INTRODUCTION

TO ANALYTICS
2022 - 2023
 LESSON 4.
ADVANCED ANALYTICS,
MACHINE LEARNING & AI
Learning Objectives

1. Understand the meaning of prediction

2. Recognize predictor and response variables
3. Discuss data used for advanced analytics
4. Distinguish type of predictive models
5. Distinguish between ML and AI
6. Explain the two types of AI
7. Ask advanced analytics questions
Agenda

1. What is prediction?
2. From prediction to decision
3. Predictor and response variables
4. Data used in advanced analytics
5. Types of predictive models
6. Advanced analytics questions
7. ML and AI; two types of AI
8. Group assignment introduction
 LESSON 4.

WHAT IS PREDICTION ?
 Types of Advanced Analytics
Descriptive The examination of data or content, to answer the question “What
Analytics happened?” or “What is happening?”

Diagnostic A form of advanced analytics that examines data or content to answer

analytics the question, “Why did it happen?”

Advanced Analytics

Predictive A form of advanced analytics which examines data or content to

Analytics answer the question “What is going to happen?” or more precisely,
“What is likely to happen?”

Prescriptive A form of advanced analytics which examines data or content to

Analytics answer the question “What should be done?” or “What can we do to
make X happen?”
https://www.gartner.com/en/information-technology/glossary
Types of Analytics
Advanced Determine the best
Analytics course of action

Infer why has it Predict and forecast

occurred future

Monitor what has

occurred
What is prediction?
Prediction

• Prediction is about using information you have to generate

information you don't have
Harvard Business Review
• Predict: foretell on the basis of observation, experience, or
scientific reason
https://www.merriam-webster.com/dictionary/predict
• In science, a prediction is a rigorous, often quantitative,
statement, forecasting what would happen under specific
conditions
https://en.wikipedia.org/wiki/Prediction#Prediction_in_science
 Predictive Modeling

We solve business problems to:

• Improve efficiency
• Make better decisions
• Enable the organization do something new that was not possible
before

In predictive modeling, we take a business problem and reframe it as a

prediction problem:
• What is someone likely to do in a given scenario?
• What is likely to happen if…?
• How much …. is expected when….?
Value of Prediction

How can a prediction help solve

a business problem?
 Goal of analytics

Analytics: The examination of information to uncover insights that give a

businessperson the knowledge to make informed decisions.
Actionable
insights

Intel Developer Works Community

 Predictive Modeling Examples

Pipe breakdown prediction:

https://www.cnbc.com/advertorial/pipeline-to-success-saving-trillions-
through-japanese-
innovation/?utm_source=linkedin&utm_medium=cpv&utm_campaign
=CP1&3&utm_content=G7fracta

OR

https://www.linkedin.com/posts/activity-6640523504376745984-YN78
 Predictive Modelling Examples

Survival analysis - models that predict occurrence and timing of the events e.g.
customer churn (attrition), patient survival, customer's next purchase, loan default

Network analysis - target particular individuals within a network at persons for

advertising: optimise advertising budget by targeting the centre of the network

Net lift response modelling - predict the likelihood of customers responding to a

promotion / campaign
FROM PREDICTION
TO DECISION
Prediction vs Decision
 Decision can be…

• Automated based on scores from the models

• Partially automated (flow through) for standard behaviours, but allow
override rules to handle exceptional cases.
E.g. Use the model to make predictions for majority of cases.
• Not automated - require humans judgement using the scores and
predictions provided by the model.

First, make a prediction

Then, make a decision based on prediction (automated or not)

What do humans do with analytics?
 Analytics maturity
1. How much of the decision process is automated?
2. How much humans intervention in decision making process is required?

Advanced
Analytics
 PREDICTOR AND
RESPONSE VARIABLES
 Predictive Modelling

Model: a mathematical representation of an object or a process.

Predictive modelling: using mathematical and computational

methods to develop predictive models that examine datasets for
underlying patterns and calculate probability of an outcome

Predictive modelling is about understanding the relationships

between Predictor data and Behavioral (Response) data.

