INTRODUCTION TO BUSINESS

ANALYTICS

Definition of Data
Data refers to raw facts, figures, or symbols that can be processed and analyzed to
extract useful information. It can exist in various forms, including numbers, text,
images, and sounds. In computing, data is often stored in structured or unstructured
formats, ready to be manipulated for specific purposes.

When data is processed and analyzed, it transforms into information, which provides
meaningful insights for decision-making.

What are the different types of data?

The two main types of data are:

• Qualitative Data

• Quantitative Data
1. Qualitative or Categorical Data

Qualitative or Categorical Data is a type of data that can’t be measured in the form of
numbers. These types of data are sorted by category, not by number. That’s why it is
also known as Categorical Data. These data consist of symbols or text. The gender of a
person, i.e., male, female, or others, is qualitative data. Qualitative data tells about an
observed phenomenon.

The other examples of qualitative data are :

• What language do you speak

• Favorite holiday destination
• Opinion on something (agree, disagree, or neutral)
• Colors

The Qualitative data are further classified into two groups :

A. Nominal Data

Nominal Data is used to label variables without any order or quantitative value. The
color of hair can be considered nominal data, as one color can’t be compared with
another color. With the help of nominal data, we can’t do any numerical tasks or can’t
give any order to sort the data. Nominal data is a type of data that represents discrete
units, which is why it cannot be ordered or measured. They are used to label variables
without providing any quantitative value. Also, they have no meaningful zero.

Examples of Nominal Data :

• Colour of hair (Blonde, red, Brown, Black, etc.)

 • Marital status (Single, Widowed, Married)
• Nationality (Indian, German, American)
• Gender (Male, Female, Others)
• Eye Color (Black, Brown, etc.)

B. Ordinal Data

Ordinal data have natural ordering where a number is present in some kind of order by
their position on the scale. These data are used for observation like customer
satisfaction, happiness, etc., but we can’t do any arithmetical tasks on them.

Ordinal data is qualitative data for which their values have some kind of relative
position. These kinds of data can be considered “in-between” qualitative and
quantitative data.

Examples of Ordinal Data :

• When companies ask for feedback, experience, or satisfaction on a scale of 1 to

10
• Letter grades in the exam (A, B, C, D, etc.)
• Ranking of people in a competition (First, Second, Third, etc.)
• Economic Status (High, Medium, and Low)
• Education Level (Higher, Secondary, Primary)

2. Quantitative Data

Quantitative data is a type of data that can be expressed in numerical values, making it
countable and including statistical data analysis. These kinds of data are also known as
Numerical data.

It answers the questions like “how much,” “how many,” and “how often.” For example,
the price of a phone, the computer’s ram, the height or weight of a person, etc., falls
under quantitative data.

Quantitative data can be used for statistical manipulation. These data can be
represented on a wide variety of graphs and charts, such as bar graphs, histograms,
scatter plots, boxplots, pie charts, line graphs, etc.

Examples of Quantitative Data :

• Height or weight of a person or object

• Room Temperature
• Scores and Marks (Ex: 59, 80, 60, etc.)
• Time
The Quantitative data are further classified into two groups :

A. Discrete Data

The term discrete means distinct or separate. The discrete data contain the values that
fall under integers or whole numbers. The total number of students in a class is an
example of discrete data. These data can’t be broken into decimal or fraction values.

The discrete data are countable and have finite values; their subdivision is not possible.
These data are represented mainly by a bar graph, number line, or frequency table.

Examples of Discrete Data :

• Total numbers of students present in a class

• Cost of a cell phone
• Numbers of employees in a company
• The total number of players who participated in a competition
• Days in a week

B. Continuous Data

Continuous data are in the form of fractional numbers. It can be the version of an
android phone, the height of a person, the length of an object, etc. Continuous data
represents information that can be divided into smaller levels. The continuous variable
can take any value within a range.

The key difference between discrete and continuous data is that discrete data contains
the integer or whole number. Still, continuous data stores the fractional numbers to
record different types of data such as temperature, height, width, time, speed, etc.

Examples of Continuous Data :

• Height of a person
• Speed of a vehicle
• “Time-taken” to finish the work
• Wi-Fi Frequency
• Market share price

What are actionable insights?

An actionable insight is an observation or finding you can use to make decisions or
changes that will positively impact your business.

