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Data Mining

Updated: Mar 27, 2023

Data mining is the practice of automatically searching large stores of data to discover patterns and trends that go beyond simple analysis. Data mining uses sophisticated mathematical algorithms to segment the data and evaluate the probability of future events. Data mining is also known as Knowledge Discovery in Data (KDD).



The key properties of data mining are:

  • Automatic discovery of patterns

  • Prediction of likely outcomes

  • Creation of actionable information

  • Focus on large data sets and databases

Data mining can answer questions that cannot be addressed through simple query and reporting techniques.


Automatic Discovery Data mining is accomplished by building models. A model uses an algorithm to act on a set of data. The notion of automatic discovery refers to the execution of data mining models. Data mining models can be used to mine the data on which they are built, but most types of models are generalizable to new data. The process of applying a model to new data is known as scoring.

Prediction Many forms of data mining are predictive. For example, a model might predict income based on education and other demographic factors. Predictions have an associated probability (How likely is this prediction to be true?). Prediction probabilities are also known as confidence (How confident can I be of this prediction?).

Some forms of predictive data mining generate rules, which are conditions that imply a given outcome. For example, a rule might specify that a person who has a bachelor's degree and lives in a certain neighbourhood is likely to have an income greater than the regional average. Rules have associated support (What percentage of the population satisfies the rule?).


Grouping Other forms of data mining identify natural groupings in the data. For example, a model might identify the segment of the population that has an income within a specified range, has a good driving record, and leases a new car on a yearly basis.


Actionable Information Data mining can derive actionable information from large volumes of data. For example, a town planner might use a model that predicts income based on demographics to develop a plan for low-income housing. A car leasing agency might a use model that identifies customer segments to design a promotion targeting high-value customers.



The Data Mining Process

Figure 1-1 illustrates the phases, and the iterative nature, of a data mining project. The process flow shows that a data mining project does not stop when a particular solution is deployed. The results of data mining trigger new business questions, which in turn can be used to develop more focused models.


Problem Definition

This initial phase of a data mining project focuses on understanding the project objectives and requirements. Once you have specified the project from a business perspective, you can formulate it as a data mining problem and develop a preliminary implementation plan.

For example, your business problem might be: "How can I sell more of my product to customers?" You might translate this into a data mining problem such as: "Which customers are most likely to purchase the product?" A model that predicts who is most likely to purchase the product must be built on data that describes the customers who have purchased the product in the past. Before building the model, you must assemble the data that is likely to contain relationships between customers who have purchased the product and customers who have not purchased the product. Customer attributes might include age, number of children, years of residence, owners/renters, and so on.


Data Gathering and Preparation

The data understanding phase involves data collection and exploration. As you take a closer look at the data, you can determine how well it addresses the business problem. You might decide to remove some of the data or add additional data. This is also the time to identify data quality problems and to scan for patterns in the data.

The data preparation phase covers all the tasks involved in creating the case table you will use to build the model. Data preparation tasks are likely to be performed multiple times, and not in any prescribed order. Tasks include table, case, and attribute selection as well as data cleansing and transformation. For example, you might transform a DATE_OF_BIRTH column to AGE; you might insert the average income in cases where the INCOME column is null.

Additionally you might add new computed attributes in an effort to tease information closer to the surface of the data. For example, rather than using the purchase amount, you might create a new attribute: "Number of Times Amount Purchase Exceeds $500 in a 12 month time period." Customers who frequently make large purchases may also be related to customers who respond or don't respond to an offer.

Thoughtful data preparation can significantly improve the information that can be discovered through data mining.


Model Building and Evaluation

In this phase, you select and apply various modelling techniques and calibrate the parameters to optimal values. If the algorithm requires data transformations, you will need to step back to the previous phase to implement them.

In preliminary model building, it often makes sense to work with a reduced set of data (fewer rows in the case table), since the final case table might contain thousands or millions of cases.

At this stage of the project, it is time to evaluate how well the model satisfies the originally-stated business goal (phase 1). If the model is supposed to predict customers who are likely to purchase a product, does it sufficiently differentiate between the two classes? Is there a sufficient lift? Are the trade-offs shown in the confusion matrix acceptable? Would the model be improved by adding text data? Should transactional data such as purchases (market-basket data) be included? Should costs associated with false positives or false negatives be incorporated into the model?


Knowledge Deployment

Knowledge deployment is the use of data mining within a target environment. In the deployment phase, insight and actionable information can be derived from data.

Deployment can involve scoring (the application of models to new data), the extraction of model details (for example the rules of a decision tree), or the integration of data mining models within applications, data warehouse infrastructure, or query and reporting tools.

Because Oracle Data Mining builds and applies data mining models inside Oracle Database, the results are immediately available. BI reporting tools and dashboards can easily display the results of data mining. Additionally, Oracle Data Mining supports scoring in real-time: Data can be mined and the results returned within a single database transaction. For example, a sales representative could run a model that predicts the likelihood of fraud within the context of an online sales transaction.



Types of Data Mining

Data mining can be performed on the following types of data:


1. Relational Database:

A relational database is a collection of multiple data sets formally organized by tables, records, and columns from which data can be accessed in various ways without having to recognize the database tables. Tables convey and share information, which facilitates data searchability, reporting, and organization.


2. Data warehouses:

A Data Warehouse is a technology that collects data from various sources within the organization to provide meaningful business insights. The huge amount of data comes from multiple places such as Marketing and Finance. The extracted data is utilized for analytical purposes and helps in decision-making for a business organization. The data warehouse is designed for the analysis of data rather than transaction processing.


