LESSON 2 - PART 2.pptx.pdf

Analytics: A Comprehensive Study LESSON 2 - Part 2  Business Analytics Analytics Software Analytics Embedded Analytics Learning Analytics Predictive Analytics Prescriptive Analytics Social Media Analytics Behavioral Analytics 6. Predictive Analytics Predictive analyti...

Analytics: A Comprehensive Study LESSON 2 - Part 2  Business Analytics Analytics Software Analytics Embedded Analytics Learning Analytics Predictive Analytics Prescriptive Analytics Social Media Analytics Behavioral Analytics 6. Predictive Analytics Predictive analytics encompasses a variety of statistical techniques from predictive modeling, machine learning, and data mining that analyze current and historical facts to make predictions about future or otherwise unknown events. In business, predictive models exploit patterns found in historical and transactional data to identify risks and opportunities. Models capture relationships among many factors to allow assessment of risk or potential associated with a particular set of conditions, guiding decision making for candidate transactions. 6. Predictive Analytics The defining functional effect of these technical approaches is that predictive analytics provides a predictive score (probability) for each individual (customer, employee, healthcare patient, product SKU, vehicle, component, machine, or other organizational unit) in order to determine, inform, or influence organizational processes that pertain across large numbers of individuals, such as in marketing, credit risk assessment, fraud detection, manufacturing, healthcare, and government operations including law enforcement. Definition Predictive analytics is an area of data mining that deals with extracting information from data and using it to predict trends and behavior patterns. Often the unknown event of interest is in the future, but predictive analytics can be applied to any type of unknown whether it be in the past, present or future. For example, identifying suspects after a crime has been committed, or credit card fraud as it occurs. The core of predictive analytics relies on capturing relationships between explanatory variables and the predicted variables from past occurrences, and exploiting them to predict the unknown outcome. It is important to note, however, that the accuracy and usability of results will depend greatly on the level of data analysis and the quality of assumptions. Types Generally, the term predictive analytics is used to mean predictive modeling, “scoring” data with predictive models, and forecasting. However, people are increasingly using the term to refer to related analytical disciplines, such as descriptive modeling and decision modeling or optimization. These disciplines also involve rigorous data analysis, and are widely used in business for segmentation and decision making, but have different purposes and the statistical techniques underlying them vary. Types 1. Predictive Models Predictive models are models of the relation between the specific performance of a unit in a sample and one or more known attributes or features of the unit. The objective of the model is to assess the likelihood that a similar unit in a different sample will exhibit the specific performance. This category encompasses models in many areas, such as marketing, where they seek out subtle data patterns to answer questions about customer performance, or fraud detection models. Predictive models often perform calculations during live transactions, for example, to evaluate the risk or opportunity of a given customer or transaction, in order to guide a decision. With advancements in computing speed, individual agent modeling systems have become capable of simulating human behaviour or reactions to given stimuli or scenarios. Types 2. Descriptive Models Descriptive models quantify relationships in data in a way that is often used to classify customers or prospects into groups. Unlike predictive models that focus on predicting a single customer behavior (such as credit risk), descriptive models identify many different relationships between customers or products. Descriptive models do not rank-order customers by their likelihood of taking a particular action the way predictive models do. Instead, descriptive models can be used, for example, to categorize customers by their product preferences and life stage. Descriptive modeling tools can be utilized to develop further models that can simulate large number of individualized agents and make predictions. Types 3. Decision Models Decision models describe the relationship between all the elements of a decision—the known data (including results of predictive models), the decision, and the forecast results of the decision in order to predict the results of decisions involving many variables. These models can be used in optimization, maximizing certain outcomes while minimizing others. Decision models are generally used to develop decision logic or a set of business rules that will produce the desired action for every customer or circumstance. Analytical Customer Relationship Management (CRM) Analytical customer relationship management (CRM) is a frequent commercial application of predictive analysis. Methods of predictive analysis are applied to customer data to pursue CRM objectives, which involve constructing a holistic view of the customer no matter where their information resides