By using data to inform decisions, businesses can stay ahead of their competition and
make better use of their resources.
Key characteristics of actionable insights:
1. Alignment
• The insight must be directly linked to the business goals or strategic objectives.
• If it doesn’t help in achieving company targets (like revenue growth, cost
reduction, customer retention), it’s not actionable.
• Example: If the company’s goal is to improve customer retention, an insight
showing that “40% of customers stop using the service after 3 months” aligns
with the retention objective.
2. Context
• Data must be presented with problem context.
• Numbers alone are meaningless unless connected to the underlying issue.
• Example: Instead of saying “Sales dropped by 10%”, add context: “Sales
dropped by 10% in the North region during the festive season due to competitor
discounts.”
3. Relevance
• The insight should answer the question: “Who benefits from this?”
• Different stakeholders (marketing, operations, finance) need different types of
insights.
• Example: For marketing managers, knowing which campaigns led to the highest
conversions is more relevant than warehouse stock levels.
4. Specificity
• Insights should be detailed, focused, and precise so that they can guide actions.
• Vague observations cannot be acted upon.
• Example: Instead of “Customer satisfaction is low”, a specific insight would be:
“Customer satisfaction dropped 15% due to long call-center wait times in the
last quarter.”
5. Novelty
• The insight should reveal something new, unexpected, or previously unnoticed.
• Novel insights spark fresh decisions and improvements.
• Example: Discovering that customers aged 18–24 are more likely to purchase via
mobile apps at midnight may be an unexpected trend, leading to a new late-night
promotion strategy.
6. Clarity
• The insight should be easy to understand by all relevant stakeholders, regardless
of technical background.
• Simple visuals, plain language, and straightforward interpretation are essential.
• Example: A clear dashboard that shows customer churn rate rising steadily over
6 months is easier to grasp than a table full of raw numbers.

What is business analytics?

Business Analytics, Machine Learning, AI, Deep Learning, Robotics, and Cloud have
revolutionized the way we look, absorb, and process information. While there are still
ongoing developments happening in several of these advanced fields, business
analytics has gained the status of being all-pervasive across functions and domains.
There is no aspect of our lives untouched by Analytics.

Business analytics refers to the statistical methods and computing technologies for
processing, mining, and visualizing data to uncover patterns, relationships, and insights
that enable better business decision-making.

Business analytics comprises of solutions used to build analysis models and

simulations to create scenarios, understand realities, and predict future states.
Business analytics includes data mining, predictive analytics, applied analytics and
statistics, and is delivered as an application suitable for a business user. These
analytics solutions often come with prebuilt industry content that is targeted at an
industry business process (for example, claims, underwriting or a specific regulatory
requirement).

Types of Business Analytics

There are mainly four types of Business Analytics, each of these types are increasingly
complex. They allow us to be closer to achieving real-time and future situation insight
application. Each of these types have been discussed below.

1. Descriptive Analytics
2. Diagnostic Analytics
3. Predictive Analytics
4. Prescriptive Analytics

1. Descriptive Analytics
It summarizes an organisation’s existing data to understand what has happened in the
past or is happening currently. Descriptive Analytics is the simplest form of analytics as
it employs data aggregation and mining techniques. It makes data more accessible to
members of an organisation such as the investors, shareholders, marketing executives,
and sales managers.

It can help identify strengths and weaknesses and provides an insight into customer
behavior too. This helps in forming strategies that can be developed in the area of
targeted marketing.

2. Diagnostic Analytics

This type of Analytics helps shift focus from past performance to the current events and
determine which factors are influencing trends. To uncover the root cause of events,
techniques such as data discovery, data mining and drill-down are employed.
Diagnostic analytics makes use of probabilities, and likelihoods to understand why
events may occur. Techniques such as sensitivity analysis, and training algorithms are
employed for classification and regression.

3. Predictive Analytics

This type of Analytics is used to forecast the possibility of a future event with the help of
statistical models and ML techniques. It builds on the result of descriptive analytics to
devise models to extrapolate the likelihood of items. To run predictive analysis, Machine
Learning experts are employed. They can achieve a higher level of accuracy than by
business intelligence alone.

One of the most common applications is sentiment analysis. Here, existing data
collected from social media and is used to provide a comprehensive picture of an users
opinion. This data is analysed to predict their sentiment (positive, neutral or negative).

4. Prescriptive Analytics

Going a step beyond predictive analytics, it provides recommendations for the next best
action to be taken. It suggests all favorable outcomes according to a specific course of
action and also recommends the specific actions needed to deliver the most desired
result. It mainly relies on two things, a strong feedback system and a constant iterative
analysis. It learns the relation between actions and their outcomes. One common use
of this type of analytics is to create recommendation systems.
Core Components of Business Analytics:
1. Data Management
• Definition: The process of collecting, organizing, storing, and maintaining data so
that it is accurate, secure, and available for analysis.
• Key Steps (ETL):
o Extract: Gather data from multiple sources (databases, spreadsheets,
social media, IoT devices).
o Transform: Clean and convert data into a usable format (remove/fix
inconsistencies, standardize values).
o Load: Store the cleaned data into a central system (data warehouse or
database).
• Security & Privacy: Protect sensitive information through access control,
encryption, and compliance (GDPR, HIPAA, etc.).
Example: A retail company extracts sales data from multiple systems, transforms it to a
suitable format, and loads it into a central warehouse for analysis.

