Datamining

DATA MINING Contents: Page No. 1. An Introduction to Data Mining 3 1.1 Overview 1.2 What is data mining good for' 2. The Foundations of Data Mining 4 3. The Scope of Data Mining 6 4. How Data Mining Works 8 5. Architecture for Data Mining 10 6. Profitable Applications 12 7. Advantages Of Data Mining 13 7.1 Marking/Retailing 7.2 Banking/Crediting 7.3 Law enforcement 7.4 Researchers 8. Disadvantages Of Data Mining 14 8.1 Privacy Issues 8.2 Security issues 8.3 Misuse of information/inaccurate information 9. Conclusion 15 1. An Introduction to Data Mining Discovering hidden value in your data warehouse 1.1 Overview Data mining, the extraction of hidden predictive information from large databases, is a powerful new technology with great potential to help companies focus on the most important information in their data warehouses. Data mining tools predict future trends and behaviors, allowing businesses to make proactive, knowledge-driven decisions. The automated, prospective analyses offered by data mining move beyond the analyses of past events provided by retrospective tools typical of decision support systems. Data mining tools can answer business questions that traditionally were too time consuming to resolve. They scour databases for hidden patterns, finding predictive information that experts may miss because it lies outside their expectations. Most companies already collect and refine massive quantities of data. Data mining techniques can be implemented rapidly on existing software and hardware platforms to enhance the value of existing information resources, and can be integrated with new products and systems as they are brought on-line. When implemented on high performance client/server or parallel processing computers, data mining tools can analyze massive databases to deliver answers to questions such as, "Which clients are most likely to respond to my next promotional mailing, and why'" This white paper provides an introduction to the basic technologies of data mining. Examples of profitable applications illustrate its relevance to today’s business environment as well as a basic description of how data warehouse architectures can evolve to deliver the value of data mining to end users. 1.2 What is data mining good for' Data mining software allows users to analyze large databases to solve business decision problems. Data mining is, in some ways, an extension of statistics, with a few artificial intelligence and machine learning twists thrown in. Like statistics, data mining is not a business solution, it is just a technology.  For example, consider a catalog retailer who needs to decide who should receive information about a new product. The information operated on by the data mining process is contained in a historical database of previous interactions with customers and the features associated with the customers, such as age, zip code, and their responses. The data mining software would use this historical information to build a model of customer behavior that could be used to predict which customers would be likely to respond to the new product. By using this information a marketing manager can select only the customers who are most likely to respond.  The operational business software can then feed the results of the decision to the appropriate touch point systems (call centers, direct mail, web servers, email systems, etc.) so that the right customers receive the right offers. 2. The Foundations of Data Mining Data mining techniques are the result of a long process of research and product development. This evolution began when business data was first stored on computers, continued with improvements in data access, and more recently, generated technologies that allow users to navigate through their data in real time. Data mining takes this evolutionary process beyond retrospective data access and navigation to prospective and proactive information delivery. Data mining is ready for application in the business community because it is supported by three technologies that are now sufficiently mature: * Massive data collection * Powerful multiprocessor computers * Data mining algorithms Commercial databases are growing at unprecedented rates. A recent META Group survey of data warehouse projects found that 19% of respondents are beyond the 50 gigabyte level, while 59% expect to be there by second quarter of 1996.1 In some industries, such as retail, these numbers can be much larger. The accompanying need for improved computational engines can now be met in a cost-effective manner with parallel multiprocessor computer technology. Data mining algorithms embody techniques that have existed for at least 10 years, but have only recently been implemented as mature, reliable, understandable tools that consistently outperform older statistical methods. In the evolution from business data to business information, each new step has built upon the previous one. For example, dynamic data access is critical for drill-through in data navigation applications, and the ability to store large databases is critical to data mining. From the user’s point of view, the four steps listed in Table 1 were revolutionary because they allowed new business questions to be answered accurately and quickly.   