Analytics in a Big Data World

The Essential Guide to Data Science and its Applications

Bart Baesens

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9781118892701
• eBook ISBN: 9781118892749
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

The guide to targeting and leveraging business opportunities using big data & analytics

By leveraging big data & analytics, businesses create the potential to better understand, manage, and strategically exploiting the complex dynamics of customer behavior. Analytics in a Big Data World reveals how to tap into the powerful tool of data analytics to create a strategic advantage and identify new business opportunities. Designed to be an accessible resource, this essential book does not include exhaustive coverage of all analytical techniques, instead focusing on analytics techniques that really provide added value in business environments.

The book draws on author Bart Baesens' expertise on the topics of big data, analytics and its applications in e.g. credit risk, marketing, and fraud to provide a clear roadmap for organizations that want to use data analytics to their advantage, but need a good starting point. Baesens has conducted extensive research on big data, analytics, customer relationship management, web analytics, fraud detection, and credit risk management, and uses this experience to bring clarity to a complex topic.

• Includes numerous case studies on risk management, fraud detection, customer relationship management, and web analytics
• Offers the results of research and the author's personal experience in banking, retail, and government
• Contains an overview of the visionary ideas and current developments on the strategic use of analytics for business
• Covers the topic of data analytics in easy-to-understand terms without an undo emphasis on mathematics and the minutiae of statistical analysis

For organizations looking to enhance their capabilities via data analytics, this resource is the go-to reference for leveraging data to enhance business capabilities.

CHAPTER 1
Big Data and Analytics

Data are everywhere. IBM projects that every day we generate 2.5 quintillion bytes of data.¹ In relative terms, this means 90 ­percent of the data in the world has been created in the last two years. Gartner projects that by 2015, 85 percent of Fortune 500 organizations will be unable to exploit big data for competitive advantage and about 4.4 million jobs will be created around big data.² Although these estimates should not be interpreted in an absolute sense, they are a strong indication of the ubiquity of big data and the strong need for analytical skills and resources because, as the data piles up, managing and analyzing these data resources in the most optimal way become critical success factors in creating competitive advantage and strategic ­leverage.

Figure 1.1 shows the results of a KDnuggets³ poll conducted during April 2013 about the largest data sets analyzed. The total number of respondents was 322 and the numbers per category are indicated between brackets. The median was estimated to be in the 40 to 50 gigabyte (GB) range, which was about double the median answer for a similar poll run in 2012 (20 to 40 GB). This clearly shows the quick increase in size of data that analysts are working on. A further regional breakdown of the poll showed that U.S. data miners lead other regions in big data, with about 28% of them working with terabyte (TB) size databases.

Figure 1.1 Results from a KDnuggets Poll about Largest Data Sets Analyzed

Source: www.kdnuggets.com/polls/2013/largest-dataset-analyzed-data-mined-2013.html.

A main obstacle to fully harnessing the power of big data using analytics is the lack of skilled resources and “data scientist” talent required to exploit big data. In another poll ran by KDnuggets in July 2013, a strong need emerged for analytics/big data/data mining/data science education.⁴ It is the purpose of this book to try and fill this gap by providing a concise and focused overview of analytics for the business practitioner.

EXAMPLE APPLICATIONS

Analytics is everywhere and strongly embedded into our daily lives. As I am writing this part, I was the subject of various analytical models today. When I checked my physical mailbox this morning, I found a catalogue sent to me most probably as a result of a response modeling analytical exercise that indicated that, given my characteristics and previous purchase behavior, I am likely to buy one or more products from it. Today, I was the subject of a behavioral scoring model of my financial institution. This is a model that will look at, among other things, my checking account balance from the past 12 months and my credit payments during that period, together with other kinds of information available to my bank, to predict whether I will default on my loan during the next year. My bank needs to know this for provisioning purposes. Also today, my telephone services provider analyzed my calling behavior and my account information to predict whether I will churn during the next three months. As I logged on to my Facebook page, the social ads appearing there were based on analyzing all information (posts, pictures, my friends and their behavior, etc.) available to Facebook. My Twitter posts will be analyzed (possibly in real time) by social media analytics to understand both the subject of my tweets and the sentiment of them. As I checked out in the supermarket, my loyalty card was scanned first, followed by all my purchases. This will be used by my supermarket to analyze my market basket, which will help it decide on product bundling, next best offer, improving shelf organization, and so forth. As I made the payment with my credit card, my credit card provider used a fraud detection model to see whether it was a legitimate transaction. When I receive my credit card statement later, it will be accompanied by various vouchers that are the result of an analytical customer segmentation exercise to better understand my expense behavior.

To summarize, the relevance, importance, and impact of analytics are now bigger than ever before and, given that more and more data are being collected and that there is strategic value in knowing what is hidden in data, analytics will continue to grow. Without claiming to be exhaustive, Table 1.1 presents some examples of how analytics is applied in various settings.

Table 1.1 Example Analytics Applications

Marketing	Risk Management	Government	Web	Logistics	Other
Response modeling	Credit risk modeling	Tax avoidance	Web analytics	Demand forecasting	Text analytics
Net lift modeling	Market risk modeling	Social security fraud	Social media analytics	Supply chain analytics	Business process analytics
Retention modeling	Operational risk modeling	Money laundering	Multivariate testing
Market basket analysis	Fraud detection	Terrorism detection
Recommender systems
Customer segmentation

It is the purpose of this book to discuss the underlying techniques and key challenges to work out the applications shown in Table 1.1 using analytics. Some of these applications will be discussed in further detail in Chapter 8.

BASIC NOMENCLATURE

In order to start doing analytics, some basic vocabulary needs to be defined. A first important concept here concerns the basic unit of analysis. Customers can be considered from various perspectives. Customer lifetime value (CLV) can be measured for either individual customers or at the household level. Another alternative is to look at account behavior. For example, consider a credit scoring exercise for which the aim is to predict whether the applicant will default on a particular mortgage loan account. The analysis can also be done at the transaction level. For example, in insurance fraud detection, one usually performs the analysis at insurance claim level. Also, in web analytics, the basic unit of analysis is usually a web visit or session.

It is also important to note that customers can play different roles. For example, parents can buy goods for their kids, such that there is a clear distinction between the payer and the end user. In a banking setting, a customer can be primary account owner, secondary account owner, main debtor of the credit, codebtor, guarantor, and so on. It is very important to clearly distinguish between those different roles when defining and/or aggregating data for the analytics exercise.

Finally, in case of predictive analytics, the target variable needs to be appropriately defined. For example, when is a customer considered to be a churner or not, a fraudster or not, a responder or not, or how should the CLV be appropriately defined?

ANALYTICS PROCESS MODEL

Figure 1.2 gives a high-level overview of the analytics process model.⁵ As a first step, a thorough definition of the business problem to be solved...

Table of contents

• Cover
• Series
• Titlepage
• Copyright
• Dedication
• Preface
• Acknowledgments
• Chapter 1 Big Data and Analytics
• Chapter 2 Data Collection, Sampling, and Preprocessing
• Chapter 3 Predictive Analytics
• Chapter 4 Descriptive Analytics
• Chapter 5 Survival Analysis
• Chapter 6 Social Network Analytics 
• Chapter 7 Analytics: Putting It All to Work 
• Chapter 8 Example Applications
• About the Author
• Index
• End User License Agreement