Module 1:

Understanding Business Analytics

The case for business analytics
Case 1: Netflix

 Founded in 1997, Netflix began as a subscription mail-order DVD company

 Brought Blockbuster Video to its knees, in a David vs Goliath contest
 From mailing service to streaming and content creation are new trend
 Netflix software engineers developed recommender-systems (algorithms) that moved
customers away from blockbusters to less-popular titles it had
 Predictive algorithms to predict the genre of story that Netflix should produce
 Successful in creating block buster titles like ‘House of cards’

 Net-worth as on close of markets on 3rd Feb 2023: 162.95 Billion USD

Case 2: Apple

 Siri- the chatbot of iOS and MacOS uses NLP and other AI technologies
 Sound recognition for voice commands and typing. It can also be used to seek
information form Siri
 Facial recognition in iPhones
 Health tracking on Apple Watch
 Washing Hands is tracked by Apple Watch
 Recommender system on Apple AppStore and AppleTV
 Handwriting recognition on iPads and convert it to text

 Net-worth as on close of markets on 3 rd Feb 2023: 2.45 trillion USD

Case 3: Amazon

 You must have read about differential pricing in economics

 Amazon uses big data to predict customer purchase
 It utilizes the past purchase history, browsing history and search history to provide
recommendations (recommender system) on landing page
 Works with Google Ad platform to fine-tune recommender system
 Extensive use of AI on kindle recommendations
 35% increase in sales

 Net-worth as on close of markets on 3rd Feb 2023: 1.05 trillion USD

Case 4: Tesla

 Self driven cars

 Use deep neural networks to analyze visual data and control the vehicle
 A full build of Autopilot neural networks involves 48 networks that take 70,000 GPU hours
to train
 Developing own FSD chips tailored to efficiently run the software using neural networks
 In development – Teslabot: a bipedal humanoid robot capable of jobs that are unsafe,
repetitive or boring

 Net-worth as on close of markets on 3rd Feb 2023: 595 billion USD

Case 5: DBS Bank

 Invested over $4.4 billion (SG) dollars over 4 years (2021), and investing more
 Provide hyper-personalised insight and recommendations – customer experience
 Intelligent banking capabilities
 Trained 16k staff on big data and analytics

 Net-worth as on close of markets on 3rd Feb 2023: 69.41 billion USD

Case 6: Zara (Inditex)

 Launches 11000 designs compared to ~2000-4000 designs of competition

 Predictive analytics to predict fashion trends
 Makes only 15% to 25% of prediction in different cloth lines
 RFID tag to track each cloth
 Big data system and analytics to capture customer/consumer opinion
 Quick fashion trend detection
 Fast replenishment
 Low inventory

 Net-worth as on close of markets on 3rd Feb 2023: 89.64 Billion EURO

Monty Hall problem

 There are three closed doors

 I have a car behind one door and something of low value (say a goat) behind the other two
doors. Assume the goat will not bleet
 Once you choose one door, Mr Monty Hall opens on of the other door. Now you have the
choice to change the door or keep it
 What would you do?
 What are the probabilities of success in two cases?
Introduction to Business Analytics
Before Business Analytics

 Early 20th Century: An example of the early application of statistical methods to business
problems is the use of quality control charts by Walter Shewhart in the 1920s. Shewhart
used statistical methods to monitor production processes and identify problems before they
became major issues.
 1950s-1960s: An example of the use of mathematical and statistical models in management
science is linear programming, which was developed by George Dantzig in the 1940s.
Linear programming was used to optimize decisions in areas such as production planning
and resource allocation.
Before Business Analytics

 1970s-1980s: An example of the use of computer-based models in operations research is

simulation modeling, which was widely used in the 1970s and 1980s. For example,
simulation models were used to improve supply chain management by enabling
organizations to test and optimize logistics and transportation processes.
 Late 20th Century: An example of a decision support system is a customer relationship
management (CRM) system, which was widely used by organizations in the 1990s and
2000s. CRM systems use data and analytics to help organizations manage customer
interactions and improve customer experiences.
Recent past

 Early 2000s: The early 2000s marked the beginning of the data explosion and the rise of
big data. With the increasing availability of large amounts of data, organizations began to
recognize the need for better methods for managing and analyzing data.
 Mid-2000s: The mid-2000s saw the development of data warehousing and business
intelligence technologies. These technologies enabled organizations to store and analyze
large amounts of data in a centralized repository, making it easier for decision-makers to
access and make sense of the data.
 Late 2000s: The late 2000s saw the emergence of predictive analytics and the increasing
popularity of data mining and machine learning techniques. Predictive analytics involves
using historical data to make predictions about future events, while data mining and
machine learning enable organizations to identify patterns and relationships in data.
Recent past