Evolutionary Step | Business Question | Enabling Technologies | Product Providers | Characteristics | Data Collection(1960s) | "What was my total revenue in the last five years'" | Computers, tapes, disks | IBM, CDC | Retrospective, static data delivery | Data Access(1980s) | "What were unit sales in New England last March'" | Relational databases (RDBMS), Structured Query Language (SQL), ODBC | Oracle, Sybase, Informix, IBM, Microsoft | Retrospective, dynamic data delivery at record level | Data Warehousing &Decision Support(1990s) | "What were unit sales in New England last March' Drill down to Boston." | On-line analytic processing (OLAP), multidimensional databases, data warehouses | Pilot, Comshare, Arbor, Cognos, Microstrategy | Retrospective, dynamic data delivery at multiple levels | Data Mining(Emerging Today) | "What’s likely to happen to Boston unit sales next month' Why'" | Advanced algorithms, multiprocessor computers, massive databases | Pilot, Lockheed, IBM, SGI, numerous startups (nascent industry) | Prospective, proactive information delivery | Table 1. Steps in the Evolution of Data Mining. The core components of data mining technology have been under development for decades, in research areas such as statistics, artificial intelligence, and machine learning. Today, the maturity of these techniques, coupled with high-performance relational database engines and broad data integration efforts, make these technologies practical for current data warehouse environments. 3.The Scope of Data Mining Data mining derives its name from the similarities between searching for valuable business information in a large database — for example, finding linked products in gigabytes of store scanner data — and mining a mountain for a vein of valuable ore. Both processes require either sifting through an immense amount of material, or intelligently probing it to find exactly where the value resides. Given databases of sufficient size and quality, data mining technology can generate new business opportunities by providing these capabilities: * Automated prediction of trends and behaviors. Data mining automates the process of finding predictive information in large databases. Questions that traditionally required extensive hands-on analysis can now be answered directly from the data — quickly. A typical example of a predictive problem is targeted marketing. Data mining uses data on past promotional mailings to identify the targets most likely to maximize return on investment in future mailings. Other predictive problems include forecasting bankruptcy and other forms of default, and identifying segments of a population likely to respond similarly to given events. * Automated discovery of previously unknown patterns. Data mining tools sweep through databases and identify previously hidden patterns in one step. An example of pattern discovery is the analysis of retail sales data to identify seemingly unrelated products that are often purchased together. Other pattern discovery problems include detecting fraudulent credit card transactions and identifying anomalous data that could represent data entry keying errors. Data mining techniques can yield the benefits of automation on existing software and hardware platforms, and can be implemented on new systems as existing platforms are upgraded and new products developed. When data mining tools are implemented on high performance parallel processing systems, they can analyze massive databases in minutes. Faster processing means that users can automatically experiment with more models to understand complex data. High speed makes it practical for users to analyze huge quantities of data. Larger databases, in turn, yield improved predictions. Databases can be larger in both depth and breadth: * More columns. Analysts must often limit the number of variables they examine when doing hands-on analysis due to time constraints. Yet variables that are discarded because they seem unimportant may carry information about unknown patterns. High performance data mining allows users to explore the full depth of a database, without preselecting a subset of variables. * More rows. Larger samples yield lower estimation errors and variance, and allow users to make inferences about small but important segments of a population. A recent Gartner Group Advanced Technology Research Note listed data mining and artificial intelligence at the top of the five key technology areas that "will clearly have a major impact across a wide range of industries within the next 3 to 5 years."2 Gartner also listed parallel architectures and data mining as two of the top 10 new technologies in which companies will invest during the next 5 years. According to a recent Gartner HPC Research Note, "With the rapid advance in data capture, transmission and storage, large-systems users will increasingly need to implement new and innovative ways to mine the after-market value of their vast stores of detail data, employing MPP [massively parallel processing] systems to create new sources of business advantage (0.9 probability)."3 The most commonly used techniques in data mining are: * Artificial neural networks: Non-linear predictive models that learn through training and resemble biological neural networks in structure. * Decision trees: Tree-shaped structures that represent sets of decisions. These decisions generate rules for the classification of a dataset. Specific decision tree methods include Classification and Regression Trees (CART) and Chi Square Automatic Interaction Detection (CHAID) . * Genetic algorithms: Optimization techniques that use processes such as genetic combination, mutation, and natural selection in a design based on the concepts of evolution. * Nearest neighbor method: A technique that classifies each record in a dataset based on a combination of the classes of the k record(s) most similar to it in a historical dataset (where k ³ 1). Sometimes called the k-nearest neighbor technique. * Rule induction: The extraction of useful if-then rules from data based on statistical significance. Many of these technologies have been in use for more than a decade in specialized analysis tools that work with relatively small volumes of data. These capabilities are now evolving to integrate directly with industry-standard data warehouse and OLAP platforms. The appendix to this white paper provides a glossary of data mining terms. 