MASTER’S NOTEBOOK
Analytics and Opportunities for Statisticians
Lei Zhu and Mani Lakshminarayanan, Committee on Applied Statisticians
In complex situations where decisions are made based on
competing objectives, constrained resources, and uncertain
future outcomes, decision models offer a structured environ-
ment for reaching reproducible decisions. One can build deci-
sion trees based on the probability, joint probability, and condi-
tional probability of events; do risk analysis through Monte Carlo
simulation; and perform constrained optimization with limited
information. Factor analysis is commonly used in marketing research
for building a physical map of customer perceptions. It reveals what
matters most about customer perception and helps managers decide
where the next product should be placed on the perceptual map.
Statisticians can extract useful information about customers,
trends, and segments using techniques such as clustering and pre-
dictive modeling. In finance, a portfolio is essentially a collection
of correlated random variables. For those who are risk averse, mini-
mizing the variance of the sum of the random variables could lead
to a decrease in the volatility of the portfolio. The beta coefficient
from the underlying regression model is a measure of a stock’s
volatility in relation to the market as a whole. A higher beta index
(greater than one) reflects an increase in the stock having a higher
volatility than the market.
To use statistics as a decisionmaking tool, one needs to learn more
on the job in the subject area and build strategic and leadership skills.
Students who aspire to go into pharmaceutical industries need to
T
he increasing demand for speedily processing massive amounts learn biology and chemistry, become familiar with specific business
of information to use for inference has attracted more and more areas if interested in commercial analysis, and learn about the prod-
students to the statistics major. Upon graduation, the health uct and customers if market research is intended. It is important to
care and financial industries have attracted a majority of these students. keep engaged in all phases of the decisionmaking process—define
Now, universities have started adding more diverse tracks for students the objective, evaluate criteria to measure the outcome, determine
from various backgrounds, such as law, social science, computational alternatives, consider potential risks and threats, and choose the
biology, genetics, quantitative finance, and math. So now the question decision that maximizes expected value or minimizes expected cost.
is, with all this competition, how does one with a master’s degree in Irrespective of the area in which employment is sought, a statistician’s
statistics get a satisfactory and well-paying job? responsibility starts with understanding the problem, formulating
An interesting book came out in 2007 by Thomas H. the research hypothesis, understanding the reason for collecting data,
Davenport and Jeanne G. Harris called Competing in Analytics: deciding on an appropriate model for the analysis, and providing con-
The New Science of Winning. As described in this book, analytics clusions. While providing conclusions, a statistician must also evalu-
is a secret weapon that can be used to generate impressive business ate their social, economic, or business consequences.
results. It uses sophisticated quantitative and statistical analysis, Currently, the demand for people trained in analytics is much
predictive modeling, and fact-based management to drive deci- higher than the number of statisticians the market can supply, and
sions and actions. It is also a fancy term for using statistics to drive this gap is increasing. A graduate degree in statistics (e.g., business
business decisions and strategies. statistics) should provide a solid background in analytics that can be
For example, Netflix employs analytics in two important ways, applied to various industrial problems. As a result, many statistics
both driven by customer behavior and buying patterns. They view departments are offering courses related to business statistics. In 2007,
movie rentals as a data problem and gain a huge advantage over North Carolina State University launched its Institute for Advance
competitors who make decisions according to their gut. Due to Analytics (see http://analytics.ncsu.edu). Elements of the curriculum
the massive quantity of information available today, intuition has were developed in collaboration with SAS, the world’s leading pro-
become less appealing than structured decisionmaking. There are vider of software and services for business intelligence and analytics.
enormous opportunities for identifying the most profitable custom- Additionally, the University of Illinois at Urbana-Champaign offers
ers, developing innovative products, optimizing supply chain and a master’s in statistics with an analytics concentration. Business Week
pricing, and leveraging the true drivers of financial performance. reported on this trend in a 2006 cover story, titled “Math Will Rock
At the very basic level, statistics is the fundamental sci- Your World.” Students seeking a master’s degree are encouraged to
ence for areas such as decision science, marketing, and finance. explore this exciting area. n
48 AMSTAT NEWS OCTOBER 2008
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