3. Data Repositories:

The Data Repository generally refers to a destination for data storage. However, many IT professionals utilize the term more clearly to refer to a specific kind of setup within an IT structure. For example, a group of databases, where an organization has kept various kinds of information.


4. Object-Relational Database:

A combination of an object-oriented database model and a relational database model is called an object-relational model. It supports Classes, Objects, Inheritance, etc.

One of the primary objectives of the Object-relational data model is to close the gap between the Relational database and the object-oriented model practices frequently utilized in many programming languages, for example, C++, Java, C#, and so on.


5. Transactional Database:

A transactional database refers to a database management system (DBMS) that has the potential to undo a database transaction if it is not performed appropriately. Even though this was a unique capability a very long while back, today, most of relational database systems support transactional database activities.


Advantages of Data Mining

  • The Data Mining technique enables organizations to obtain knowledge-based data.

  • Data mining enables organizations to make lucrative modifications in operation and production.

  • Compared with other statistical data applications, data mining is cost-efficient.

  • Data Mining helps the decision-making process of an organization.

  • It Facilitates the automated discovery of hidden patterns as well as the prediction of trends and behaviors.

  • It can be induced in the new system as well as the existing platforms.

  • It is a quick process that makes it easy for new users to analyze enormous amounts of data in a short time.

Disadvantages of Data Mining

  • There is a probability that the organizations may sell useful data of customers to other organizations for money. As per the report, American Express has sold credit card purchases of their customers to other organizations.

  • Many data mining analytics software is difficult to operate and needs advanced training to work on.

  • Different data mining instruments operate in distinct ways due to the different algorithms used in their design. Therefore, the selection of the right data mining tools is a very challenging task.

  • The data mining techniques are not precise, so it may lead to severe consequences in certain conditions.


Data Mining Applications

Data Mining is primarily used by organizations with intense consumer demands- Retail, Communication, Financial, and marketing companies, to determine price, consumer preferences, product positioning, and impact on sales, customer satisfaction, and corporate profits. Data mining enables a retailer to use point-of-sale records of customer purchases to develop products and promotions that help the organization attract customers.



These are the following areas where data mining is widely used:


1. Data Mining in Healthcare:

Data mining in healthcare has excellent potential to improve the health system. It uses data and analytics for better insights and to identify best practices that will enhance healthcare services and reduce costs. Analysts use data mining approaches such as Machine learning, Multi-dimensional database, Data visualization, Soft computing, and statistics. Data Mining can be used to forecast patients in each category. The procedures ensure that the patients get intensive care at the right place and at the right time. Data mining also enables healthcare insurers to recognize fraud and abuse.


2. Data Mining in Market Basket Analysis:

Market basket analysis is a modelling method based on a hypothesis. If you buy a specific group of products, then you are more likely to buy another group of products. This technique may enable the retailer to understand the purchase behavior of a buyer. This data may assist the retailer in understanding the requirements of the buyer and altering the store's layout accordingly. Using a different analytical comparison of results between various stores, and between customers in different demographic groups can be done.


3. Data mining in Education:

Education data mining is a newly emerging field, concerned with developing techniques that explore knowledge from the data generated from educational Environments. EDM objectives are recognized as affirming students' future learning behavior, studying the impact of educational support, and promoting learning science. An organization can use data mining to make precise decisions and also to predict the results of the student. With the results, the institution can concentrate on what to teach and how to teach.


4. Data Mining in Manufacturing Engineering:

Knowledge is the best asset possessed by a manufacturing company. Data mining tools can be beneficial to find patterns in a complex manufacturing process. Data mining can be used in system-level designing to obtain the relationships between product architecture, product portfolio, and data needs of the customers. It can also be used to forecast the product development period, cost, and expectations among other tasks.

5. Data Mining in CRM (Customer Relationship Management):

Customer Relationship Management (CRM) is all about obtaining and holding Customers, also enhancing customer loyalty and implementing customer-oriented strategies. To get a decent relationship with the customer, a business organization needs to collect data and analyze the data. With data mining technologies, the collected data can be used for analytics.


6. Data Mining in Fraud detection:

Billions of dollars are lost to the action of fraud. Traditional methods of fraud detection are a little bit time-consuming and sophisticated. Data mining provides meaningful patterns and turns data into information. An ideal fraud detection system should protect the data of all users. Supervised methods consist of a collection of sample records, and these records are classified as fraudulent or non-fraudulent. A model is constructed using this data, and the technique is made to identify whether the document is fraudulent or not.

7. Data Mining in Lie Detection:

Apprehending a criminal is not a big deal, but bringing out the truth about him is a very challenging task. Law enforcement may use data mining techniques to investigate offences, monitor suspected terrorist communications, etc. This technique includes text mining also, and it seeks meaningful patterns in data, which is usually unstructured text. The information collected from the previous investigations is compared, and a model for lie detection is constructed.

8. Data Mining Financial Banking:

The Digitalization of the banking system is supposed to generate an enormous amount of data with every new transaction. The data mining technique can help bankers by solving business-related problems in banking and finance by identifying trends, casualties, and correlations in business information and market costs that are not instantly evident to managers or executives because the data volume is too large or is produced too rapidly on the screen by experts. The manager may find these data for better targeting, acquiring, retaining, segmenting, and maintaining a profitable customer.



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