2. Statistical Analysis: To understand data patterns and relationships through

mathematical and statistical techniques.
Methods:
• Descriptive Statistics: Summarizes data (mean, median, mode, min/max,
standard deviation).
• Inferential Statistics: Draws conclusions from samples to generalize about a
larger population (e.g., hypothesis testing).
• Correlation Analysis: Identifies the strength and direction of relationships
between variables.
 • Outlier Analysis: Detects unusual or extreme values that may indicate errors or
special cases.

Example: A bank analyzing credit card transactions may use correlation to check if high-
income customers are more likely to spend more.

3. Predictive Modeling / Optimization: Using historical data and algorithms to forecast

future events and recommend the best decisions.

Techniques:
• Machine Learning / Statistical Models: Regression, classification, decision trees,
neural networks.
• Forecasting: Predicting sales, customer churn, demand, stock prices.
• Optimization: Choosing the most effective strategy under constraints
(maximizing profit, minimizing cost).
Example: An airline uses predictive models to forecast demand and optimize ticket
pricing to maximize revenue.

4. Reporting & Visualization: To present insights in a simple and understandable way for
decision-makers.
• Tools: Dashboards (Power BI, Tableau), charts, graphs, interactive visuals.
• Features: Real-time updates, drill-downs, comparisons, and trend analysis.
• Importance: Good reporting ensures that complex analysis is communicated
clearly to non-technical managers.
Example: A sales dashboard showing monthly revenue trends, top products, and
regional performance helps managers take quick action.
What is data-driven/ informed decision-making?
Informed Decision-making is the process by which a decision is made based on facts or
information. The data-informed decision-making process involves leveraging data and
information to guide and support decisions. In this approach, data plays a vital role in
delivering insights and evidence that help individuals and teams make informed
decisions, set priorities, and address challenges. Rather than relying solely on intuition
or past experiences, data-informed decision-making relies on valuable insights to
inform and enhance decision-making.

What is the scope of business analytics?

Business Analytics has a broad scope because it can be applied across industries,
business functions, and decision-making levels. Its scope extends from operational
problem-solving to strategic planning.

1. Informed Decision-Making
• Business analytics supports data-driven decisions instead of relying only on
intuition or guesswork.
• Helps managers and executives evaluate alternatives with evidence.
Example: A retail chain using analytics to decide whether to open a new store in a
locality.

2. Cost Optimization
• Identifies inefficiencies and suggests ways to reduce costs.
• Optimizes resource allocation, supply chain, and operations.
Example: Airlines use analytics to optimize fuel usage and reduce operational costs.

3. Customer Experience Enhancement

• Analyzes customer behavior and preferences.
• Enables personalized recommendations and targeted marketing.
Example: Netflix uses predictive analytics to recommend shows based on user history.

4. Performance Improvement
• Monitors KPIs (Key Performance Indicators).
• Detects inefficiencies and provides insights for improvement.
Example: A call center analyzing wait times and customer satisfaction scores to
improve service efficiency.

5. Strategic Planning Support

• Provides insights into market trends, competition, and long-term opportunities.
 • Helps in forecasting, scenario planning, and risk assessment.
Example: A telecom company analyzing subscriber trends to plan for 5G expansion.

6. Industry-Wide Applications
• Finance: Risk management, fraud detection, credit scoring.
• Healthcare: Patient monitoring, predictive diagnosis.
• Retail: Inventory management, sales forecasting.
• Manufacturing: Predictive maintenance, process optimization.
• Logistics: Route optimization, demand forecasting.

7. Integration with Emerging Technologies

• Business Analytics today integrates with AI, Machine Learning, IoT, and Cloud
Computing.
• Enhances speed, scalability, and accuracy of insights.
Example: Factories using IoT sensors + analytics to predict machine failures in
advance.

Challenges in Business Analytics

1. Data quality

One of the biggest challenges most businesses face is ensuring that the data they
collect is reliable. When data suffers from inaccuracy, incompleteness,
inconsistencies, and duplication, that can lead to incorrect insights and poor decision-
making. There are many tools available for data preparation, deduplication, and
enhancement, and ideally some of this functionality is built into your analytics platform.

Non-standardized data can also be an issue—for example, when units, currencies, or

date formats vary. Standardizing as much as possible, as early as possible, will
minimize cleansing efforts and enable better analysis.

By implementing solutions such as data validation, data cleansing, and proper data
governance, organizations can ensure their data is accurate, consistent, complete,
accessible, and secure. This high-quality data can act as the fuel for effective data
analysis and ultimately lead to better decision-making.