in the company or the department involved. CRM uses predictive analysis in applications for marketing campaigns, sales, and customer services to name a few. These tools are required in order for a company to posture and focus their efforts effectively across the breadth of their customer base. They must analyze and understand the products in demand or have the potential for high demand, predict customers’ buying habits in order to promote relevant products at multiple touch points, and proactively identify and mitigate issues that have the potential to lose customers or reduce their ability to gain new ones. Analytical customer relationship management can be applied throughout the customers lifecycle (acquisition, relationship growth, retention, and win-back). Several of the application areas described below (direct marketing, cross-sell, customer retention) are part of customer relationship management. Clinical Decision Support Systems Experts use predictive analysis in health care primarily to determine which patients are at risk of developing certain conditions, like diabetes, asthma, heart disease, and other lifetime illnesses. Additionally, sophisticated clinical decision support systems incorporate predictive analytics to support medical decision making at the point of care. A working definition has been proposed by Jerome A. Osheroff and colleagues: Clinical decision support (CDS) provides clinicians, staff, patients, or other individuals with knowledge and person-specific information, intelligently filtered or presented at appropriate times, to enhance health and health care. It encompasses a variety of tools and interventions such as computerized alerts and reminders, clinical guidelines, order sets, patient data reports and dashboards, documentation templates, diagnostic support, and clinical workflow tools. Collection Analytics Many portfolios have a set of delinquent customers who do not make their payments on time. The financial institution has to undertake collection activities on these customers to recover the amounts due. A lot of collection resources are wasted on customers who are difficult or impossible to recover. Predictive analytics can help optimize the allocation of collection resources by identifying the most effective collection agencies, contact strategies, legal actions and other strategies to each customer, thus significantly increasing recovery at the same time reducing collection costs. Cross-sell Often corporate organizations collect and maintain abundant data (e.g. customer records, sale transactions) as exploiting hidden relationships in the data can provide a competitive advantage. For an organization that offers multiple products, predictive analytics can help analyze customers’spending, usage and other behavior, leading to efficient cross sales, or selling additional products to current customers. This directly leads to higher profitability per customer and stronger customer relationships. Customer Retention With the number of competing services available, businesses need to focus efforts on maintaining continuous customer satisfaction, rewarding consumer loyalty and minimizing customer attrition.In addition, small increases in customer retention have been shown to increase profits disproportionately. One study concluded that a 5% increase in customer retention rates will increase profits by 25% to 95%. Businesses tend to respond to customer attrition on a reactive basis, acting only after the customer has initiated the process to terminate service. Direct Marketing When marketing consumer products and services, there is the challenge of keeping up with competing products and consumer behavior. Apart from identifying prospects, predictive analytics can also help to identify the most effective combination of product versions, marketing material, communication channels and timing that should be used to target a given consumer. The goal of predictive analytics is typically to lower the cost per order or cost per action. Fraud Detection Fraud is a big problem for many businesses and can be of various types: inaccurate credit applications, fraudulent transactions (both offline and online), identity thefts and false insurance claims. These problems plague firms of all sizes in many industries. Some examples of likely victims are credit card issuers, insurance companies, retail merchants, manufacturers, business-to-business suppliers and even services providers. A predictive model can help weed out the “bads” and reduce a business’s exposure to fraud. Portfolio, Product or Economy-level Prediction Often the focus of analysis is not the consumer but the product, portfolio, firm, industry or even the economy. For example, a retailer might be interested in predicting store-level demand for inventory management purposes. Or the Federal Reserve Board might be interested in predicting the unemployment rate for the next year. These types of problems can be addressed by predictive analytics using time series techniques. They can also be addressed via machine learning approaches which transform the original time series into a feature vector space, where the learning algorithm finds patterns that have predictive power. Project Risk Management When employing risk management techniques, the results are always to predict and benefit from a future scenario. The capital asset pricing model (CAP-M) “predicts” the