BI can be defined as a different set of methodologies, and technological techniques that transform data into meaningful and useful information to help organizations make informed decisions. The BI cycle steps focus on understanding what data is needed, collecting and analyzing the data and acting according to the results.
BI is explained by different models:
- One model suggests that the BI cycle has five stages: Data Sourcing, Data Analysis, Situation Awareness, Risk Assessment, and Decision Support.
- Another model suggests that the BI Value Chain has the following stages: Data Sourcing, Data Engineering and Analysis, Decision-making, and Decision Support.
BI cycle and BI Value Chain's first stage is about the importance of understanding the requirements of the business and its biggest challenges. This stage relies on business and industry knowledge. The next step is to collect the required data from databases or files. Then, through different BI tools, we can explore data, create metrics and data models, and build charts and dashboards. The insight gained from the BI cycle can influence business decisions because it reflects key indicators of business performance.
According to the BI Cycle, BI has 5 stages:
- Data Sourcing: The first step of BI is to collect data from different data sources with relevant information for the company.
- Data Analysis: Next is to process the information to identify relevant information for the company; this is known as Data mining- the process of sorting through large datasets to identify patterns and relationships as well as to extract useful information. Businesses can use this data to solve problems and make predictions. This can be performed by going throughout historical data and/or real-time analytics.
- Situation Awareness: At this point data is cleaned and transformed, and only useful and relevant information is kept, which will help companies make business-informed decisions and develop strategies for the business.
- Risk Assessment: At this stage the data shows different possible actions. The outcome of the analysis of the data would help businesses to assess the present, the future risks as well as the cost or the benefits between the decisions that can be used, which will help to analyze the risks of future actions and choose the action that suits the company’s expectations.
- Decision Support: This stage data is used not only to support the company decision but also to anticipate different situations that can affect the business-informed decision process.
The BI tool helps businesses make informed decisions, to improve profitability.
BI Value Chain uses raw data to gain knowledge from it and gain business value. According to BI Value Chain, BI has 5 stages, too.
- Data Sourcing: Collecting and accessing raw data. Source data is as important as the quality and relevance of the data collected to gain useful knowledge from it. BI analysts should know what kind of data is available and how it can be accessed.
- Data engineering and analysis: At this stage the data would be cleaned and transformed by using different techniques like converting the data into a structured format, removing or imputing missing values, capping outliers, and removing multicollinearity to name a few. Once this is done, the following step is to perform an Exploratory Data Analysis to either summarize data using predictive statistics or find associations in data. This includes different types of analysis such as Trend Analysis (to identify patterns in data), Mathematical Analysis (to calculate performance and growth, for example), Statistical Analysis (to assess the statistical importance of data patterns, to make predictions, analytics, and forecasting by using different models such as regression as well as to make prescriptive analytics by identifying reasons).
- Situation awareness: At this stage BI tools provide reports creation and presentations, which offer decision-makers relevant information.
- Decision-making: Throughout this stage informed decisions are made by the decision-makers who should know ‘what and why’ different situations are happening around the company, such as designing a new marketing campaign.
- Decision support: At this stage, different decisions are evaluated to identify potential risks, opportunities, benefits, profit, pitfalls, cost-to-benefit ratio, return on investment, and estimated business value of the decision made or proposed.
These stages can be set up according to their complexity:
- Reporting: Understand and report what is happening.
- Analysis: Answer ‘Why did it happen?’ and find out the cause and effect of the events in the company.
- Monitoring: Answer ‘What is happening at this moment’ with the day-to-day activities.
- Predicting and Forecasting: Using different tools like predictive analytics to understand the different trends and patterns of datasets and be able to answer the question; ‘What will happen given the past data?’
- Prescriptive Modeling: Use predictive models to answer, ‘What will happen, when will it happen, and why will it happen?’
This different methodology helps understand how BI works. Moreover, BI will add business value to the company by helping to reduce costs, increase revenue, and enhance customer satisfaction.
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