2. Data access

Companies often have data scattered across multiple systems and departments, and in
structured, unstructured, and semi-structured formats. This makes it both difficult to
consolidate and analyze and vulnerable to unauthorized use. Disorganized data poses
challenges for analytics, machine learning, and artificial intelligence projects that work
best with as much data as possible to draw from.

For many companies, the goal is democratization—granting data access across the
entire organization regardless of department. To achieve this while also guarding against
unauthorized access, companies should gather their data in a central repository, such
as a data lake, or connect it directly to analytics applications using APIs and other
integration tools. IT departments should strive to create streamlined data workflows
with built-in automation and authentication to minimize data movement, reduce
compatibility or format issues, and keep a handle on what users and systems have
access to their information.

3. Bad visualizations

Transforming data into graphs or charts through data visualization efforts helps present
complex information in a tangible, accurate way that makes it easier to understand. But
using the wrong visualization method or including too much data can lead to misleading
visualizations and incorrect conclusions. Input errors and oversimplified visualizations
could also cause the resulting report to misrepresent what’s actually going on.

Effective data analytics systems support report generation, provide guidance on

visualizations, and are intuitive enough for business users to operate. Otherwise, the
burden of preparation and output falls on IT, and the quality and accuracy of
visualizations can be questionable. To avoid this, organizations must make sure that the
system they choose can handle structured, unstructured, and semi-structured data.

So how do you achieve effective data visualization? Start with the following three keys
concepts:

Know your audience: Tailor your visualization to the interests of your viewers. Avoid
technical jargon or complex charts and be selective about the data you include. A CEO
wants very different information than a department head.

Start with a clear purpose: What story are you trying to tell with your data? What key
message do you want viewers to take away? Once you know this, you can choose the
most appropriate chart type. To that end, don’t just default to a pie or bar chart. There
are many visualization options, each suited for different purposes. Line charts show
trends over time, scatter plots reveal relationships between variables, and so on.

Keep it simple: Avoid cluttering your visualization with unnecessary elements. Use
clear labels, concise titles, and a limited color palette for better readability. Avoid
misleading scales, distorted elements, or chart types that might misrepresent the data.

4. Data privacy and security

Controlling access to data is a never-ending challenge that requires data classification
as well as security technology.

At a high level, careful attention must be paid to who is allowed into critical operational
systems to retrieve data, since any damage done here can bring a business to its knees.
Similarly, businesses need to make sure that when users from different departments log
into their dashboards, they see only the data that they should see. Businesses must
establish strong access controls and ensure that their data storage and analytics
systems are secure and compliant with data privacy regulations at every step of the
data collection, analysis, and distribution process.

Before you can decide which roles should have access to various types or pools of data,
you need to understand what that data is. That requires setting up a data classification
system. To get started. consider the following steps:

See what you have: Identify the types of data your organization collects, stores, and
processes, then label it based on sensitivity, potential consequences of a breach, and
regulations it’s subject to, such as HIPAA or GDPR.

Develop a data classification matrix: Define a schema with different categories, such
as public, confidential, and internal use only, and establish criteria for applying these
classifications to data based on its sensitivity, legal requirements, and your company
policies.

See who might want access: Outline roles and responsibilities for data classification,
ownership, and access control. A finance department employee will have different
access rights than a member of the HR team, for example.

Then, based on the classification policy, work with data owners to categorize your data.
Once a scheme is in place, consider data classification tools that can automatically
scan and categorize data based on your defined rules.

Finally, set up appropriate data security controls and train your employees on them,
emphasizing the importance of proper data handling and access controls.

5. Talent shortage

Many companies can’t find the talent they need to turn their vast supplies of data into
usable information. The demand for data analysts, data scientists, and other data-
related roles has outpaced the supply of qualified professionals with the necessary
skills to handle complex data analytics tasks. And there’s no signs of that demand
leveling out, either. By 2026, the number of jobs requiring data science skills is
projected to grow by nearly 28%, according to the US Bureau of Labor Statistics.

Fortunately, many analytics systems today offer advanced data analytics capabilities,
such as built-in machine learning algorithms, that are accessible to business users
without backgrounds in data science. Tools with automated data preparation and
cleaning functionalities, in particular, can help data analysts get more done.

Companies can also upskill, identifying employees with strong analytical or technical
backgrounds who might be interested in transitioning to data roles and offering paid
training programs, online courses, or data bootcamps to equip them with the necessary
skills.

6. Too many analytics systems and tools

It’s not uncommon that, once an organization embarks on a data analytics strategy, it
ends up buying separate tools for each layer of the analytics process. Similarly, if
departments act autonomously, they may wind up buying competing products with
overlapping or counteractive capabilities; this can also be an issue when companies
merge.