best portfolio to maximize return. Probabilistic risk assessment (PRA) when combined with mini-Delphi techniques and statistical approaches yields accurate forecasts. These are examples of approaches that can extend from project to market, and from near to long term. Underwriting and other business approaches identify risk management as a predictive method. Underwriting Many businesses have to account for risk exposure due to their different services and determine the cost needed to cover the risk. For example, auto insurance providers need to accurately determine the amount of premium to charge to cover each automobile and driver. A financial company needs to assess a borrower’s potential and ability to pay before granting a loan. For a health insurance provider, predictive analytics can analyze a few years of past medical claims data, as well as lab, pharmacy and other records where available, to predict how expensive an enrollee is likely to be in the future. Predictive analytics can help underwrite these quantities by predicting the chances of illness, default, bankruptcy, Technology and Big Data Influences Big data is a collection of data sets that are so large and complex that they become awkward to work with using traditional database management tools. The volume, variety and velocity of big data have introduced challenges across the board for capture, storage, search, sharing, analysis, and visualization. Examples of big data sources include web logs, RFID, sensor data, social networks, Internet search indexing, call detail records, military surveillance, and complex data in astronomic, biogeochemical, genomics, and atmospheric sciences. Big Data is the core of most predictive analytic services offered by IT organizations. Analytical Techniques The approaches and techniques used to conduct predictive analytics can broadly be grouped into regression techniques and machine learning techniques. Regression Techniques Regression models are the mainstay of predictive analytics. The focus lies on establishing a mathematical equation as a model to represent the interactions between the different variables in consideration. Depending on the situation, there are a wide variety of models that can be applied while performing predictive analytics. Some of them are briefly discussed below. Linear Regression Model The linear regression model analyzes the relationship between the response or dependent variable and a set of independent or predictor variables. This relationship is expressed as an equation that predicts the response variable as a linear function of the parameters. These parameters are adjusted so that a measure of fit is optimized. Much of the effort in model fitting is focused on minimizing the size of the residual, as well as ensuring that it is randomly distributed with respect to the model predictions. Discrete Choice Models Multivariate regression (above) is generally used when the response variable is continuous and has an unbounded range. Often the response variable may not be continuous but rather discrete. While mathematically it is feasible to apply multivariate regression to discrete ordered dependent variables, some of the assumptions behind the theory of multivariate linear regression no longer hold, and there are other techniques such as discrete choice models which are better suited for this type of analysis. If the dependent variable is discrete, some of those superior methods are logistic regression, multinomial logit and probit models. Logistic regression and probit models are used when the dependent variable is binary. Logistic Regression In a classification setting, assigning outcome probabilities to observations can be achieved through the use of a logistic model, which is basically a method which transforms information about the binary dependent variable into an unbounded continuous variable and estimates a regular multivariate model. Multinomial Logistic Regression An extension of the binary logit model to cases where the dependent variable has more than 2 categories is the multinomial logit model. In such cases collapsing the data into two categories might not make good sense or may lead to loss in the richness of the data. The multinomial logit model is the appropriate technique in these cases, especially when the dependent variable categories are not ordered (for examples colors like red, blue, green). Some authors have extended multinomial regression to include feature selection/importance methods such as random multinomial logit. Probit Regression Probit models offer an alternative to logistic regression for modeling categorical dependent variables. Even though the outcomes tend to be similar, the underlying distributions are different. Probit models are popular in social sciences like economics. A good way to understand the key difference between probit and logit models is to assume that the dependent variable is driven by a latent variable z, which is a sum of a linear combination of explanatory variables and a random noise term. Logit Versus Probit The probit model has been around longer than the logit model. They behave similarly, except that the logistic distribution tends to be slightly flatter tailed. One of the reasons the logit model was formulated was that the probit model was computationally difficult due to the requirement of numerically calculating integrals. Modern computing however has made this computation fairly simple. The coefficients obtained from the logit and probit model are fairly close. However, the odds ratio is easier to interpret in the logit model. Practical reasons for choosing the probit model over the logistic model would be: There is a strong belief that the underlying distribution is normal The actual event is not a binary outcome (e.g., bankruptcy status) but a proportion (e.g., proportion of population at different debt levels). 