Predictive analytics process: analyses the data to identify how the

predictor data can be used to differentiate between behaviours
and predict outcomes.
 Predictor and Response Variables

Predictor variable: the variable used to predict the response

a.k.a
Independent variable
Feature
Attribute
X-variable

Response variable: the variable that the model is aiming to predict

a.k.a
Dependent variable
Outcome
Target
Y-variable
Example

https://www.kaggle.com/c/titanic/data
 Example

Dependent
variable ~
Response
variable

Predictor variables ~
independent variables

https://www.kaggle.com/c/titanic/data
Practice: Predictor vs Response variables

Work in groups:
A streaming platform has collected a lot of data about user
behaviour on the platform, as well as customer surveys.
The goal is to improve the platform movie recommendations
algorithm.
What prediction would you recommend?
What prediction and response variables can you think of?
Mini-quiz

Predictor vs Response variables

 DATA USED IN
ADVANCED ANALYTICS
 Sources of predictor variables
Source What to look for
Existing metadata Existing documentation that describes business data, relationships, and constraints
Current decision- What data is currently used to make business decisions.
making process What parameters and attributes are included in business reports and operational
analytics that management uses to make decisions today?
Subject matter experts People that are involved in day-to-day business process will know what information
working in operational is important and relevant
areas
External data sources External sources such as credit rating agencies or business associations have rich
knowledge of relevant data and its importance for prediction
Research / peer Investigate what data is used my industry, competitors and peers for similar business
experience problems

Steven Finlay (2014)

Predictive Analytics, Data Mining and Big Data (Business in the Digital Economy)
Palgrave Macmillan
 Data Used for Advanced Analytics
Data Type Description

Primary Information about the past behaviour that is of the same type as behaviour you
behaviours want to predict.
Example: committed a burglary before

Secondary Information about past behaviours that are similar (but different) to the one you
behaviours want to predict.
Example: minor crimes and offenses

Tertiary Information about past behaviours that do not have an obvious connection to
behaviours the behaviour you want to predict.
Example: selling items on eBay

Steven Finlay (2014)

Predictive Analytics, Data Mining and Big Data (Business in the Digital Economy)
Palgrave Macmillan
 Data Used for Advanced Analytics
Data Type Description
Geo- Information about a person’s state of being
demographic Example: age, income, occupation, appearance, education level
Associate Information about person’s connections (their geo-demographic data and
data behaviours)
Example: partner or friends that committed a burglary in the past
Sentiments A person’s attitudes, feelings and opinions
Example: social media likes/dislikes, approvals/disapprovals, comments, blog
posts, survey answers
Network Information about the nature of connections between a person and their
associates
Example: majority of friends have committed criminal offences

Steven Finlay (2014)

Predictive Analytics, Data Mining and Big Data (Business in the Digital Economy)
Palgrave Macmillan
 TYPES OF
PREDICTIVE MODELS
 Machine Learning
Supervised learning
Predict outcomes using
labeled data
• Learn from labeled data to detect
patterns.
• A set of data (called “training set”) is
available where correct answers, or
“response variables” (“labels”) are
known for given scenarios , or “input
variables”
Unsupervised learning
Predict outcomes using
unlabeled data
• Model the underlying structure or
distribution in the data in order to learn
more about the data.
• Data is unlabeled (i.e. correct answer
is unknown)
 Machine Learning

Supervised learning Unsupervised learning

Predict outcomes using Predict outcomes using
labeled data unlabeled data

Clustering Association
Classification models Regression models find a structure or
Predict the probability pattern in a Discover
of the event Predict a quantity relationships
(estimate value) collection of
(estimate probability) uncategorized data between variables
Supervised Learning: Predictive Models
Model Type Description Example