The result is a hodgepodge of technology, and if it’s deployed on-premises, then

somewhere there’s a data center full of different software and licenses that must be
managed. Altogether, this can lead to waste for the business and add unnecessary
complexity to the architecture. To prevent this, IT leaders should create an organization-
wide strategy for data tools, working with various department heads to understand their
needs and requirements. Issuing a catalog that includes various cloud-based options
can help get everyone on a standardized platform.

7. Cost

Data analytics requires investment in technology, staff, and infrastructure. But unless
organizations are clear on the benefits they’re getting from an analytics effort, IT teams
may struggle to justify the cost of implementing the initiative properly.

Deploying a data analytics platform via a cloud-based architecture can eliminate most
upfront capital expenses while reducing maintenance costs. It can also rein in the
problem of too many one-off tools.

Operationally, an organization’s return on investment comes from the insights that data
analytics can reveal to optimize marketing, operations, supply chains, and other
business functions. To show ROI, IT teams must work with stakeholders to define clear
success metrics that tie back to business goals. Examples might be that findings from
data analytics led to a 10% increase in revenue, an 8% reduction in customer churn, or
a 15% improvement in operational efficiency. Suddenly, that cloud service seems like a
bargain.

While quantifiable data is important, some benefits might be harder to measure

directly, so IT teams need to think beyond just line-item numbers. For example, a data
project might improve decision-making agility or customer experience, which can lead
to long-term gains.
8. Changing technology

The data analytics landscape is constantly evolving, with new tools, techniques, and
technologies emerging all the time. For example, the race is currently on for companies
to get advanced capabilities such as artificial intelligence (AI) and machine
learning (ML) into the hands of business users as well as data scientists. That means
introducing new tools that make these techniques accessible and relevant. But for
some organizations, new analytics technologies may not be compatible with legacy
systems and processes. This can cause data integration challenges that require greater
transformations or custom-coded connectors to resolve.

Evolving feature sets also mean continually evaluating the best product fit for an
organization’s particular business needs. Again, using cloud-based data analytics tools
can smooth over feature and functionality upgrades, as the provider will ensure the
latest version is always available. Compare that to an on-premises system that might
only be updated every year or two, leading to a steeper learning curve between
upgrades.

9. Resistance to change

Applying data analytics often requires what can be an uncomfortable level of change.
Suddenly, teams have new information about what’s happening in the business and
different options for how they should react. Leaders accustomed to operating on
intuition rather than data may also feel challenged—or even threatened—by the shift.

To prevent such a backlash, IT staff should collaborate with individual departments to

understand their data needs, then communicate how new analytics software can
improve their processes. As part of the rollout, IT teams can show how data analytics
advancements lead to more efficient workflows, deeper data insights, and ultimately,
better decision-making across the business.

10. Goalsetting

Without clear goals and objectives, businesses will struggle to determine which data
sources to use for a project, how to analyze data, what they want to do with results, and
how they’ll measure success. A lack of clear goals can lead to unfocused data analytics
efforts that don’t deliver meaningful insights or returns. This can be mitigated by
defining the objectives and key results of a data analytics project before it begins.

Ethical Considerations in Business Analytics

The following ethical considerations in business analytics help ensure the

responsible collection of information and data usage:

1. Consent
This principle states that the information a business collects from a customer belongs
to that individual. As a result, obtaining someone’s personal details without their
consent is unethical, just as it’s considered stealing to take a physical item without the
owner’s approval. An organization can gather data responsibly by asking consumers for
permission before collecting their details.

2. Data Privacy and Compliance

After organizations gather consumer data, they are ethically required to protect it from
public exposure or unauthorized access. That’s why some businesses have data ethics
boards, which define and uphold responsible data practices to keep customer
information secure and private.3

Data privacy in business analytics is often a legal obligation. For example, the Health
Insurance Portability and Accountability Act (HIPPA) in the United States prevents
hospitals from disclosing a patient’s sensitive data without consent. Additionally, the
European Union’s General Data Protection Regulation (GDPR) requires organizations
that handle information of European residents to implement measures, such as
encryption, that keep customer data safe and confidential.

Complying with data privacy laws helps companies handle customer information
ethically and avoid legal penalties.