 2010s: In the 2010s, the rise of cloud computing and the increasing availability of cloud-
based analytics tools made it easier for organizations to access and use analytics. This
decade also saw the development of more advanced analytics techniques, such as
prescriptive analytics and advanced machine learning.
 Today: Business analytics continues to evolve, with organizations increasingly leveraging
the power of AI and machine learning to gain insights and make data-driven decisions. The
field is also becoming more interdisciplinary, with analytics professionals working closely
with data scientists, software engineers, and other professionals to solve complex business
problems.
Data is the new oil
- Clive Humby
Business analytics is all pervasive

 Marketing: In marketing, Business Analytics is used to understand customer behavior,

segment customers, and predict future customer behavior. For example, a company
may use Business Analytics to analyze customer data from various sources (such as social
media, website interactions, and transaction data) to better understand customer
preferences, and to develop targeted marketing campaigns.
 Finance: In finance, Business Analytics is used to analyze financial data, such as budgets,
income statements, and balance sheets, to identify trends and make predictions about
future financial performance. For example, a company may use Business Analytics to
predict future cash flow, and to identify areas where cost-cutting measures may be
necessary.
Business analytics is all pervasive

 Operations: In operations, Business Analytics is used to optimize processes, reduce

waste, and improve efficiency. For example, a company may use Business Analytics to
analyze data from its supply chain to identify bottlenecks and to optimize production
schedules.
 Human Resources: In human resources, Business Analytics is used to analyze employee
data, such as performance metrics, satisfaction surveys, and turnover rates, to identify
trends and to make predictions about future workforce needs. For example, a company
may use Business Analytics to predict future workforce requirements, and to develop
strategies for attracting and retaining employees.
Some applications

 Customer Segmentation: Companies use analytics to segment their customer base based on
demographic, psychographic, and behavioral data, which helps them to create targeted
marketing campaigns.
 Procter & Gamble, Coca-Cola, and Walmart have all used customer segmentation in their
marketing efforts
 Predictive Modeling: Predictive modeling is used to forecast customer behavior, such as
purchase likelihood and customer lifetime value. This helps companies to create effective
marketing strategies and target high-value customers.
 Amazon, Netflix, and Spotify use predictive modeling to drive their personalized
marketing and recommendation systems
Some applications

 Marketing Mix Modeling: Marketing mix modeling is used to quantify the impact of
marketing spend on sales, helping companies to allocate their marketing budget effectively
and maximize ROI
 Procter & Gamble, Unilever, and Nestle are examples of companies that use marketing
mix modeling to optimize their marketing spend and maximize return on investment
 A/B Testing: A/B testing is used to compare two versions of a marketing campaign and
determine which is more effective. This helps companies to optimize their marketing
efforts and increase conversion rates.
 Google, Facebook, and Airbnb are well-known for their use of A/B testing in their
marketing and product development efforts
Some applications

 Social Media Analytics: Companies use analytics to monitor and track their social media
presence, including engagement rates, sentiment analysis, and demographic insights. This
helps them to create and optimize their social media marketing campaigns
 Coca-Cola, Nike, and McDonald's use social media analytics to monitor and track their
social media presence, as well as to gather insights and inform their social media
marketing campaigns
 Credit Risk Analysis: Financial institutions use analytics to assess the creditworthiness of
potential borrowers and determine their likelihood of default
 JPMorgan Chase, Wells Fargo, and Citigroup use credit risk analysis in their lending
practices
Some applications

 Fraud Detection: Banks and other financial organizations use analytics to detect and
prevent fraudulent activity, such as money laundering and identity theft
 Capital One, American Express, and Mastercard use analytics for fraud detection and
prevention in their financial services
 Portfolio Optimization: Investment firms use analytics to analyze market trends and risk
profiles to optimize their portfolio holdings and maximize returns
 BlackRock, Vanguard, and Fidelity use analytics to optimize their investment portfolios
Some applications