Classification Predict the probability Probability that an email Logistic regression (binary problems)
problem: of the event (from a is Spam/Not Spam Decision tree
Classify an discrete list of events / Probability that a Random forest
instance possibilities); customer will place a Naive Bayes
Output: probability in new order within next Support Vector Machine (SVM)
% month
Neural networks
Response variable is
Nearest neighbour
categorical

Regression Predict a quantity or Estimate a Customer Linear regression

problem: amount Lifetime value (CLV) - Polynomial regression
Find a function Output: estimate total amount of money a Ridge regression
that fits the (numeric value) customer is expected to Decision tree
data with the Response variable is spend in your business, or
Random forest
least error numerical on your products, during
Neural networks
their lifetime
Nearest neighbour
https://www.guru99.com/unsupervised-machine-learning.html
ADVANCED ANALYTICS
QUESTIONS
How to ask predictive analytics
questions?
How to ask predictive analytics
questions?

What is someone likely to do in a given scenario?

What is likely to happen if…?
How much …. is expected when….?
What is the expected <metric> for …?
What is the likelihood that someone will choose …. if…?
What is the probability that …. belongs to …. category?
MACHINE LEARNING AND
ARTIFICIAL INTELLIGENCE
Is machine learning and artificial intelligence the
same thing? Where does deep learning fit in?

menti.com

Machine Artificial
Leaning Intelligence
(ML) (AI)

Deep
Learning
(DL)
 Machine Learning vs. AI
Artificial intelligence (AI) is the theory and development of computer
systems able to perform tasks normally requiring human intelligence, such
as visual perception, speech recognition, decision-making, and
translation between languages. — Oxford Reference

Machine learning (ML) is an artificial intelligence (AI) discipline that allows

computers to handle new situations via analysis, self-training, observation
and experience. — https://www.techopedia.com/

Deep Learning (DL) is a subfield of machine learning concerned with

algorithms inspired by the structure and function of the brain called
artificial neural networks. — Machine Learning Mastery
 Computer Science

Artificial Intelligence (AI)

Machine Leaning (ML)

Deep
Learning (DL)
Source: Shubhendu and Vijay (2013; p. 29)
 Types of AI

Artificial Intelligence
(AI)

General AI
Narrow AI Intended to be capable of a
Intended for a narrowly broad set of tasks
defined or single task comparable to the tasks that
can be done by a human

https://www.techopedia.com/
 Narrow vs. General AI

starwars.com

Narrow AI General AI
Goal Intended to perform a single task Intended to perform a broad set of tasks
that a human is capable of.
Principle Process and analyze data, build Replicate or imitate human cognitive
prediction models and make process
quantitative predictions
Problems Solves problems that are framed as Intended to solve any problem that a
prediction problems human can solve
AKA Weak AI Broad / Strong / Full AI
Examples All AI that exists today is narrow See fiction books; research phase
 Narrow AI
Intended for a narrowly
Analytics Applications Examples defined or single task

• Recommender systems - based on previous search results for a user

• Targeted advertising - targeted based on user’s past behavior; social media
analytics
• Speech recognition – sound patterns are compared to find best match; predict
intention of speech
• Typing autocomplete – predicting the words based on the context and first letters
• Gaming - algorithms which improve / upgrade themselves as the player moves up
to a higher level
• Fraud and risk detection – likelihood to default on loan is calculated based on
customer profile
• Logistics - best routes to ship, best time to deliver, best mode of transport
• Sports cameras – real-time prediction of game direction and switching cameras
 Later in the program

Module 7: Analytics • Managing analytics projects

project basics
• Roles in analytics projects

Quantitative Research • Descriptive statistics

Methods course
• Probability and probability distributions, hypothesis testing

Big Data course • Loading, storing and processing big data

• Querying big data
• Big data manipulation, analysis and visualization
Data Analytic Tools • Traditional and advanced analytics tools
course
• Data manipulation
• Quantitative analysis and statistical techniques
Final thought

Data Analytics Prediction Decision Action

Google Research

The unreasonable effectiveness of data:

The size of the training dataset

may matter more to the success
of the prediction
than the choice of the prediction model.