What is OLAP (Online Analytical Processing)?

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Performing complex analysis on large databases is often tricky for businesses. OLAP (Online Analytical Processing) is a data analysis technique that enables fast and flexible querying of large, complex datasets. It is vital for purposes like business intelligence and decision-making. With OLAP, organizations can eliminate slow and inflexible data retrieval by quickly slicing and dicing data in multiple dimensions.

OLAP: A Brief Overview

OLAP is a powerful tool for data analysis and decision-making, and it has become a key component of modern business intelligence systems. By providing fast and flexible querying of large datasets, OLAP enables organizations to make data-driven decisions that can significantly impact their bottom line.

It was first introduced in the 1970s and 1980s, when large organizations began to accumulate massive amounts of data in data warehouses. At the time, querying these data warehouses was slow and inflexible, making it difficult for organizations to make data-driven decisions. OLAP was developed to provide faster and more efficient access to these data warehouses.

OLAP systems are typically designed to work with data warehouses, and they provide fast and flexible querying of large, irregular datasets. The technique allows users to perform complex calculations and aggregations, enabling them to gain insights quickly from their data. Users are also given access to a multidimensional view for different perspectives and to slice and dice data differently.

As far as use cases are concerned, OLAP is widely used in business and beyond. Some common application areas include financial reporting, sales analysis, inventory management, and supply chain analysis. OLAP is also commonly used in healthcare and government, where large datasets must be analyzed for decision-making.

Some popular examples of OLAP systems include Microsoft SQL Server Analysis Services, Oracle OLAP, and SAP BusinessObjects.

How do OLAP Systems Work?

OLAP systems enable users to analyze data from multiple dimensions, allowing them to gain new insights into the data. You already know that. But how exactly do they work? Here is a step-by-step breakdown:

  1. Data collection: The first step is to collect data from various sources, such as transactional systems, log files, and other data repositories. This data is then stored in a data warehouse, which is designed to support OLAP queries.
  1. Data modeling: Once the data is collected, it needs to be modeled in a way that supports OLAP analysis. Modelling usually involves defining dimensions, such as time, location, and product, and measures, such as sales and profit. The data is then organized into a cube, which allows users to analyze data from multiple dimensions.
  1. Aggregation: The next step is to aggregate the data in the cube. Aggregation is nothing but summarizing the data along various dimensions and hierarchies. For example, the data might be aggregated by year, quarter, and month, allowing users to view the data at different levels of granularity.
  1. Querying: With the data modeled and aggregated, users can now query the data using OLAP tools. Such systems allow users to analyze the data in various ways, such as drilling down to view more detailed data or pivoting the data to view it from different perspectives.
  1. Analysis: Once the data is queried, users can analyze the data to gain new insights. For example, users might identify trends in sales by region, or analyze the effectiveness of a marketing campaign.
  1. Reporting and visualization: Finally, users can create reports and visualizations to communicate their findings. OLAP systems often provide built-in reporting and visualization tools, or they may integrate with third-party tools.

OLAP systems have numerous business applications, including financial reporting, sales analysis, and inventory management. 

For example, a company might use an OLAP system to analyze sales by product, region, and time period to identify trends and inform decisions about product offerings and marketing campaigns. 

Another example is supply chain management, where an OLAP system could be used to analyze inventory levels, production schedules, and transportation costs to optimize the supply chain.

What are OLAP Systems Used for?

Here are four common use cases for OLAP systems and along with :

