CISB594 – Business Intelligence Data Mining Part I

CISB594 – Business Intelligence Reference Materials used in this presentation are extracted mainly from the following texts, unless stated otherwise.

CISB594 – Business Intelligence Objectives At the end of this lecture, you should be able to: Describe data mining, its characteristics and objectives in business Identify and explain the common algorithms used in data mining Discuss the use of data mining in different types of business Discuss the importance of data mining in understanding customers’ behaviours CISB594 – Business Intelligence

What is Data Mining A process that uses statistical, mathematical, artificial intelligence and machine learning techniques to extract and identify useful information and subsequent knowledge from large database Uses sophisticated data manipulation technology Identifies useful information Deals with large databases Data Mining

CISB594 – Business Intelligence Data Mining Concepts and Applications Where is Data Mining in Business Intelligence?

CISB594 – Business Intelligence Users today will want to perform statistical and mathematical analysis such as hypothesis testing, prediction and customer scoring models A major step in managerial decision making is forecasting or estimating the results of different alternative courses of actions Such investigation cannot be done with basic OLAP and will require special tools – advanced business analytics – data mining Why do we need Data Mining

CISB594 – Business Intelligence Data are often buried deep within very large databases, which sometimes contain data from several years Sophisticated tools are used to clean and synchronize data in order to get the best result Miners are the end users who are empowered with sophisticated tools to ask ad-hoc questions – they need not be technically equipped Miners may find an unexpected result during data mining activities and this will require creative thinking on the users’ decision making Major Characteristics of Data Mining

CISB594 – Business Intelligence Data Mining algorithms Fall into four broad categories: 1.Classification – Also known as supervised induction, most common of all data mining activities – Used to analyse the historical data stored in the database and to automatically generate a model that can predict future behaviour – Identify patterns of data to belong to a certain category – Application example : target marketing (likely customer or no hope, based on the previous customers’ behaviour) Medical Insurance company: Clients with a history of diabetes (from maternal/paternal side) are likely to also have diabetes in a later stage of his/her life. A special premium coverage can be designed for the potential health condition

CISB594 – Business Intelligence Data Mining algorithms Fall into four broad categories: 2. Clustering – Partitioning a database into segments in which the members of a segment share similar qualities – Unlike classification, the cluster is unknown when the algorithm starts. – Clustering technique includes optimization, the goal is to create groups so that members within each group have maximum similarity and the members across groups have minimum similarity – Before the results of clustering techniques are used, it might be necessary for an expert to interpret, modify the information – Application example : Market segmentation Comb the whole data to identify sharing of similar qualities/ characteristics and create group based on that. E.g. Payment by credit card is more popular in the urban area compared to the rural area. Demographically, the social class determines the method of payment. This can be interpreted into business decisions/ strategy.

CISB594 – Business Intelligence Classifying vs. Clustering What is the major difference between cluster analysis and classification? Classification is sorting cases into groups so that members of the same group are strongly associated in some meaningful way. Cluster analysis is one way to identify the groups that classification requires.

CISB594 – Business Intelligence Data Mining algorithms Fall into four broad categories: 3. Association – Establishes relationship about items that occur together in a given record – Determining associations among items that sell together – Often called market basket analysis as the primary applications is the analysis of sales transactions – Application example : Market basket analysis Placing microweavable pop-corn in the soft drinks isle Placing batteries in the toys isle Placing women’s magazines in the baby formula isle Placing lemons and marinating herbs at the butcher section of the supermarket Sales of hobs and hoods and oven as part of kitchen cabinets

CISB594 – Business Intelligence Data Mining algorithms Fall into four broad categories: 4. Sequence discovery – The identification of association over time – Some sequence discovery techniques keep track of elapsed time between associated events and the frequency of occurrences – Application example : Market basket analysis over time, customer life cycle analysis Unemployed consumer who purchased pre paid telco service are most likely to convert to postpaid upon being employed Purchase of machinery will later be followed by the purchase of maintenance service

CISB594 – Business Intelligence Types of data mining 2 types Hypothesis-driven data mining Begins with a proposition by the user, who then seeks to validate the truthfulness of the proposition e.g. Start with a statement - The cause of fire during road accident is due to the modification of vehicle by an unauthorized parties, then use data mining to prove the statement Discovery-driven data mining Finds patterns, associations, and relationships among the data in order to uncover facts that were previously unknown or not even contemplated by an organization

CISB594 – Business Intelligence Use in business Where data mining is beneficial (the intent in most of these examples is to identify a business opportunity and create a sustainable competitive advantage). Fill in the blanks. BusinessUse Marketing BankingForecasting levels of bad loans, fraud in credit card usage, credit card spending pattern, new loans Retailing and sales Predicting sales, determining correct inventory levels and distribution schedules Manufacturing and production

CISB594 – Business Intelligence Use in business Where data mining is beneficial (the intent in most of these examples is to identify a business opportunity and create a sustainable competitive advantage) BusinessUse Government and defense Forecasting threats to national security, predicting resources consumptions Health Airlines Broadcasting

CISB594 – Business Intelligence Understanding customer behaviour For most retail environments, three sources of customers data are most critical to data mining efforts aimed at better understanding of behavior: – Demographic data – salary, population – Transaction data – purchase type, online, cash, credit – Online interaction data - favourite sections in website (clickstream analytics can be used to identify who did/did not buy product, why and when)

CISB594 – Business Intelligence Data Mining in retail The process of data mining in retail has three different aspects: 1.Web analytics – Gather web statistics that track customer’s online behaviour ; hit, pages, sales, volume, and so on. This helps in adjusting a web site to meet customer needs. 2.Customer analytics – web sites interaction, transaction data from offline purchases, and demographic data. This is critical in CRM and revenue management because a better understanding allows an organization to cluster customers into groupings. 3.Optimization – Patterns can be detected and used to optimize customer interactions. For example in recommending relevant styles and complementary purchases/products to suit customer behaviour

CISB594 – Business Intelligence Your assignment

CISB594 – Business Intelligence Now ask if … You are now be able to: Describe data mining, its characteristics and objectives in business Identify and explain the common algorithms used in data mining Discuss the use of data mining in different types of business Discuss the importance of data mining in understanding customers’ behaviours CISB594 – Business Intelligence

Assignment Updates Assignment 2 to be submitted on the 7 th March 2011 Please print the marking scheme and include in the submission Teams are to book for presentation slot (to be distributed in the class)