Register for our webinar

How to Nail your next Technical Interview

1 hour
Enter details
Select webinar slot
*Invalid Name
*Invalid Name
By sharing your contact details, you agree to our privacy policy.
Step 1
Step 2
You have registered for our webinar
Oops! Something went wrong while submitting the form.
Enter details
Select webinar slot
*All webinar slots are in the Asia/Kolkata timezone
Step 1
Step 2
You are scheduled with Interview Kickstart.
Oops! Something went wrong while submitting the form.
Iks white logo

You may be missing out on a 66.5% salary hike*

Nick Camilleri

Head of Career Skills Development & Coaching
*Based on past data of successful IK students
Iks white logo
Help us know you better!

How many years of coding experience do you have?

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Iks white logo

FREE course on 'Sorting Algorithms' by Omkar Deshpande (Stanford PhD, Head of Curriculum, IK)

Thank you! Please check your inbox for the course details.
Oops! Something went wrong while submitting the form.
Our June 2021 cohorts are filling up quickly. Join our free webinar to Uplevel your career

Anomaly Detection in Data: Identifying Outliers and Fraud

Last updated on: 
February 14, 2024
Abhinav Rawat
The fast well prepared banner
About The Author!
Abhinav Rawat
Abhinav Rawat
Product Manager at Interview Kickstart. The skilled and experienced mastermind behind several successful product designs for upscaling the ed-tech platforms with an outcome-driven approach for skilled individuals.

Businesses and organizations depend heavily on data for making informed decisions. Whether for optimizing operations, understanding customer behavior or predicting trends, data is the heart of all. However, not all the data is created equal. At times, hidden with a large percentage of information are outliers, fraudulent activities and anomalies that significantly impact the accuracy and reliability of data-driven insights. This article will take you through the reality of anomaly detection, exploring what it is, why it matters, and what methods are used for anomaly detection.

The topics covered in this article are-

  • What is Anomaly Detection?
  • Why Anomaly Detection Matters?
  • How Does Anomaly Detection Work?
  • Types of Outliers
  • Anomaly Detection Techniques
  • Challenges Faced in Anomaly Detection
  • Best Practices for Anomaly Detection
  • Ace your Coding Interviews with IK!
  • FAQs about Anomaly Detection

What is Anomaly Detection?

The process of identifying entities, data points or events falling outside the normal range is called anomaly detection. Anything that deviates from what is expected or standard is an anomaly. Hence, the concept is framed as novelty detection or outlier detection. Anomalies can be found in different forms, such as unexpected spikes in website traffic, unusually high or low sales figures or fraudulent transactions in a financial data set. Researchers have automated anomaly detection machine learning training techniques designed to grab efficient ways for detecting the different types of outliers.

AnomalyDetection Definition & Techniques

Anomaly detection is also used for detecting suspicious events, bad data or unexpected opportunities in time series data. Any suspicious event might indicate fraud, crime, faulty equipment or network breach.

Why Anomaly Detection Matters?

A number of reasons might be responsible for the occurrence of anomalies, including errors in data, collection, equipment, malfunction, or deliberate fraudulent activities. To maintain data quality and make reliable decisions, detecting anomalies is important. Here are some key points why it matters:

 Why anomaly detection matters

Data quality assurance

Anomalies can distort the overall picture designed by your data. Handling and detecting these anomalies ensures that your predictions and analysis are based on reliable and accurate information.

Fraud detection

In industries like e-commerce, healthcare, and finance, fraud detection is paramount. Anomaly detection methods help in identifying fraudulent activities such as insurance fraud, healthcare fraud and credit card fraud, saving organizations millions of dollars.

Predictive maintenance

In fields like energy and manufacturing, anomalies in sensor data can signal impending equipment failures. Detecting anomalies enables proactive maintenance, reducing downtime and saving costs.

Network security

Identifying anomalies in network traffic helps in detecting unauthorized access attempts or cyber-attacks. This is important for safeguarding sensitive data and ensuring the integrity of computer systems.

How Does Anomaly Detection Work?

There are numerous ways of training machine learning algorithms for detecting anomalies. Supervised machine learning techniques are used when working on a label dataset indicating normal vs. abnormal conditions. For instance, a credit card company might develop a process to label fraudulent credit card transactions after transactions were reported. 

  • Medical researchers might label data sets or images as indicators of future disease diagnosis. In such cases, supervised machine learning models can be trained to detect these known anomalies.
  • Researchers might begin with some frequently discovered outliers but suspect that other anomalies exist too. Due to the scenario of fraudulent credit card transactions, consumers can fail to report suspicious transactions with innocuous-sounding names and of small values. 
  • A data scientist might use reports, including these types of fraudulent transactions, for automatic labeling of other transactions, such as fraud, through semi-supervised machine learning anomaly detection techniques.

Types of Outliers 

Outliers are an observation that lie at an abnormal distance from other values from a population in a random sample. However, it depends on the analyst to decide what they will consider abnormal. The three different types of anomalies are mentioned below.

  • Global outliers or point anomalies: Anomalies that occur outside the range of the entire data set.
  • Contextual outliers: Data points whose value is different from other points within the same context. 
  • Collective outliers: These occur when several different types of data vary while being considered together, for example, temperature, spikes and ice cream sales.