  1. Financial analysis
  • Budgeting and forecasting: OLAP systems can be used to analyze financial data to create budgets and forecasts for future periods. For example, a retail company might use an OLAP system to analyze sales data by product, store, and time period to forecast future sales.
  • Profitability analysis: Such tools can also be leveraged to analyze profitability by product, region, and customer segment. For example, a bank might use an OLAP system to analyze customer data to identify profitable customer segments and inform marketing strategies.
  1. Sales and Marketing Analysis
  • Customer segmentation: Creating customer segments based on demographics, behavior, and other factors is a popular use case of OLAP. For example, an e-commerce company might use an OLAP system to analyze customer data to identify high-value customers and target them with personalized marketing messages.
  • Sales analysis: Analyzing sales data by product, region, and time period to identify trends and opportunities is a complex process. OLAP tools make it easy. For example, a Direct-to-Consumer (D2C) company might use an OLAP system to analyze sales data to identify which products are performing well and which ones need to be improved.
  1. Supply chain management
  • Inventory management: In the supply chain space, OLAP systems can be used to analyze inventory levels by product, location, and time period to optimize inventory management. For example, a retail chain like Walmart might use an OLAP system to analyze inventory data to identify slow-moving products and adjust inventory levels accordingly.
  • Logistics analysis: Logistics needs continuous analysis of transportation costs, delivery times, and other logistics data to optimize supply chain operations. OLAP systems can play a transforming role here. For example, a manufacturer might use an OLAP system to analyze logistics data to identify the most efficient transportation routes.
  1. Human resources management:
  • Workforce planning: One of the trickiest spaces to crack for businesses  is talent acquisition. OLAP systems can be used to evaluate HR data to plan for workforce needs. For example, a hospital might use an OLAP system to analyze employee data to identify staffing needs for different departments and shifts.
  • Employee performance analysis: Analyzing employee performance is crucial to identify training and development needs. Consider a call center – to figure out the areas where additional training is needed, OLAP systems can be used to analyze employee needs.

Also Read: Top 30 Data Analytics Tools for 2023

What are OLAP Guidelines?

OLAP guidelines are principles that help guide the design and implementation of OLAP systems. These guidelines include best practices for presenting and organizing data in a way that is user-friendly, accessible, and scalable. 

It is vital that organizations follow these 12 OLAP guidelines to make the best out of OLAP systems:

  1. Multidimensional conceptual view: Data should be viewed as multiple dimensions or facets.
  1. Transparency: Users should be able to see and understand the data source and data structure.
  1. Accessibility: Data should be easily accessible by users without requiring technical expertise.
  1. Consistent reporting performance: Reports should be consistent and reliable in performance.
  1. Client-server architecture: OLAP systems should be designed in a client-server architecture.
  1. Generic dimensionality: Data should be presented in a generic form, enabling multiple hierarchies.
  1. Dynamic sparse matrix handling: The system should be able to handle large, sparse datasets.
  1. Multi-user support: Multiple users should be able to access the system simultaneously.
  1. Unrestricted cross-dimensional operations: Users should be able to perform operations across dimensions.
  1. Intuitive data manipulation: The system should be user-friendly and allow for easy manipulation of data.
  1. Flexible reporting: Reports should be able to be generated quickly and easily.
  1. Unlimited dimensions and aggregation levels: OLAP systems should be able to handle unlimited dimensions and aggregation levels.

Different Types of OLAP

There exist three types of OLAP, namely Multidimensional OLAP (MOLAP), Relational OLAP (ROLAP), and Hybrid OLAP (HOLAP). Let’s take a look at what makes each one of them unique and where they are used:

  • Multidimensional OLAP (MOLAP) stores data in a multidimensional cube, allowing for fast calculations and complex analysis. It is primarily used in analyzing sales data to identify trends and patterns in different product categories.
  • Relational OLAP (ROLAP) uses a relational database to store data and SQL to perform queries and analysis. Use case: analyzing customer data to identify demographics and buying patterns.

Also Read: Top 5 Free or Affordable Dashboard and SQL Reporting Tools 

  • Hybrid OLAP (HOLAP) combines elements of MOLAP and ROLAP by storing summary data in a multidimensional cube and detailed data in a relational database. One of the primary applications includes analysis of financial data to identify trends and anomalies in a large dataset while still being able to drill down to individual transactions.

Summing Up

Extracting insights from data effectively is becoming more important with every passing day. OLAP systems can act as drivers for complex data analysis as they enable users to quickly and easily analyze vast amounts of data from multiple sources. With the increasing amount of data generated in almost every industry, OLAP systems are becoming more relevant as they allow businesses to gain valuable insights and make informed decisions. Whether it’s about identifying trends, optimizing performance, or improving customer experiences, organizations can do much more with OLAP systems to stay competitive and agile.

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Written by
Soham Dutta


What is OLAP (Online Analytical Processing)?