3. Transparency

Because customers own their personal information, they have the right to know how a
company collects, stores, and uses it. Firms also need to be transparent about how
they protect consumer data from unauthorized exposure and security breaches.2

This level of transparency isn’t just an ethical matter. According to Cisco’s 2022 survey,
being transparent is the most essential thing businesses can do to build and grow trust
when handling customers' personal data. Because most consumers avoid doing
business with companies they don’t trust, this is a good example of how committing to
responsible business intelligence can affect an organization's bottom line.6

4. Fairness

The extensive adoption of business analytics tools and AI-powered algorithms has
made analyzing big data more efficient. However, studies have shown that using these
digital solutions can sometimes unintentionally cause biases and unfairness in how a
business converts raw data into actionable insights, causing discrimination against
specific populations.7,

For instance, Amazon stopped using a recruitment algorithm, which analyzed resumes
to identify the best candidates, after discovering that the technology had developed a
bias against female applicants. The AI favored resumes that contained terms used
mainly by men.

One way to ensure fairness in business analytics is to use analytics tools with human
oversight instead of relying on technology alone. Having a qualified human review AI
recommendations provides an extra layer of quality assurance before making a final
business decision.

5. Accountability

This principle involves organizations being responsible for the data they collect and the
outcomes of handling the information. This may mean informing customers if data
breaches happen and taking steps to mitigate the incidents.9

Equifax, one of the largest credit reporting agencies in the United States, demonstrated
accountability during a 2017 data breach that exposed the personal information of 147
million people. The company announced the cyber incident and settled with relevant
government bodies to compensate anyone who experienced financial loss due to the
attack.

6. Transparency

Transparency in business analytics refers to the openness, clarity, and

comprehensibility of all processes, methods, and results to stakeholders. It ensures
people know how and why a decision, prediction, or recommendation was made. For
example, in banking, if a customer’s loan application is rejected, a transparent analytics
system would explain the reasons — such as a low credit score, insufficient income, or
existing debt — instead of just showing a rejection. This not only helps customers
understand the outcome but also guides them on how to improve their chances in the
future.

Similarly, digital platforms like Facebook and Instagram practice transparency by

displaying “Why am I seeing this ad?” messages to users. They disclose that ads are
targeted based on user interests, search history, or demographics. Such openness
builds trust, ensures fairness, and helps stakeholders feel confident that analytics-
driven decisions are ethical and accountable.

7. Reliability and Safety

Reliability and safety in business analytics mean that the systems, models, and insights
generated are dependable, consistent, and do not cause harm. A reliable analytics
process ensures that the same data and methods will produce the same accurate
results every time, reducing errors or misleading outcomes. For instance, if a hospital
uses predictive analytics to identify patients at high risk of stroke, the model must
consistently deliver accurate and trustworthy predictions. Inconsistent or unreliable
results could lead to wrong treatments, putting lives at risk.
Safety emphasizes that analytics should not create harmful consequences for
individuals, organizations, or society. This includes protecting sensitive data from
breaches and ensuring that decisions made using analytics do not unfairly
disadvantage or endanger people. For example, an airline’s predictive maintenance
system must be both reliable and safe — if the model inaccurately predicts that an
aircraft part does not need servicing, it could result in safety hazards. Hence,
businesses must validate models, monitor performance, and ensure safeguards to
protect both users and stakeholders.

Data Warehouse
Data warehousing is the process of collecting, integrating, storing, and managing data
from multiple sources in a central repository. It enables organizations to organize large
volumes of historical data for efficient querying, analysis, and reporting.

The main goal of data warehousing is to support decision-making by providing clean,

consistent, and timely access to data. It ensures fast data retrieval even when working
with massive datasets.

Components of Data Warehouse

The main components of a data warehouse include:

• Data Sources: These are the various operational systems, databases, and
external data feeds that provide raw data to be stored in the warehouse.
 • ETL (Extract, Transform, Load) Process: The ETL process is responsible for
extracting data from different sources, transforming it into a suitable format, and
loading it into the data warehouse.

• Data Warehouse Database: This is the central repository where cleaned and
transformed data is stored. It is typically organized in a multidimensional format
for efficient querying and reporting.

• Metadata: Metadata describes the structure, source, and usage of data within
the warehouse, making it easier for users and systems to understand and work
with the data.

• Data Marts: These are smaller, more focused data repositories derived from the
data warehouse, designed to meet the needs of specific business departments
or functions.

• OLAP (Online Analytical Processing) Tools: OLAP tools allow users to analyze
data in multiple dimensions, providing deeper insights and supporting complex
analytical queries.

• End-User Access Tools: These are reporting and analysis tools, such as
dashboards or Business Intelligence (BI) tools, that enable business users to
query the data warehouse and generate reports.

Benefits of Data Warehouse:

• Consolidates all your data in one place, so that we can get complete answers

• Cleans and organizes data, resulting in better analysis

• Stores historical data and allows organizations to spot trends, make predictions,
and plan ahead.

• Data warehouses enable quick access to relevant data, significantly reducing

the time needed for data retrieval and analysis.

• With easy access to data and analytical tools, employees can focus more on
analyzing data rather than collecting it, leading to increased productivity.

