What Are “Analytics”?

“Analytics” is one of those business buzz words formed by transforming an adjective into a noun.

So forceful and habitual is such misuse of language that one might call it a compulsion among business analysts and writers.  The term “analytics” commonly refers to software tools that can be used to organize, report, and sometimes visualize data in attempt to lend meaning for decision-makers.  These capabilities have been advanced in recent years so that many types of graphical displays can be readily employed to expose data and try to make information from it.   “Analytics” has been used to refer to a very broad array of software applications.  Numerous industry analysts have attempted to segment these applications in various ways.  “Analytics” refers to so many kinds of applications that it is useful to establish some broad categories.  A simple, though imperfect, scheme such as the following may be the most useful where the potential value that can be achieved through each category increases from #1 through #4.

Reports – repetitively run displays of pre-aggregated and sorted information with limited or no user interactivity.  (e.g. SAP Business Warehouse Reports and Business Objects Crystal Reports, IBM Cognos Reporting, etc.)

Dashboards – frequently updated displays of performance metrics which can be displayed graphically.  They are ideally tailored to the needs of a given role.  Dashboards support the measurement of performance, based on pre-aggregated data with some user selection and drill-down capability.  Hierarchies of metrics have been created that attempt to facilitate a correlation between responsibility and performance indicators.  The most common such model is the Supply Chain Operations Reference Model (SCOR Model) that was created and is maintained by the Supply Chain Council.  (e.g. SAP Business Objects Xcelsius, IBM Cognos Dashboards, etc.)

Data Analysis Tools – interactive software applications that enable data analysts to dynamically aggregate, sort, plot, and otherwise explore data, based on metadata.  Significant advancements have been made in recent years to dramatically expand the options for visualizing data and accelerating the speed at which these tools can generate results. (e.g.  SAP Business Objects Web Intelligence and Business Explorer, IBM Cognos Analysis, etc.)

Decision Support/Management Science Tools – simulation, optimization, and other approaches to multi-criteria decisions which require the application of statistics and mathematical modeling and solving.  (e.g. IBM’s ILOG Inventory and Product Flow Analyst, ILOG Transportation Analyst, ILOG LogicNet Plus XE, ILOG Optimization Decision Manager, etc.)

This discussion will focus on #3 Data Analysis Tools and #4 Decision Support/Management Science Tools, the categories with the most potential for adding value to strategic (high value) decision-making in a sustained fashion.  So, then, if that is what analytics are, do they enable higher quality decisions in less time, and if so, to what extent are those better decisions in less time driving cash flow and value for their business. 

These are critically important questions because improved, integrated decision-making that is based in facts and adjusted for risk drives impacts the bottom line.

Execution is good, but operational execution under a poor decision set is like going fast in the wrong direction.  It is bad, but perhaps not immediately fatal.  Poor decisions will put a business under very quickly.

Enabling higher quality decisions in less time depends on the decision-maker, but it can also depend on the tools employed and the skills of the analysts using the tools. 

The main activities in using these tools involve the following:

  1. Sifting through the oceans of data that exist in today’s corporate information systems
  2. Synthesizing the relevant data into information (a thoughtful data model within an analytical application is helpful, but not sufficient)
  3. Presenting it in such a way so that a responsible manager can combine it with experience and quickly know how to make a better decision

Obtaining a valuable result requires careful preparation and skilled interaction, asking the right questions initially and throughout the above activities.  Typical analytics tools don’t ask these questions, and they certainly cannot deliver the answers alone.  Analytical tools are like a scalpel and other surgical tools laid out for a complicated surgical procedure.  The more important (i.e. valuable) the surgery, the more specialized are the necessary tools.   At best, without a skilled surgeon to use those tools, they are just interesting to look at.  At worst, an unskilled user can do a lot of damage.

Some of the questions that need to be asked before the data can be synthesized into information that is visualized in a useful way are represented by those given below:

  1. What is the business goal?
  2. What decisions are required to reach the goal?
  3. What other decisions impact this decision?
  4. What are the upper and lower bounds of each decision? (Which outcomes are unlivable?)
  5. How sensitive is one decision to the outcome of other, interdependent decisions?
  6. What risks are associated with a given decision outcome?
  7. How reliable is the data upon which the decision is based?

A.  Is it accurate?

B.  How much of the data has been driven by one-time events that are not repeatable?

C.  What data is missing?

D.  Is the data at the right level of detail?

E. How might the real environment in which the decision is to be implemented be different from that implied by the data and model (i.e. an abstraction of reality)?

F.  How can the differences between reality and its abstraction be reconciled so that the results of the model are useful?

8.  What assumptions are implicitly driven by insufficient data?

9.  Will a given decision today impact the options for the same decision tomorrow?

An organization must possess the ability (or consult with analysts skilled enough in decision science to know how) to ask the right questions, the relative importance of each, how to answer them, and which techniques to skillfully apply in order to prioritize, analyze and synthesize the data into useful information and display it in a way that the results and implications are easily visualized.  Without skilled preparation and interaction, organizations are left with an expensive set of appealing and potentially valuable software tools, the use of which declines quickly.  In the worst case, well-meaning folks with insufficient skill in decision science will mishandle tools with powerful potential, leading business managers to fallible decisions based on faulty analysis.

Read more about how to accelerate your value from analytics in “‘Moneyball and Your Business’“.


About Arnold Mark Wells
Industry, software, and consulting background. I help companies do the things about which I write. If you think it might make sense to explore one of these topics for your organization, I would be delighted to hear from you. I am currently employed by Incorta, but I am solely responsible for the content in Supply Chain Action.

2 Responses to What Are “Analytics”?

  1. Pingback: “Moneyball” and “Moneybusiness” « Friday Forethought

  2. Pingback: Friday Forethought (14 October 2011) – What Is the Analytical Competence Quotient of Your Organization? « Friday Forethought

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