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Basics of Business Analytics

Organizations are increasingly using data driven approaches to make business decisions. What was once a “nice-to-have” practice is now becoming a necessity to achieve a competitive edge. Though this approach seems easy and intuitive, it has proven to be a challenge for most. One of the biggest disadvantages is that data, in its raw form, is extremely cumbersome and difficult to understand. Business analytics is the statistical summarization of complex data into simple and presentable forms allowing the user to interpret, draw conclusions and understand underlying trends.

Broadly speaking, business analytics can be divided into three categories and organizations may use one or more of them based on the objective at hand. The three categories are: descriptive analytics, predictive analytics and prescriptive analytics.


  1. Descriptive Analytics The objective is to analyze historical data, identify trends and gain insights into past performance. Organizations use this to answer the question “How did we perform?” and to determine root causes of issues. Descriptive analytics involves the use of statistical and mathematical techniques to summarize the data and represent it in the form of charts, graphs, maps, etc., making it easy for the user to understand and draw conclusions.

  2. Predictive Analytics Accurately answering the question “What will happen in the future?” is often the key to making decisions today. Predictive analytics enables organizations to develop models that analyze historical data, cross reference it with external trends and consider market forces to develop a representation of the future. Based on these models, management teams of organizations can be proactive in making decisions that avert future problems and get ahead of the curve on various business issues.

  3. Prescriptive Analytics This is the most complex of the three types of analytics. It uses sophisticated techniques of optimization and simulation to find multiple options in a scenario and then recommends actions to achieve the optimum outcome given the objective. It answers the question “What must be done to maximize results?” and provides management with the actions needed to do so. Because of its complex nature, prescriptive analytics is extremely hard to implement. However, if done so correctly, it can greatly impact an organization’s effectiveness and efficiency, leading to incredible results.

The three categories of analytics form the building blocks of analytics used by most organizations. Any type of analytics performed by organizations could be classified as one of the above or a combination of the above categories. Organizations that are “analytics enabled” can attain a significant competitive advantage and it may be the ultimate sustainable business strategy to maximize results.

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