 Algorithmic Trading: Many financial institutions use algorithms and predictive models to
make high-speed, data-driven trades on stock and other financial markets
 Goldman Sachs, Morgan Stanley, and Barclays are examples of financial institutions that
use algorithmic trading
 Customer Lifetime Value: Banks and insurance companies use analytics to calculate the
lifetime value of their customers and make data-driven decisions about product offerings
and customer retention strategies
 MetLife, Allstate, and Prudential use analytics to calculate customer lifetime value and
inform their customer retention strategies
Some applications

 Budgeting and Forecasting: Companies use analytics to forecast future revenue and
expenses, as well as to develop budgets and manage their financial resources
 Walmart, Coca-Cola, and Procter & Gamble use analytics for budgeting and forecasting to
manage their financial resources and plan for the future
 Supply Chain Optimization: Companies use analytics to optimize their supply chain
operations, including inventory management, demand forecasting, and logistics planning
 Amazon, Walmart, and UPS use analytics to optimize their supply chain operations
Some applications

 Predictive Maintenance: Predictive maintenance uses analytics to predict when equipment

or machinery is likely to fail, allowing companies to schedule repairs or replacements
before a failure occurs
 GE, Siemens, and IBM use predictive maintenance to improve the reliability of their
equipment and reduce costs
 Quality Control: Companies use analytics to monitor product quality, identify trends and
patterns, and make data-driven improvements to their production processes
 Toyota, Samsung, and Apple use analytics for quality control and improvement in their
production processes
Some applications

 Workforce Optimization: Companies use analytics to optimize their workforce, including

scheduling, training, and deployment, to increase efficiency and reduce costs
 Starbucks, FedEx, and Amazon use analytics to optimize their workforce and improve
efficiency
 Lean Manufacturing: Lean manufacturing techniques use analytics to identify and
eliminate waste in production processes, reducing costs and increasing efficiency
 Toyota, Bosch, and Siemens are examples of companies that have applied lean
manufacturing principles and used analytics to eliminate waste and improve efficiency in
their production processes
Some applications

 Inventory Management: Companies use analytics to optimize their inventory levels,

including forecasting demand and reducing stock obsolescence
 Walmart, Amazon, and Procter & Gamble use analytics for inventory management,
including demand forecasting and stock optimization
 Talent Acquisition: Companies use analytics to identify and predict future talent needs, and
to optimize their recruitment and hiring processes
 Google, Facebook, and Amazon use analytics for talent acquisition and optimization of
their recruitment processes
Some applications

 Performance Management: Analytics are used to measure and track employee

performance, and to identify areas for improvement and development
 Microsoft, Oracle, and Accenture use analytics for performance management and
improvement of their employees
 Employee Retention: Companies use analytics to identify the factors that contribute to high
employee turnover, and to develop retention strategies to keep their best employees
 Google, Amazon, and Airbnb use analytics to analyze employee turnover and develop
retention strategies
Some applications

 Diversity and Inclusion: Analytics are used to measure and monitor diversity and inclusion
in the workplace, and to identify and address any disparities
 Deloitte, PwC, and EY use analytics to monitor diversity and inclusion in the workplace
and address disparities
 Succession Planning: Companies use analytics to identify key employees and potential
successors, and to develop plans for leadership transition and business continuity
 Walmart, Procter & Gamble, and Coca-Cola use analytics for succession planning and
leadership transition
Some applications

 Workforce Planning: Analytics are used to forecast future workforce needs and to develop
strategies to ensure that the company has the right skills and resources to meet its goals
 IBM, Accenture, and Amazon use analytics for workforce planning and ensuring that they
have the right skills and resources to meet their goals
 Market Segmentation: Companies use analytics to segment their target market, identify
customer needs and preferences, and tailor their products and services accordingly
 Amazon, Coca-Cola, and Procter & Gamble use analytics for market segmentation and
targeting their products and services
Some applications

 Competitive Analysis: Companies use analytics to understand their competitors and

identify their strengths and weaknesses, and to inform their own strategies for growth and
success
 Google, Microsoft, and Apple use analytics to understand their competitors and inform
their strategies for growth and success
 Market Forecasting: Companies use analytics to forecast market trends and demand, and to
inform their strategic planning and decision-making
 Amazon, Walmart, and Procter & Gamble use analytics for market forecasting and
strategic planning
Some applications

 Customer Experience: Companies use analytics to measure and improve the customer
experience, including customer satisfaction, loyalty, and advocacy
 DBS, Amazon, Walmart, and Starbucks use analytics to measure and improve the customer
experience
 Mergers & Acquisitions: Companies use analytics to evaluate potential M&A targets, to
assess financial and strategic fit, and to identify any potential risks and benefits
 Goldman Sachs, JPMorgan Chase, and Morgan Stanley use analytics for M&A evaluations
and due diligence
Some applications