7. Prescriptive Analytics Prescriptive analytics is the third and final phase of analytics (BA) which also includes descriptive and predictive analytics. Referred to as the “final frontier of analytic capabilities,” prescriptive analytics entails the application of mathematical and computational sciences suggests decision options to take advantage of the results of descriptive and predictive analytics. The first stage of business analytics is descriptive analytics, which still accounts for the majority of all business analytics today. Descriptive analytics looks at past performance and understands that performance by mining historical data to look for the reasons behind past success or failure. Most management reporting - such as sales, marketing, operations, and finance - uses this type of post-mortem analysis.  The next phase is predictive analytics. Predictive analytics answers the question what is likely to happen. This is when historical data is combined with rules, algorithms, and occasionally external data to determine the probable future outcome of an event or the likelihood of a situation occurring. The final phase is prescriptive analytics, which goes beyond predicting future outcomes by also suggesting actions to benefit from the predictions and showing the implications of each decision option. Prescriptive analytics not only anticipates what will happen and when it will happen, but also why it will happen. Further, prescriptive analytics suggests decision options on how to take advantage of a future opportunity or mitigate a future risk and shows the implication of each decision option. Prescriptive analytics can continually take in new data to re-predict and re-prescribe, thus automatically improving prediction accuracy and prescribing better decision options. Prescriptive analytics ingests hybrid data, a combination of structured (numbers, categories) and unstructured data (videos, images, sounds, texts), and business rules to predict what lies ahead and to prescribe how to take advantage of this predicted future without compromising other priorities. History While the term Prescriptive Analytics, first coined by IBM and later trademarked by Ayata, the underlying concepts have been around for hundreds of years. The technology behind prescriptive analytics synergistically combines hybrid data, business rules with mathematical models and computational models. The data inputs to prescriptive analytics may come from multiple sources: internal, such as inside a corporation; and external, also known as environmental data. The data may be structured, which includes numbers and categories, as well as unstructured data, such as texts, images, sounds, and videos. Unstructured data differs from structured data in that its format varies widely and cannot be stored in traditional relational databases without significant effort at data transformation. More than 80% of the world’s data today is unstructured, according to IBM. Pricing Pricing is another area of focus. Natural gas prices fluctuate dramatically depending upon supply, demand, econometrics, geopolitics, and weather conditions. Gas producers, pipeline transmission companies and utility firms have a keen interest in more accurately predicting gas prices so that they can lock in favorable terms while hedging downside risk. Prescriptive analytics software can accurately predict prices by modeling internal and external variables simultaneously and also provide decision options and show the impact of each decision option. Applications in Healthcare Multiple factors are driving healthcare providers to dramatically improve business processes and operations as the United States healthcare industry embarks on the necessary migration from a largely fee-for service, volume-based system to a fee-for-performance, value-based system. Prescriptive analytics is playing a key role to help improve the performance in a number of areas involving various stakeholders: payers, providers and pharmaceutical companies. 8. Social Media Analytics Social Media Analytics as a part of social analytics is the process of gathering data from stakeholder conversations on digital media and processing into structured insights leading to more information-driven business decisions and increased customer centrality for brands and businesses. Social media analytics can also be referred as social media listening, social media monitoring or social media intelligence. Digital media sources for social media analytics include social media channels, blogs, forums, image sharing sites, video sharing sites, aggregators, classifieds, complaints, Q&A, reviews, Wikipedia and others.  