Limitations of Data Warehouse:

• Setting up and running a data warehouse can cost a lot of money, which may
be tough for small businesses.
• It needs expert knowledge to build and manage, which can make it confusing
and hard to handle.
 • Data may not always be updated instantly because it takes time to move and
prepare the data.
• As data grows, keeping the system running smoothly and upgrading it can be
difficult and costly.
• Storing all important data in one place can be risky. Strong security is needed
to protect it from hackers.

Online Transaction Processing (OLTP)

OLTP or Online Transaction Processing is a type of data processing that consists of
executing a number of transactions occurring concurrently—online banking, shopping,
order entry, or sending text messages, for example. These transactions traditionally are
referred to as economic or financial transactions, recorded and secured so that an
enterprise can access the information anytime for accounting or reporting purposes.

In the past, OLTP was limited to real-world interactions in which something was
exchanged–money, products, information, request for services, and so on. But the
definition of transaction in this context has expanded over the years, especially since
the advent of the internet, to encompass any kind of digital interaction or engagement
with a business that can be triggered from anywhere in the world and via any web-
connected sensor. It also includes any kind of interaction or action such as
downloading pdfs on a web page, viewing a specific video, or automatic maintenance
triggers or comments on social channels that maybe critical for a business to record to
serve their customers better.

Businesses usually have two types of data processing capabilities: OLTP and OLAP.

• Operational data – data businesses use in their daily operations, for example,
individual records that reflect particular events, such as a sale, purchase, or
customer interaction. This data is updated regularly and accurately reflects the
current business situation.

• Transactional data – a specific type of operational data that is captured from

transactions. Examples include payments for products and services or a client
connection with a business channel.

OLTP relies on databases capable of quickly storing and retrieving data. They ensure
that data is maintained accurately in line with ACID:

• Atomicity – treating every statement in a transaction as a separate unit (to read,

write, update, or delete data). Either the full statement or nothing of it gets
performed. This attribute prevents data loss and corruption if your streaming
data source breaks in the middle of a stream.
 • Consistency – it guarantees that transactions only make prescribed, predictable
changes to tables. Transactional consistency ensures that data corruption or
mistakes do not have unexpected effects on your table’s integrity.

• Isolation – when a large number of users can read and write from the same table
simultaneously, transaction isolation becomes extremely important. It
guarantees that these concurrent transactions don’t interact with or impact one
another in any way. Each request might appear as if it were happening one at a
time, even when it’s happening all at once.

• Durability – it guarantees that changes made to your data by properly conducted

transactions are saved even if the system fails.

An OLTP system is an online database modifying system. So it supports database query

like INSERT(Create), UPDATE and DELETE information from the database.

Consider a POS system of a supermarket. Below are the sample queries that it can
process -

• Retrieve the complete description of a particular product

• Filter all products related to any particular supplier

• Search for the record of any particular customer.

• List all products having a price less than Rs 1000.

Online Analytical Processing (OLAP)

Online analytical processing (OLAP) is a software technology you can use to analyze
business data from different points of view. Organizations collect and store data from
multiple data sources, such as websites, applications, smart meters, and internal
systems. OLAP combines and groups this data into categories to provide actionable
insights for strategic planning. For example, a retailer stores data about all the products
it sells, such as color, size, cost, and location. The retailer also collects customer
purchase data, such as the names of the items ordered and total sales value, in a
different system. OLAP combines the datasets to answer questions such as which color
products are more popular or how product placement impacts sales.

Characteristics of OLAP

OLAP possesses several key characteristics that make it a valuable technology for data
analysis and business intelligence. Here are the main characteristics of OLAP:
1. Multidimensional Data Representation: OLAP systems organize data in a
multidimensional format, where different dimensions (such as time, geography,
products, and more) are interconnected. This allows users to analyze data from
various perspectives, enabling deeper insights.

2. Cubes and Hypercubes: OLAP systems use structures called “cubes” or

“hypercubes” to store and represent data. These cubes contain aggregated and
pre-calculated values for different combinations of dimensions, facilitating
quick query response times.

3. Dimension Hierarchies: Dimensions within OLAP cubes often have hierarchies.

For instance, a time dimension might have hierarchies like year > quarter >
month > day. These hierarchies allow users to navigate and analyze data at
different levels of granularity.

4. Fast Query Performance: OLAP systems are optimized for quick query
performance. Aggregated data stored in cubes, along with indexing and pre-
calculations, enables rapid response times for analytical queries, even over large
datasets.

5. Drill-down and Roll-Up: Users can “drill down” to view more detailed data or
“roll up” to see higher-level summaries. This capability to navigate between
different levels of granularity aids in exploring data relationships.