 Business Model Optimization: Companies use analytics to optimize their business models,
including pricing, distribution, and marketing strategies, to drive growth and profitability
 Walmart, Amazon, and Coca-Cola use analytics to optimize their business models and
drive growth and profitability
Data Driven Decision Making
HiPPO algorithm

 Highest paid persons’ opinion (HiPPO)

 Intuition based on experience and expertise
 Not always right
 Avoid
 Usually the CEO or owner or both
Cost Benefit

 Cost of decision making must exceed the cost savings/revenue increase

 Cost Benefit
 Cost of producing a decision
 Cost of implementing a decision
 Failure costs
In God we trust, all others must bring
data!
-W Edwards Deming
Process of data-driven decision process

Identify the problem or opportunity for value creation

Identify source of data (primary as well as secondary)

Pre-process and transform data. Suit input variables of the model

Divide the data sets into subset training and validation data sets

Build analytical models and identify the best model

Implement solution/decision
Pyramid of analytics

Competitive
Strategy

Decision Making

Problem Solving

Process Improvement
Akshay Patra Foundation

 84000 school children from 650 schools are served food, from 1 kitchen in Bangalore
 Vehicle Route Problem
 Cost and time are a limiting factor

 Lesson: Data can be used to solve problems for a SME, not just large corporate
BI vs BA

 Business Intelligence (BI) refers to the technologies, processes, and practices used to
transform raw data into meaningful and useful information that can inform an
organization's decision making. It aims to provide a historical, current and predictive view
of the organization's operations, by using dashboards, reports, and visualizations to
provide insights.
 Business Analytics (BA) is a subset of BI that focuses on using data, statistical algorithms
and machine learning techniques to identify and understand the relationships between
different aspects of an organization's operations, with the goal of making better decisions.
It uses quantitative and statistical methods to drive decision making, and often includes
predictive analytics, prescriptive analytics, and causal analytics.
 In summary, BI provides a broad overview of the organization's operations, while BA
focuses on using data-driven insights to inform decision making.
Business Analytics

 Business analytics is the practice of using data, statistical algorithms, and machine learning
techniques to extract insights and knowledge from data, and transform that information
into actionable business decisions
 Business analytics encompasses a range of methodologies and techniques including
 Descriptive analytics:
 Diagnostic analytics,
 Predictive analytics, and
 Prescriptive analytics
Purpose of BA

 The purpose of business analytics is to

1. help organizations make more informed decisions by providing insights and predictions
based on data
2. This can be used to optimize operations, improve customer experiences, and drive business
growth
3. By leveraging business analytics, organizations can gain a competitive advantage, increase
efficiency, and make data-driven decisions that are based on evidence, rather than intuition
Aspects or Constituents of BA

Business
context

Business
Analytics

Technology Data Science

Business Context
 Target Store - one of the largest retail chain with sales of $106 billion in ‘22
 Pregnancy score to each female customer- why this customer segment became important
 Price insensitive, willing to spend more on comfort
 Baby related product market $ 38 billion
 Shopping behaviour changes during special events
 Grocery shopping
 Did you forget feature
 Search time due to large number of items? Smart market
Technology- Enables Data Science
 Technology is needed to capture data (Vital to identify any problem)
 Data capture, Data storage, Data preparation/cleansing, Data analysis, Data share
 Computing power to run models or methods used to solve data require high computing
power
 Unstructured data
 Large data
 Complex algorithms
 General programing software like R/Python or specific functional suits like Microsoft Power BI
and Tableau
 Technology enables solution to business analytics problems in stipulated time, and cost
effectively
Data Science
 One of the problem solving techniques
 Statistical techniques
 Operations research/ optimization
 ML/AI techniques
 ‘Target’ case is classification problem
 Based on purchases, predict pregnant or not-pregnant
 Each problem can be solved using multiple methods usually
 And each method may result in multiple models
 Selecting the right model is the skill to be learned
Business Analytics- Types

Descriptive Diagnostic Predictive Prescriptive

Analytics Analytics Analytics Analytics

Business Analytics
If the statistics are boring, then you have
got the wrong number
- Edward R. Tufte
Descriptive Analytics