Social media analytics is an industry agnostic practice and is commonly used in different approaches on business decisions, marketing, customer service, reputation management, sales and others. There is an array of tools that offers the social media analysis, varying from the level of business requirement. Logic behind algorithms that are designed for these tools is selection, data pre-processing, transformation, mining and hidden pattern evaluation. In order to make the complete process of social media analysis a success it is important that key performance indicators (KPIs) for objectively evaluating the data is defined. Social media analytics is important when one needs to understand the patterns that are hidden in large amount of social data related to particular brands. 9. Behavioral Analytics Behavioral analytics is a recent advancement in business analytics that reveals new insights into the behavior of consumers on eCommerce platforms, online games, web and mobile applications, and IoT. The rapid increase in the volume of raw event data generated by the digital world enables methods that go beyond typical analysis by demographics and other traditional metrics that tell us what kind of people took what actions in the past. Behavioral analysis focuses on understanding how consumers act and why, enabling accurate predictions about how they are likely to act in the future. It enables marketers to make the right offers to the right consumer segments at the right time.  Behavioral analytics utilizes the massive volumes of raw user event data captured during sessions in which consumers use application, game, or website, including traffic data like navigation path, clicks, social media interactions, purchasing decisions and marketing responsiveness. Also, the event-data can include advertising metrics like click-to-conversion time, as well as comparisons between other metrics like the monetary value of an order and the amount of time spent on the site. These data points are then compiled and analyzed, whether by looking at session progression from when a user first entered the platform until a sale was made, or what other products a user bought or looked at before this purchase. Behavioral analysis allows future actions and trends to be predicted based on the collection of such data.  Data shows that a large percentage of users using a certain eCommerce platform found it by searching for “Thai food” on Google. After landing on the homepage, most people spent some time on the “Asian Food” page and then logged off without placing an order. Looking at each of these events as separate data points does not represent what is really going on and why people did not make a purchase. However, viewing these data points as a representation of overall user behavior enables one to interpolate how and why users acted in this particular case. Behavioral analytics looks at all site traffic and page views as a timeline of connected events that did not lead to orders. Since most users left after viewing the “Asian Food” page, there could be a disconnect between what they are searching for on Google and what the “Asian Food” page displays. Knowing this, a quick look at the “Asian Food” page reveals that it does not display Thai food prominently and thus people do not think it is actually offered, even though it is. Types Ecommerce and retail – Product recommendations and predicting future sales trends Online gaming – Predicting usage trends, load, and user preferences in future releases Application development – Determining how users use an application to predict future usage and preferences. Cohort analysis – Breaking users down into similar groups to gain a more focused understanding of their behavior. Security – Detecting compromised credentials and insider threats by locating anomalous behavior. Suggestions – People who liked this also liked... Presentation of relevant content based on user behavior. Components of Behavioral Analytics An ideal behavioral analytics solution would include: Real-time capture of vast volumes of raw event data across all relevant digital devices and applications used during sessions Automatic aggregation of raw event data into relevant data sets for rapid access, filtering and analysis Ability to query data in an unlimited number of ways, enabling users to ask any business question Extensive library of built-in analysis functions such as cohort, path and funnel analysis A visualization component Subsets of Behavioral Analytics Path Analysis (Computing) Path analysis, is the analysis of a path, which is a portrayal of a chain of consecutive events that a given user or cohort performs during a set period of time while using a website, online game, or eCommerce platform. As a subset of behavioral analytics, path analysis is a way to understand user behavior in order to gain actionable insights into the data. Path analysis provides a visual portrayal of every event a user or cohort performs as part of a path during a set period of time. While it is possible to track a user’s path through the site, and even show that path as a visual representation, the real question is how to gain these actionable insights. If path analysis simply outputs a “pretty” graph, while it may look nice, it does not provide anything concrete to act upon. Examples In order to get the most out of path analysis the first step would be to determine what needs to be analyzed and what are the goals of the analysis. A company might be trying to figure out why their site is running slow, are certain types of users interested in certain pages or products, or if their user interface is set up in a logical way.