4. How Data Mining Works How exactly is data mining able to tell you important things that you didn't know or what is going to happen next' The technique that is used to perform these feats in data mining is called modeling. Modeling is simply the act of building a model in one situation where you know the answer and then applying it to another situation that you don't. For instance, if you were looking for a sunken Spanish galleon on the high seas the first thing you might do is to research the times when Spanish treasure had been found by others in the past. You might note that these ships often tend to be found off the coast of Bermuda and that there are certain characteristics to the ocean currents, and certain routes that have likely been taken by the ship’s captains in that era. You note these similarities and build a model that includes the characteristics that are common to the locations of these sunken treasures. With these models in hand you sail off looking for treasure where your model indicates it most likely might be given a similar situation in the past. Hopefully, if you've got a good model, you find your treasure. This act of model building is thus something that people have been doing for a long time, certainly before the advent of computers or data mining technology. What happens on computers, however, is not much different than the way people build models. Computers are loaded up with lots of information about a variety of situations where an answer is known and then the data mining software on the computer must run through that data and distill the characteristics of the data that should go into the model. Once the model is built it can then be used in similar situations where you don't know the answer. For example, say that you are the director of marketing for a telecommunications company and you'd like to acquire some new long distance phone customers. You could just randomly go out and mail coupons to the general population - just as you could randomly sail the seas looking for sunken treasure. In neither case would you achieve the results you desired and of course you have the opportunity to do much better than random - you could use your business experience stored in your database to build a model. As the marketing director you have access to a lot of information about all of your customers: their age, sex, credit history and long distance calling usage. The good news is that you also have a lot of information about your prospective customers: their age, sex, credit history etc. Your problem is that you don't know the long distance calling usage of these prospects (since they are most likely now customers of your competition). You'd like to concentrate on those prospects who have large amounts of long distance usage. You can accomplish this by building a model. Table 2 illustrates the data used for building a model for new customer prospecting in a data warehouse.     | Customers | Prospects | General information (e.g. demographic data) | Known | Known | Proprietary information (e.g. customer transactions) | Known | Target | Table 2 - Data Mining for Prospecting   The goal in prospecting is to make some calculated guesses about the information in the lower right hand quadrant based on the model that we build going from Customer General Information to Customer Proprietary Information. For instance, a simple model for a telecommunications company might be: 98% of my customers who make more than $60,000/year spend more than $80/month on long distance This model could then be applied to the prospect data to try to tell something about the proprietary information that this telecommunications company does not currently have access to. With this model in hand new customers can be selectively targeted. Test marketing is an excellent source of data for this kind of modeling. Mining the results of a test market representing a broad but relatively small sample of prospects can provide a foundation for identifying good prospects in the overall market. Table 3 shows another common scenario for building models: predict what is going to happen in the future.     | Yesterday | Today | Tomorrow | Static information and current plans (e.g. demographic data, marketing plans) | Known | Known | Known | Dynamic information (e.g. customer transactions) | Known | Known | Target | Table 3 - Data Mining for Predictions   If someone told you that he had a model that could predict customer usage how would you know if he really had a good model' The first thing you might try would be to ask him to apply his model to your customer base - where you already knew the answer. With data mining, the best way to accomplish this is by setting aside some of your data in a vault to isolate it from the mining process. Once the mining is complete, the results can be tested against the data held in the vault to confirm the model’s validity. If the model works, its observations should hold for the vaulted data. 5. An Architecture for Data Mining To best apply these advanced techniques, they must be fully integrated with a data warehouse as well as flexible interactive business analysis tools. Many data mining tools currently operate outside of the warehouse, requiring extra steps for extracting, importing, and analyzing the data. Furthermore, when new insights require operational implementation, integration with the warehouse simplifies the application of results from data mining. The resulting analytic data warehouse can be applied to improve business processes throughout the organization, in areas such as promotional campaign management, fraud detection, new product rollout, and so on. Figure 1 illustrates an architecture for advanced analysis in a large data warehouse.    