Anomaly Detection Techniques

There are numerous methods for anomaly detection, each designed for different types of data and applications. Some of the most commonly used techniques are mentioned below:

Anomaly Detection Process
Arkose Labs

  • Statistical methods: Statistical methods depend on the assumption that normal data points follow a specific statistical distribution, such as normal distribution. Any data point deviating significantly from this distribution is counted as an anomaly. Common statistical techniques are: Z – scores, the Grubbs’ test and box plots.
  • Machine learning: Machine learning algorithms such as one-class, SVM (support vector machine) autoencoders and isolation forest are powerful tools for anomaly detection. The anomaly detection algorithms learn the patterns in the data and then identify anomalies that deviate from these patterns.
  • Time series analysis: In time series, data anomalies can manifest as dips, sudden spikes or changing patterns. Time series analysis methods include moving averages, exponential smoothing, and seasonal decomposition that help identify these anomalies.
  • Clustering: Clustering techniques like K-means and Density-based Spatial Clustering of applications with noise can be used for anomaly detection by identifying data points that do not belong to any cluster or are isolated from the main clusters.
  • Deep learning: Deep learning approaches such as recurrent neural networks and convolution neural networks are used for anomaly detection in sequence data, text and images. These models excel in capturing complex deviations and patterns.

Challenges Faced in Anomaly Detection

Even though anomaly detection is a very powerful tool. However, it does not come without challenges. Some of the challenges faced in anomaly detection are listed below:

  • Imbalanced data: In several real-world scenarios, anomalies are rare as compared to normal data. This class imbalance might lead to models that are biased toward normal data and struggle to identify anomalies effectively.
  • Labeling anomalies: In supervised anomaly detection, where labeled examples of anomalies are required for training, obtaining sufficient labeled data might be challenging. This is because anomalies are often unpredictable and infrequent.
  • Dynamic environment: Anomalies can evolve and make it necessary to adapt detection models frequently. This is particularly important in applications like fraud, detection and network security.
  • Interpretability: Understanding why a model flagged a particular data point as an anomaly might be challenging, especially with complex machine learning and deep learning models.

Best Practices for Anomaly Detection

To implement anomaly detection effectively, listed below are a few points that must be considered and followed as the best practices.

Anomaly Detection for Cyber Network Security
  • Understand your data: Before you apply any anomaly detection method, get a deep understanding of your data and the problem domain. This knowledge will guide you to select the most appropriate technique.
  • Choosing the right method: Select the anomaly detection method that suits your application and data the best. Consider factors including volume, data type and the nature of anomalies you expect.
  • Data preprocessing: Pre-process and clean your data to remove noise and irrelevant features. Scaling and normalization are also essential, especially while using machine learning algorithms and anomaly detection in Python.
  • Evaluation metrics: Use appropriate evaluation metrics, such as recall, precision and F1-score, for assessing the performance of your anomaly detection model. Cross-validation helps in ensuring robustness.
  • Continuous monitoring: In dynamic environments, continuously monitor your data for anomalies and update your detection models as needed to maintain effectiveness.

Ace your Coding Interviews with IK!

Anomaly detection is a crucial component of data analysis and decision-making across several industries. Detecting outliers and fraudulent activities helps ensure data quality and protects against financial losses, enabling proactive responses to issues. With the diverse range of techniques available, organizations must tailor their approach to suit their specific data and applications. By following best practices, businesses can harness the power of anomaly detection to make better and more informed decisions in the data-driven world. To master anomaly detection, enhance your knowledge with machine learning interviews and courses offered by Interview Kickstart and ace your coding interviews now!

FAQs about Anomaly Detection

Q1. What industries use anomaly detection?

Anomaly detection is commonly used in industries like retail, cyber security and finance. However, every business must consider an anomaly detection solution. It provides an automated means to detect harmful outliers and protect your data.

Q2. Is anomaly detection part of machine learning?

Anomaly detection is one of the most commonly used cases under machine learning. 

Q3. Is an anomaly rare?

Anomalies might be rare as they are a minority in the normal dataset.

Q4. What are the 3 types of anomalies?

The three types of anomalies are insertion anomalies, deletion anomalies and update anomalies.

Q5. What is anomaly detection in AI?

Anomaly detection is a method that uses AI to identify anomaly behavior as compared to an established or common pattern.

Posted on 
October 7, 2023

Abhinav Rawat

Product Manager @ Interview Kickstart | Ex-upGrad | BITS Pilani. Working with hiring managers from top companies like Meta, Apple, Google, Amazon etc to build structured interview process BootCamps across domains

Attend our Free Webinar on How to Nail Your Next Technical Interview


Worried About Failing Tech Interviews?

Attend our webinar on
"How to nail your next tech interview" and learn

Hosted By
Ryan Valles
Founder, Interview Kickstart
blue tick
Our tried & tested strategy for cracking interviews
blue tick
How FAANG hiring process works
blue tick
The 4 areas you must prepare for
blue tick
How you can accelerate your learnings
Register for Webinar

Recent Articles

No items found.