It is all about making decisions. Businesses need to make decisions, how do they make good decisions? All decisions are risky, it comes with eventual results of the decisions. Before businesses make decisions, they need to study the costs of the alternative decisions and what will they lose or gain from the respective alternative decisions that they could make. What is their expectations from their decisions; the utilities of the decisions?
There are decisions that could be made with certainty; i.e., the outcome of such decisions are more or less certain. There are decisions that are made in uncertainty; the outcome of the decisions are totally uncertain. There are also decisions which risks could be calculated and the outcome of each respective decisions could be calculated probabilistically.
According to Herbert Simon, the process of decision making involve intelligence on the problem, designing the alternative decisions, and choosing the suitable alternative. Yet, over reliance on intuitions and instincts need to be replaced with proper analysis of the situations and decisions to be made. Over the time, the demand for analysis in business judgment had motivated the advancement of computing technologies and information systems.
As of today, the business environment is constantly changing and it is becoming more and more complex. The situation is aggravated due to uncertain data and imperfect information about the future. Managers need to make decisions on what products to make, how to price them, where to locate facilities, how many people to hire, where to allocate advertising budgets, whether to outsource a business function or make a capital investment, how to schedule productions and many more. These decisions have significant economic consequences.
Business organisations, whether public or private, are forced to respond quickly to changing conditions and to be innovative in their operations. Therefore, the organisations need to be agile and to make frequent and quick strategic, tactical and operational decisions. Making such decisions require considerable amounts of relevant data, information and knowledge. Managers today no longer make decisions based on pure judgment and experience; but to rely on factual data and the ability to manipulate and analyse data to supplement their intuition and experience, and to justify their decision. Hence, computer applications have moved from transaction processing and monitoring activities to problem analysis and solution applications. Businesses today need to be equipped with tools for decision making. Yet, they need to know what are the tools and how to use the tools. Come business intelligence and later, business analytics.
In the mid 1990s, Gartner coined the term ‘business intelligence’ which had its roots in the Management Information Systems (MIS). Gradually the word ‘analytics’ replaced the ‘intelligence’. In this posting, I will describe business analytics in general. In the next posting, we shall go through some of the tools available in the market.
So, what is analytics all about?
Business analytics is the process of transforming data into actions through analysis and insights in the context of the business decision making and problem solving. It combines qualitative reasoning with quantitative tools to identify key business problems and translate data analysis into decisions that improve business performance.
The Institute for Operations Research and Management Science (INFORMS) proposes three levels of analytics: –
- Descriptive – knowing what is happening to understand the underlying trends and causes,
- Predictive – determining what is likely to happen in the future, and
- Prescriptive – recognising what is the ongoing trend in order to forecast the likely future and make decisions to attain the best result.
There are many software and tools in the market that could assist businesses to run their business analytics for best performance and decision making. Things that you need to consider when buying the tools for your business analytics include the objective of your organisation in buying the tools, their pricing, their interface and user-friendliness, integration with other systems, their sources of data, the scalability of the systems and many more.
We will discuss the tools in another posting.