Figure 1 - Integrated Data Mining Architecture   The ideal starting point is a data warehouse containing a combination of internal data tracking all customer contact coupled with external market data about competitor activity. Background information on potential customers also provides an excellent basis for prospecting. This warehouse can be implemented in a variety of relational database systems: Sybase, Oracle, Redbrick, and so on, and should be optimized for flexible and fast data access. An OLAP (On-Line Analytical Processing) server enables a more sophisticated end-user business model to be applied when navigating the data warehouse. The multidimensional structures allow the user to analyze the data as they want to view their business – summarizing by product line, region, and other key perspectives of their business. The Data Mining Server must be integrated with the data warehouse and the OLAP server to embed ROI-focused business analysis directly into this infrastructure. An advanced, process-centric metadata template defines the data mining objectives for specific business issues like campaign management, prospecting, and promotion optimization. Integration with the data warehouse enables operational decisions to be directly implemented and tracked. As the warehouse grows with new decisions and results, the organization can continually mine the best practices and apply them to future decisions. This design represents a fundamental shift from conventional decision support systems. Rather than simply delivering data to the end user through query and reporting software, the Advanced Analysis Server applies users’ business models directly to the warehouse and returns a proactive analysis of the most relevant information. These results enhance the metadata in the OLAP Server by providing a dynamic metadata layer that represents a distilled view of the data. Reporting, visualization, and other analysis tools can then be applied to plan future actions and confirm the impact of those plans. 6. Profitable Applications A wide range of companies have deployed successful applications of data mining. While early adopters of this technology have tended to be in information-intensive industries such as financial services and direct mail marketing, the technology is applicable to any company looking to leverage a large data warehouse to better manage their customer relationships. Two critical factors for success with data mining are: a large, well-integrated data warehouse and a well-defined understanding of the business process within which data mining is to be applied (such as customer prospecting, retention, campaign management, and so on). Some successful application areas include: * A pharmaceutical company can analyze its recent sales force activity and their results to improve targeting of high-value physicians and determine which marketing activities will have the greatest impact in the next few months. The data needs to include competitor market activity as well as information about the local health care systems. The results can be distributed to the sales force via a wide-area network that enables the representatives to review the recommendations from the perspective of the key attributes in the decision process. The ongoing, dynamic analysis of the data warehouse allows best practices from throughout the organization to be applied in specific sales situations. * A credit card company can leverage its vast warehouse of customer transaction data to identify customers most likely to be interested in a new credit product. Using a small test mailing, the attributes of customers with an affinity for the product can be identified. Recent projects have indicated more than a 20-fold decrease in costs for targeted mailing campaigns over conventional approaches. * A diversified transportation company with a large direct sales force can apply data mining to identify the best prospects for its services. Using data mining to analyze its own customer experience, this company can build a unique segmentation identifying the attributes of high-value prospects. Applying this segmentation to a general business database such as those provided by Dun & Bradstreet can yield a prioritized list of prospects by region. * A large consumer package goods company can apply data mining to improve its sales process to retailers. Data from consumer panels, shipments, and competitor activity can be applied to understand the reasons for brand and store switching. Through this analysis, the manufacturer can select promotional strategies that best reach their target customer segments. Each of these examples have a clear common ground. They leverage the knowledge about customers implicit in a data warehouse to reduce costs and improve the value of customer relationships. These organizations can now focus their efforts on the most important (profitable) customers and prospects, and design targeted marketing strategies to best reach them. 7. ADVANTAGES OF DATA MINING Here are some of the benefits of data mining: 1) Helps to unearth facts about customers from your database, which you previously didn’t know about, including purchasing behavior.  2) Lends automation benefits to existing hardware and software.  3) Crediting/Banking: helpful to financial institutions in such areas as loan information and credit reporting. 