6. Slicing and Dicing: “Slicing” involves selecting a specific value along one
dimension to view a cross-section of data. “Dicing” involves selecting specific
values along multiple dimensions. These operations allow users to focus on
specific subsets of data.

7. Advanced Calculations: OLAP systems support various calculations beyond

simple aggregation, such as ratios, percentages, and moving averages. These
calculations aid in deriving meaningful insights from the data.

8. User-Friendly Interface: OLAP systems typically come with user-friendly

interfaces that facilitate intuitive navigation and exploration of data. This makes
it easier for non-technical users to perform complex analyses.

9. Business Intelligence Integration: OLAP is often integrated with business

intelligence (BI) tools and reporting platforms. This integration allows users to
create interactive dashboards, reports, and visualizations based on OLAP data.

10. Ad-Hoc Queries: Users can create ad-hoc queries to answer specific analytical
questions without needing to follow a predetermined query path. This flexibility
is crucial for exploring unexpected insights.
OLAP Architecture

OLAP system that consists of the following elements.

Data warehouse

A data warehouse collects information from different sources, including applications,

files, and databases. It processes the information using various tools so that the data is
ready for analytical purposes. For example, the data warehouse might collect
information from a relational database that stores data in tables of rows and columns.

ETL tools

Extract, transform, and load (ETL) tools are database processes that automatically
retrieve, change, and prepare the data to a format fit for analytical purposes. Data
warehouses use ETL to convert and standardize information from various sources
before making it available to OLAP tools.

OLAP server

An OLAP server is the underlying machine that powers the OLAP system. It uses ETL
tools to transform information in the relational databases and prepare them for OLAP
operations.

OLAP database

An OLAP database is a separate database that connects to the data warehouse. Data
engineers sometimes use an OLAP database to prevent the data warehouse from being
burdened by OLAP analysis. They also use an OLAP database to make it easier to create
OLAP data models.

OLAP cubes
A data cube is a model representing a multidimensional array of information. While it’s
easier to visualize it as a three-dimensional data model, most data cubes have more
than three dimensions. An OLAP cube, or hypercube, is the term for data cubes in an
OLAP system. OLAP cubes are rigid because you can't change the dimensions and
underlying data once you model it. For example, if you add the warehouse dimension to
a cube with product, location, and time dimensions, you have to remodel the entire
cube.

OLAP analytic tools

Business analysts use OLAP tools to interact with the OLAP cube. They perform
operations such as slicing, dicing, and pivoting to gain deeper insights into specific
information within the OLAP cube.

What is an OLAP cube?

Any discussion of OLAP is remiss without talking about OLAP cubes. An OLAP cube,
also known as a hypercube, is a kind of data structure that permits fast and multi-
dimensional analysis of extensive data beyond what can be achieved by relational
databases. Its key features include the following:

1. Dimensions: They represent different categories for analysis.

2. Measures: They are numerical values that you want to analyze.

3. Pre-Aggregation: Data is pre-calculated and stored for rapid querying here.

4. Hierarchies: They allow for drilling down within dimensions.

5. Fast Query Performance: They allow quick analysis of large datasets.

Simply put, OLAP cubes take our tables, which are flat and two-dimensional (think like
spreadsheets), and elevate them into something that has three (or many more)
dimensions. OLAP cubes add additional layers and associations. They organize data
appropriately to support complex analytical queries and reporting at a much higher
speed.

The following capabilities define what you can do with an OLAP cube.
 • Roll up: The roll-up operation summarizes data to provide a less detailed view.
For example, instead of viewing product sales by specific cities like Paris, Berlin,
Madrid and Rome, a roll-up aggregates this data to show sales by regions such as
Western Europe and Southern Europe.

• Drill down: The opposite of roll-up is drill-down. Here, the analyst can go deeper
into the data hierarchy to retrieve lower-level information. For example, while
looking at the data for annual sales, one can drill down to monthly sales.

• Slice: The slice operation extracts a specific subset of data based on one
dimension. For example, slicing can analyze sales data for a particular product
category.

• Dice: The dice operation lets analysts simultaneously select and analyze data
from multiple dimensions. For example, they can examine sales data for specific
products in certain regions during a given period.

• Pivot: The pivot operation rotates the OLAP cube in one of the dimensions. So a
data analyst, interested in exploring a graph with a different configuration, might
pivot the data using drag-and-drop actions in a graphical user interface.

Benefits of OLAP Cubes

Below are the primary reasons businesses use OLAP cubes:

• OLAP cubes are fast because all the data is pre-aggregated.

• OLAP cubes are easy to navigate using simple operations such as roll-ups, drill-
downs, pivots, slicing, and dicing.
 • They are more interactive than tabular reports and are helpful for simple
business intelligence functions.

OLAP quick reference:

Types of OLAP:
OLTP vs OLAP