Prescriptive Analytics — Getting Ahead of the Curve to Solve Big Data Problems
In this modern age, data generated by businesses is upsurging. This unstoppable soaring data needs to be capitalized. That is exactly when data analytics and data science comes into the play. Through business analytics, we can quickly spot trends, predict behavior and support strategic decisions. So, it has been extensively used for enterprise performance management and optimization. Business analytics is composed of 3 types of analytics: descriptive analytics, predictive analytics, and prescriptive analytics.
The Evolution of Prescriptive Analytics
Business analytics are divided into three stages starting from descriptive analytics through predictive analytics to prescriptive analytics.
1. Descriptive analytics: The simplest Class of Analytics
Purpose: To summarize what happened!
Descriptive analytics is gathering and analyzing raw data to understand what happened in the past.This helps us understand the past behavior and learn how it can affect future outcomes. When you know what happened in the past, you want to know the reason behind it. That is when diagnostic analytics comes into the picture. It asks why it happened which helps you get to the root cause. Descriptive analytics needs to be merged with diagnostic analytics, as both talks about the past. Together, it will tell you what happened and why it happened, so that it becomes even easier for you to predict what might happen; which is the next step (predictive analytics).
Most organizations use descriptive analytics.
2. Predictive analytics: The Advanced Analytics
Purpose: To summarize what can happen!
Predictive analytics is not about ‘what will happen in the future’, as no analytics can do that. It is all about studying historical data, identifying insights, trends and patterns and predicting ‘what might happen next’ using statistical models and forecasts techniques to solve problem up to some extent. Predictive analytics has probabilistic nature. According to a chief scientist in a San Fransisco based company, predictive analytics takes the data that you have got to predict the data that you don’t have.
A few organizations use predictive analytics.
3. Prescriptive analytics: The Final Frontier of Analytics
Purpose: How we can make it happen!
Prescriptive analytics helps businesses to make truly data-driven decisions through simulation and optimization leveraging machine learning and artificial intelligence to give actionable recommendations from the insights provided.
Very few organizations use prescriptive analytics.
PRESCRIPTIVE ANALYTICS: THE MOST ADVANCED AND PROMISING VARIANT OF DATA ANALYTICS
In this competitive world, we have been making business decisions based on what has occurred in the past or what is most likely to occur in the future. Prescriptive analytics helps businesses make the best data-driven decisions with the help of targeted recommendations on the basis of why and how things happen. It makes recommendations taking into the considerations a lot of factors including desired outcome, specific resources, past events and the current situation.
An organization that has the ability to take the right and quick decision in dynamic conditions and ambiguous environment certainly wins. Prescriptive analytics helps businesses do that. Prescriptive analytics has taken the insight-based actions and analytics maturity model to the next level by suggesting the optimum way to handle the future situation by taking the best decision.
“The prescriptive analytics software market will reach $1.1 billion by 2019” — Gartner
Prescriptive Analytics: A Closer Look
Prescriptive analytics can help businesses get rid of data depot and make optimized decisions. So, make the most of prescriptive analytics techniques and identify the best steps to implement for maximized profits. There are two approaches: simulation and optimization.
- Simulation: Simulation approach is used in design situations. It lets you identify system behavior under various configurations. Also, it makes sure that all the performance metrics are met.
- Optimization: This methodology of predictive analytics follows an analytical model to find out all the possible outcomes of every alternative. It is used in taking operational, tactical and strategic decisions. For the situations that have different levels of uncertainty, optimization technique helps to find out the ideal usage of time and resources.
Prescriptive Analytics Benefits: Value Addition Tool for Decision Makers
Prescriptive analytics is reshaping the data analytics. It is taking you from the world of insights to actions. People call it an adaptive crystal ball as it finds the best course of action for a given situation.
- Decision automation: It automates complex decisions and helps in managing limited resources.
- Reduced failures: It helps you make accurate data-driven decisions which reduce the chances of failures.
- Fraud protection: It helps you prevent threats and frauds and leverage the future opportunities.
- Enhanced efficiency: It can identify issues quickly and give recommendations to improve the process, as a result of which efficiency level gets increased.
- Customer loyalty: It helps you meet your operational goals, which in turn increases customer loyalty.
- Increased revenue: It optimizes business processes, resulting in minimized cost and maximized profit.
Prescriptive Analytics: How Various Industries Leverage It
- Manufacturing: Prescriptive analytics helps manufacturing businesses with inventory optimization, as it helps to determine the exact amount of stock to be kept for each item.
- Travel: Large data sets need prescriptive analytics and travel and transportation industry has one of the largest data sets in today’s market. Online travel services, ticketing websites, car rental businesses and hotel websites can use prescriptive analytics to optimize their pricing and sales.
- Retail: Experts believe that prescriptive analytics tools and techniques offer more choices to retailers when it comes to turning insights into actions from consumer data. It recommends one or more actions and shows the likely outcomes of each.
- Logistics: It aids in the route optimization. For example: it can analyze and combine data sources to optimize thousands of routes per minute for vehicles of a particular company which can save fuels worth thousands of dollars.
- Energy: Prescriptive analytics can be used to determine the fracking location for oil production. It analyzes huge data sets like sounds, videos, images and text in real time and recommends the best fracking location.
- Sales and marketing: Prescriptive analytics helps with trade promotion optimization, product assortment optimization, price optimization, marketing mix optimization and customer contract negotiation.
- Healthcare: By analyzing the data sets like patient records, health trends, medicine information, etc., healthcare providers will be able to provide better treatment at a low price. They can improve efficiency and capital investments for better facilities and equipment. Doctors use prescriptive analytics to recommend the best treatment to patients by combining different data sets. Pharmaceutical organizations use it to improve drug development and lessen time-to-market.
Predictive Analytics and (not vs.) Prescriptive Analytics: Your Business Needs Both
For leveraging prescriptive analytics, your organization needs descriptive and predictive analytics, as all the three forms of business analytics build on one another. Considering prescriptive analytics as the final stage of business analytics model, if you are thinking to go for it, ignoring predictive analytics would not be an ideal decision.
Needless to say, businesses need predictive as well as prescriptive analytics to make the most of the big data platforms. Implementing the both will gain you the competitive edge, as it will not only let you understand the past and future events, but also improve the decision-making. This will ultimately boost up your confidence and trust across your enterprise. Adopting all the three types of business analytics will provide you actionable insights, smarter decisions, and superior risk management.
Planning to Adopt Prescriptive Analytics? Here’s a Qiuck Tip…
If you wish to leverage advanced analytics, one important point which you must always remember is that, it should be in the hands of decision makers of your business. If you are planning to invest into prescriptive analytics software, it must provide the business users (and not just business modelers) with quick insights into prescriptive analytics. This will help you make decisions in smarter and faster way which will help you attain business goals and objectives.
Originally published at datafloq.com.