4) Research: makes the process of data analysis faster. 5) Law enforcement: can assist law enforcers with keying out criminal suspects and taking them into custody, by looking into trends in various behavior patterns. 6) Marketing: helps to foretell the products which customers would like to buy. 7) Transportation: to evaluate loading patterns. 8) Medicine: to discover effective medical therapies for diverse illnesses. 9) Insurance: to make out fraudulent behavior. 10) Enhances efficiency and saves money.  7.1 Marking/Retailing Data mining can aid direct marketers by providing them with useful and accurate trends about their customers’ purchasing behavior.   Based on these trends, marketers can direct their marketing attentions to their customers with more precision.  For example, marketers of a software company may advertise about their new software to consumers who have a lot of software purchasing history.  In addition, data mining may also help marketers in predicting which products their customers may be interested in buying.  Through this prediction, marketers can surprise their customers and make the customer’s shopping experience becomes a pleasant one. Retail stores can also benefit from data mining in similar ways.  For example, through the trends provide by data mining, the store managers can arrange shelves, stock certain items, or provide a certain discount that will attract their customers.  7.2 Banking/Crediting Data mining can assist financial institutions in areas such as credit reporting and loan information.  For example, by examining previous customers with similar attributes, a bank can estimated the level of risk associated with each given loan.  In addition, data mining can also assist credit card issuers in detecting potentially fraudulent credit card transaction.  Although the data mining technique is not a 100% accurate in its prediction about fraudulent charges, it does help the credit card issuers reduce their losses.6 7.3 Law enforcement Data mining can aid law enforcers in identifying criminal suspects as well as apprehending these criminals by examining trends in location, crime type, habit, and other patterns of behaviors. 7.4 Researchers Data mining can assist researchers by speeding up their data analyzing process; thus, allowing them more time to work on other projects.    8. DISADVANTAGES OF DATA MINING 8.1 Privacy Issues Personal privacy has always been a major concern in this country.  In recent years, with the widespread use of Internet, the concerns about privacy have increase tremendously.  Because of the privacy issues, some people do not shop on Internet.  They are afraid that somebody may have access to their personal information and then use that information in an unethical way; thus causing them harm.  Although it is against the law to sell or trade personal information between different organizations, selling personal information have occurred.  For example, according to Washing Post, in 1998, CVS had sold their patient’s prescription purchases to a different company.7  In addition, American Express also sold their customers’ credit care purchases to another company.8  What CVS and American Express did clearly violate privacy law because they were selling personal information without the consent of their customers.  The selling of personal information may also bring harm to these customers because you do not know what the other companies are planning to do with the personal information that they have purchased.   8.2 Security issues Although companies have a lot of personal information about us available online, they do not have sufficient security systems in place to protect that information.  For example, recently the Ford Motor credit company had to inform 13,000 of the consumers that their personal information including Social Security number, address, account number and payment history were accessed by hackers who broke into a database belonging to the Experian credit reporting agency.9  This incidence illustrated that companies are willing to disclose and share your personal information, but they are not taking care of the information properly.  With so much personal information available, identity theft could become a real problem.  8.3 Misuse of information/inaccurate information Trends obtain through data mining intended to be used for marketing purpose or for some other ethical purposes, may be misused.  Unethical businesses or people may used the information obtained through data mining to take advantage of vulnerable people or discriminated against a certain group of people.  In addition, data mining technique is not a 100 percent accurate; thus mistakes do happen which can have serious consequence. 9. Conclusion Comprehensive data warehouses that integrate operational data with customer, supplier, and market information have resulted in an explosion of information. Competition requires timely and sophisticated analysis on an integrated view of the data. However, there is a growing gap between more powerful storage and retrieval systems and the users’ ability to effectively analyze and act on the information they contain. Both relational and OLAP technologies have tremendous capabilities for navigating massive data warehouses, but brute force navigation of data is not enough. A new technological leap is needed to structure and prioritize information for specific end-user problems. The data mining tools can make this leap. Quantifiable business benefits have been proven through the integration of data mining with current information systems, and new products are on the horizon that will bring this integration to an even wider audience of users.