patterns and relationships within data to forecast what is likely to happen
Focuses on answering “What is likely to happen next?” or “What's the probability of this event
occurring?”
Prescriptive analytics:
It goes beyond predicting future outcomes
Provides actionable recommendations and decision-making guidance
Uses a combination of historical data, predictive modeling, optimization techniques, and
business rules to determine the best course of action to achieve specific objectives
Focuses on answering “What should we do?” or “What is the best decision to make given the
circumstances?”

Comparison
Descriptive Predictive Prescriptive

Descriptive data analytical Predictive data analytical Prescriptive data analytical

model use data aggregation model use statistical models model use optimization and
and data mining to provide and forecast techniques to simulation algorithms to advice
insight into the past and understand the future and on possible outcomes and
answer. answer. answer.

It focuses on - What has It focuses on - What could It focuses on - What should we

happened in the past? happen in the future? do?

This is the analysis of the past This analysis showcases feasible

or historical data used to This analysis is used to solutions to a problem and the
understand the trends and determine the future trends. impact of considering a solution
estimate metrics over time. on the future trend.

It is used when the user want It is used when the user want It is used when the user have to
to summarize results for all to make an educated guess at make complex or time sensitive
part or a part of business. the likely outcomes. decisions.

Tools Used - data mining, data Tools Used - machine Tools Used - heuristics,
aggregation learning, statistical model optimization

Use reactive approach. Use proactive approach. Use proactive approach.

Example: Example:
Example : Ecommerce businesses which Identifying techniques to
Annual Revenue Report uses the customer's browsing optimize the patient care in the
history to recommend products healthcare
 What is predictive analytics?
• Predictive analytics aims to answer “what might happen next?”
• It combines statistical algorithms, data analysis, and machine learning to build precise
and accurate models that predict future outcomes.
• These models look at historical data, identifying patterns, trends, and relationships to
anticipate what could happen. This information helps forecast events and behavior, such
as sales estimates, campaign engagement, and churn prediction, enabling businesses to
optimize their strategies.

How does predictive analytics work?

Data collection: The process begins with collecting data from various sources. The data should
represent the problem you’re trying to solve and include the input variables (features) and the
target variable (the outcome you want to predict).
For example, if you’re creating a customer churn prediction model, the target variable would be
if they canceled their subscription, and the input variables would be things like usage metrics,
engagement data, customer feedback, etc. You’d need this data to predict the likelihood of
a customer churning from the service.
Data cleaning and preparation: Once collected, the data is cleaned, organized, and
preprocessed. This could include filling in missing values, handling outliers, and converting data
into a consistent format. Clean and well-prepared data is essential for accurate model training, so
this step is vital.
Feature selection and engineering: Feature selection identifies the most relevant variables that
will have a meaningful impact on the prediction. You might need to create new variables based
on existing ones to capture more complex relationships or insights.
Consider a fraud detection model for online transactions. Instead of using raw transaction
amounts as a feature, you could create a “transaction velocity” variable by dividing the amount
by the time since the last transaction to capture unusual or rapid patterns. Try not to include
unnecessary or redundant features that could make “noise”.
Model selection: You can apply different predictive models based on the nature of the problem
and the data. The one you choose depends on the complexity of the problem, the amount of data
available, and the interpretability of the model.
Model training: In this step, historical data is divided into two parts—a training dataset and a
validation dataset. The training dataset teaches the model to learn the patterns and relationships
between the input variables and target outcomes. The model adjusts its internal parameters
during training to minimize prediction errors.
Model evaluation: You’ll use the validation dataset to evaluate the trained model’s
performance. The model makes predictions on the validation data, and its predictions are
compared with the actual outcomes to assess its accuracy.
Model tuning: The model might need adjustments based on the evaluation results. This process
is called hyperparameter tuning, where you finetune the model’s parameters to improve its
performance.
Model deployment: Once the model is trained and validated, it’s ready for deployment. It can
now make predictions on new, unseen data. Deployment happens in various ways, depending on
the application. The model could be integrated into an application, website, or automated
process.
Monitoring and maintenance: It’s best to monitor predictive models to ensure they remain
accurate. As new data becomes available, the model might need periodic updates or retraining to
adapt to changing patterns.
Benefits of predictive analytics
Predict and prepare for change
Predictive analytics enables organizations to anticipate industry, market, or customer behavior
changes.
Plan for potential futures
Businesses can use predictive analytics to simulate different scenarios and outcomes based on
data-backed insights.

Analyze and anticipate behavior

Predictive customer analytics enables businesses to understand user behavior, preferences, and
actions more deeply

Predictive analytics: models and techniques

Decision trees
Decision trees are step-by-step guides for making decisions. They help break down complex
choices into manageable steps to help businesses reach informed conclusions.
Decision trees use “if/then” scenarios, where you start with the main question and then make
choices depending on the answers. The result is a tree-like structure of decisions you can use to
make predictions.
Decision trees are usually applied in classification and regression tasks. Some scenarios
appropriate for decision trees include:
Looking at usage patterns and customer service interaction to find high-churn-risk customers.
Analyzing product preference or browsing history to provide product recommendations.
Exploring patient symptoms and medical history to help doctors reach a diagnosis.
Answering customer’s frequently asked questions.
Routing tickets to appropriate departments.
Data mining
• Data mining helps businesses find patterns, trends, and relationships from lots of
information. It’s an umbrella term that covers several techniques, such as:
• Clustering—grouping similar things together
• Association rule mining—spotting interesting connections
• Anomaly detection—finding unusual things that stand out
• Application examples include:
• Finding patterns in what people bought to recommend what they might like
• Spot unusual patterns in credit card transactions to recognize fraudulent activity
• Optimizing social media feeds based on what users have previously engaged with.
Regression analysis
Regression analysis is a common business scenario where you use mathematical analysis to
determine which variables or inputs will have an impact on the outcome. For instance, predicting
which promotions (your inputs) will most impact your sales conversions (the outcome).
Linear regression is one approach. It models the relationship between the independent and
dependent variables using a linear equation, like drawing a straight line through points on a
graph to show how changes in one thing lead to changes in another.
Some other use cases include:
• Giving you the formula to estimate house prices by seeing how certain features can affect
its value.
• Understanding if increasing ad spending leads to a proportionate increase in sales, or if
it’s down to other factors.
Clustering
Businesses use clustering to put similar things together based on their features or other like
criteria. Cohort segmentation and analysis use this predictive analytics model.
They can use it to:
• Segment customers or users
 • Analyze different markets after grouping areas
• Review customer feedback by linking reviews with similar words or topics.
Data warehousing
While not a predictive analytics technique itself, data warehousing is crucial for its success.
It gathers data from different places and stores and organizes it in a centralized repository,
making it easier to find and use when making predictions.
Neural networks
Neural networks are a subset of machine learning algorithms inspired by the structure of the
human brain. For instance, if you think to yourself, “I’m warm!” This is your brain
subconsciously processing this sensation from a network of connected neurons that communicate
and signal to each other. Neural networks function similarly. They contain interconnected layers
of nodes (neurons) that process and learn from data.
There are different types of neural networks—convolutional neural networks (CNNs) are good
for understanding pictures, while recurrent neural networks (RNNs) are better at determining
what a sentence means. Each helps improve machine learning models by enabling them to learn
and understand complex tasks.
AI
AI in predictive analytics covers several techniques and technologies, including machine
learning and deep learning.