 Descriptive analytics is a type of data analysis that focuses on summarizing and

describing the characteristics of a dataset. It involves using statistical methods and
visualizations to summarize and present the data in a meaningful way. Descriptive
analytics typically provides a historical perspective of the data, rather than making
predictions about future events.
 Examples of descriptive analytics include:
 Generating summary statistics, such as mean, median, and standard deviation
 Creating frequency distributions and histograms to show the distribution of the data
 Generating charts and graphs to visualize trends, patterns, and relationships in the data
 Calculating cross-tabulations and contingency tables to analyze relationships between variables
Descriptive Analytics

 The goal of descriptive analytics is to provide insights and understanding of the data
and to support informed decision making. Descriptive analytics is often used as a
starting point for more advanced forms of data analysis, such as predictive analytics and
prescriptive analytics
 A real life case could be that of Flipkart using the descriptive analytics to identify the
trends in seasonal demand and adjust the inventory, recommender system, online
marketing campaigns accordingly
Diagnostic Analytics
 Diagnostic analytics is a type of data analysis that focuses on identifying the root cause
of a problem or issue. It involves using a variety of methods and techniques to examine
data and identify correlations, patterns, and trends that can help explain why a particular
problem is occurring.
 Examples of diagnostic analytics include:
 Examining data from multiple sources to identify correlations, relationships and causations
 Using data visualization tools to identify patterns and anomalies in the data
 Conducting statistical tests to determine the significance of relationships between variables
 Applying machine learning algorithms to identify hidden relationships and patterns in the data
 The goal of diagnostic analytics is to provide insights into the underlying causes of a
problem or issue, so that organizations can take appropriate action to address the problem
and prevent it from happening again in the future. This type of analytics is typically used
to solve complex problems and improve operational efficiency.
Diagnostic Analytics
 An example: use of the technique by Amazon to improve its delivery process.
 Amazon uses a variety of data sources, such as package tracking information, driver
data, and customer feedback, to identify bottlenecks in its delivery process.
 By using diagnostic analytics, Amazon was able to identify areas where packages were
frequently delayed and pinpoint the root cause of the problem, such as poor route
planning or insufficient delivery capacity.
 As a result of the insights obtained through diagnostic analytics, Amazon was able to take
action to improve its delivery process, including optimizing routes, increasing delivery
capacity, and improving customer communication.
 This not only improved the customer experience, but also resulted in cost savings for
Amazon by reducing the number of delivery failures and returns.
 This example demonstrates how diagnostic analytics can be used to identify and solve
complex problems in a real-world setting, leading to significant improvements in business
operations and customer satisfaction.
If you torture the data long enough, it will
confess
- Ronald Coase
Predictive Analytics
 Predictive analytics is a type of data analysis that uses statistical and machine learning
techniques to make predictions about future events based on historical data. The goal of
predictive analytics is to provide organizations with insights into future trends and patterns,
so that they can make informed decisions and take proactive actions.
 Examples of predictive analytics include:
 Forecasting sales, customer behavior, and market trends
 Predicting which customers are most likely to churn or respond to a marketing campaign
 Detecting fraud and other security threats
 Improving supply chain management and logistics by predicting demand and optimizing routes
Predictive Analytics

 Predictive analytics involves a combination of data collection, data preparation, model

building, and model validation. Predictive models can be based on a wide range of
techniques, including regression analysis, decision trees, neural networks, and time-series
analysis.
 Predictive analytics is used by organizations across a wide range of industries, including
finance, retail, healthcare, and transportation, to make informed decisions, improve
operational efficiency, and drive business growth.
Predictive Analytics
 An example: Netflix to recommend content to its subscribers. Netflix collects and
analyzes data on subscriber viewing habits, such as which shows and movies they watch
and when, to make personalized content recommendations.
 By using predictive analytics, Netflix is able to generate insights into what its subscribers
are likely to watch next and make recommendations based on those insights.
 This helps improve the customer experience by providing relevant and personalized
recommendations, leading to increased engagement and reduced churn.
 For example, Netflix might use predictive analytics to identify subscribers who are fans of
certain genres of movies or TV shows and make recommendations for similar content.
 This information is then used to create customized recommendation algorithms that
provide each subscriber with a unique experience.
 This example demonstrates how predictive analytics can be used to improve the customer
experience and drive business growth in a real-world setting.
 By using predictive analytics, Netflix was able to stay ahead of its competitors and
become one of the world's most popular streaming services
Every decision has a consequence
- Damon Darrel
Prescriptive Analytics
 Prescriptive analytics is a type of advanced analytics that provides decision-
makers with specific recommendations for actions to take in order to achieve a
desired outcome.
 Unlike predictive analytics, which focuses on forecasting future events,
prescriptive analytics focuses on optimizing decision-making in real-time by
considering multiple possible scenarios and outcomes.
 Examples of prescriptive analytics include:
 Optimizing pricing strategies for maximum profitability
 Finding the most efficient logistics routes for delivery and transportation
 Determining the best resource allocation for manufacturing and production processes
 Designing and implementing optimal workforce schedules for maximum productivity
Prescriptive Analytics
 Prescriptive analytics uses a combination of mathematical algorithms, decision science,
and artificial intelligence to analyze data and generate recommendations for action. The
goal of prescriptive analytics is to automate decision-making and help organizations
achieve their objectives more efficiently and effectively.
 Prescriptive analytics is increasingly used by organizations across a wide range of
industries, including finance, healthcare, and transportation, to improve decision-making,
increase operational efficiency, and drive business growth.
Prescriptive Analytics

