Understanding the Field of Predictive Analytics and Why It’s so important
From weather forecasts to health-monitoring apps, predictive analytics has made it possible for industries to produce innovative solutions over the years.
Thanks to advances in supporting technology, predictive analytics is now widely accessible. Businesses can now make sense of their big data with data analytics services. Businesses rely on predictive analytics to get ahead and improve overall business operations. When combined with prescriptive analytics, these two processes allow for optimal decision making.
Here’s a look at what makes predictive analytics so valuable for businesses today.
What Is Predictive Analytics?
A branch of data analytics, predictive analytics extracts insights and trends from new and historical data. The insights and trends are then used to predict future outcomes, such as:
- Failure; and,
This process uses analytical queries, statistical analysis, and machine learning algorithms to create a predictive model. This model will place a numerical value on the likelihood that an event or outcome will occur giving businesses the opportunity to plan and strategize accordingly.
Businesses across industries use predictive analytics to improve their operations and bottom line. From retail to aerospace engineering, predictive analytics is an invaluable tool to optimize business operations.
The field of predictive analytics is far reaching across many industries. Here are some examples of what predictive models can do for various industries.
Autonomous vehicles and driver-assistance technology use predictive analytics to analyze sensor data from vehicles and create driver-assistance algorithms. Automotive manufacturers also use sensors to measure vibrations in automotive parts. These sensors will signal the need for maintenance before the vehicle fails while in use.
To monitor aircraft engine health, a real-time analytics application can predict anything from performance for controls, fuel, oil, liftoff, and mechanical health. This improves safety, reduces maintenance costs, and reduces aircraft downtime.
Banking & Financial Services
With so much money and personal financial data at stake, financial institutions rely on predictive analytics to:
- Detect and reduce fraud;
- Effectively measure credit risk;
- Retain valuable customers; and,
- Maximize cross-sell or up-sell opportunities.
The energy sector uses predictive analytics to forecast electricity price and demand. Forecasting apps monitor power plant availability, historical trends, seasonality, and weather.
Forecasting the demand for electricity on the electrical grid allows for effective resource planning (I.e. scheduling for various power plants).
Government & Public Sector
These sectors use statistical data to understand population trends, and predictive analytics to:
- Improve cybersecurity;
- Improve service and performance;
- Detect and prevent fraud; and,
- Understand consumer behaviour.
The healthcare sector benefits from predictive analytics by being able to use information technology data to help develop efficient management plans and offering better healthcare to Canadians. Predictive analytics also helps reduce false alarms in patient monitoring devices in hospitals. Which, in turn, improves patient comfort and safety.
The noise from false alarms disturbs patients while they’re trying to sleep and recover. False alarms also risk desensitizing hospital staff. So when real alarms sound, they may not be as quick to act.
Industrial Automation & Machinery
Predictive analytics predict equipment failures and energy needs. It also reduces downtime and operating costs.
Insurance companies — health, home, auto, or businesss — use predictive analytics to find patterns and determine the best solutions to eliminate risk and fraud.
Predictive analytics gives retailers insight into customers’ wants, needs, and shopping behaviour. Retailers can determine appropriate offers for customer, which products to stock, and the effectiveness of promotional events.
How Forecasting Can Benefit A Business
In the increasingly competitive market, predictive analytics helps businesses gain a competitive edge. Businesses can make well-informed decisions based on their data.
This data could be:
- Customer complaints;
- Marketing information;
- Equipment log files;
- Audio; and,
- Sensor data.
To gain that competitive edge, predictive models help businesses solve problems, develop innovative products and solutions, and increase value to the customer. It also helps businesses make sense of their data to predict future outcomes and meet business goals, such as:
- Save time;
- Lower costs;
- Reduce waste;
- Increase bottom line; and,
- Gain a competitive advantage.
Top Three Ways Predictive Analytics Help Businesses
1. Improve Operations
Businesses use predictive models to forecast inventory, manage resources, and operate more efficiently. This could be the use of customer data to offer specific products and services at certain times and prices.
- Airlines using predictive analytics to set ticket prices based on passenger trends—i.e. busy times and seasons; and,
- Hotels predicting the number of guests for a given night to increase occupancy and revenue.
2. Enhance Cybersecurity
Cybersecurity is a growing concern across all industries. To enhance cybersecurity, businesses use analytics to examine real-time actions on networks to detect abnormalities that could be:
- Vulnerabilities; and,
- Cyber threats.
3. Improve Marketing Campaigns
Predictive analytics helps businesses optimize their marketing campaigns to attract and retain customers—especially their most profitable customers—by predicting their responses and purchases.
What’s the Difference Between Predictive Analytics & Prescriptive Analytics?
Once businesses successfully implement predictive analytics, they can use that knowledge to create prescriptive analytics. While predictive analytics estimates future outcomes, prescriptive analytics details the best way to react to the outcome.
There are many various data analytics services available today but prescriptive analytics uses predictive models to suggest actions to take for the most optimal outcomes. This branch of data analytics uses optimization and rules-based techniques for optimized decision making.
With advancements in technology, it’s never been easier to make sense of business’ ever-growing data and use that knowledge to advance business operations.
Predictive analytics helps businesses get ahead of the competition with invaluable insights into behaviours, trends, and expected outcomes.