 An example of a real-life case of prescriptive analytics by a company is the use of the

technique by UPS to optimize its delivery routes. UPS collects and analyzes data on factors
such as traffic patterns, delivery locations, and vehicle capacity to make decisions about
the most efficient routes for its delivery trucks.
 By using prescriptive analytics, UPS is able to generate recommendations for the most
efficient routes based on multiple factors, including delivery times, fuel consumption, and
vehicle utilization. This helps UPS reduce fuel costs, improve delivery times, and increase
operational efficiency.
Prescriptive Analytics

 For example, UPS might use prescriptive analytics to determine the best route for a
delivery truck based on the delivery locations, traffic patterns, and delivery deadlines. This
information is then used to create an optimized route that maximizes efficiency and
minimizes waste.
 This example demonstrates how prescriptive analytics can be used to improve decision-
making and increase operational efficiency in a real-world setting. By using prescriptive
analytics, UPS was able to reduce its costs, improve its delivery times, and enhance its
overall competitiveness in the delivery and logistics industry.
Links before we go ahead

 https://youtu.be/P9WFpVsRtQg (WW2)
 https://youtu.be/wEwGBIr_RIw (Cognitive bias)
 https://youtu.be/YaDseht0ELA (Recall bias)
 https://youtu.be/Av7kpPJqac0 (German bombing)
Some techniques

Predictive techniques Prescriptive Techniques

 Regression, Logistic regression  Linear programming
 Classification tree  Integer programing
 Forecasting  Combinatorial optimization
 K-nearest neighbours  Non-linear programing
 Markov chains  Meta heuristics
 Random forests  Six Sigma
 Boosting  Social Media Analytics tools
 Neural networks
Some specialization areas in Business
Analytics
1. Predictive Analytics
2. Big Data Analytics
3. Data Visualization
4. Machine Learning
5. Artificial Intelligence
6. Text Analytics
7. Social Media Analytics
8. Web Analytics
Some specialization areas in Business
Analytics
9. Optimization Techniques
10. Forecasting Methods
11. Deep Learning
12. Natural Language Processing
13. Recommender Systems
14. Time Series Analysis
15. Data Warehousing
16. Customer Analytics.
One simple sample algorithm
K mean clustering
 K is provided by the user, we will later see how to estimate K
 Divides the data into k groups based on some kind of distance
 Estimation of K is done using scree plot or elbow plot
 Calculate distance between two points (also called Euclidean distance)
 Pythagoras – right angled triangle
 Use it for distances on axes
 Define Euclidean distance
 Data = {(4,21),(5,19),(10,24),(4,17),(3,16),(11,25),(14,24),(6,22), (10,21), (12,21)}
 Assume k=2
K mean clustering
 Step-1: Select the number K to decide the number of clusters
 Step-2: Select random K points or centroids. (It can be other from the input dataset)
 Step-3: Assign each data point to their closest centroid, which will form the predefined K
clusters
 Step-4: Calculate the variance and place a new centroid of each cluster
 Step-5: Repeat the third steps, which means reassign each data-point to the new closest
centroid of each cluster, while reassignments happen
 Step-7: The model is ready
Plot of data points
K mean clustering
 Estimating the value of k using a plot
 We run the algorithm for k = 1 to 10 and plot the variance
 This is called an elbow plot
 We select the point of elbow
Plots