Predictive analytics is the process of using data to forecast future outcomes. The process uses data analysis, machine learning, artificial intelligence, and statistical models to find patterns that might predict future behaviour.
Predictive analysis is just one type of data analysis that is gaining popularity in the business world. It is often confused with other types of analysis, but it is important to understand the differences between them. Here is a quick glossary of the main types of data analysis.
Predicting outcomes from data involves creating a predictive model, which is a mathematical tool used to determine future events based on past data and known information about the situation.
A predictive model serves as a mathematical representation of reality, similar to a scale or architectural model. It replicates a real-world scenario or idea, scaling it down to focus solely on the components of interest.
Predictive models are utilised in predictive analytics because they are objective, repeatable, data-driven, and based on statistics. They help identify and organise the most important factors to ensure accurate predictions, unlike human "gut" predictions which can be influenced by personal bias and errors.
Predictive models need to be kept up to date in order to stay effective. Predictive analytics software requires a steady stream of up-to-date information in order to be able to make predictions, since it relies on past data and present data to make accurate forecasts.
That’s part of the reason ‘big data’ capabilities are so important. The more data collected, the more accurate your predictive analytics process will be. Naturally, then, organisations are increasingly looking to collect more data on their employees, customers, products, and brands so they can continue to make predictions about future events.
Regression analysis is commonly used in predictive analytics due to its popularity and effectiveness.
Regression analysis examines causal relationships between variables, with linear and nonlinear methods. It shows how changes in an independent variable impact dependent variables over time. By identifying patterns, regression analysis can predict future outcomes based on past trends.
There are numerous potential uses for predictive technology, with endless theoretical benefits. Predictive analytics can be particularly beneficial in commercial settings.
Predictive models analyse historical and transaction data to identify behavioural patterns that indicate potential customer churn, enabling companies to take proactive measures to retain customers.
Predictive technology enables businesses to enhance customer experiences by analysing their preferences and behaviour to provide personalised services and anticipate future needs. This can ultimately improve overall customer satisfaction and help businesses design more tailored experiences.
In addition, predictive analysis can assist in responding to customer support issues. Free text feedback is valuable but can be more challenging to analyse due to its varied formats and structures.
Predictive technology has advanced to the point where it can analyse both structured and unstructured data, including large amounts of text data. By identifying clusters of words and phrases that convey specific sentiments or ideas, it can generate a comprehensive analysis that can be easily understood.
Predictive analytics excels in pattern recognition, allowing businesses to identify anomalies that may signal fraud. For example, if a customer begins making purchases in multiple continents within a short period, the company may need to step in and verify the security of the account.
Predictive analytics can be utilised in various industries, such as finance and healthcare, to help make informed decisions and anticipate future outcomes consistently and impartially.
Ensuring the high quality of data sets provided to clinical decision support systems and business analytics for lending and borrowing is crucial, as these assessments can have a significant impact on individuals' lives. It is essential to maintain up-to-date training data sets and engage qualified data scientists to review them regularly to prevent potential bias in the model leading to undesirable outcomes.
Incorporating predictive data analytics into daily operations can provide concrete advantages to organisations regardless of their size.
One of the key advantages of using predictive analytics in business is its capability to provide insights into future trends, allowing for proactive planning in various aspects such as stock, staffing, and customer behaviour. By leveraging predictive technologies, organisations can anticipate upcoming challenges and opportunities, enabling more efficient resource allocation.
Example
An advanced analytics model indicates that there is a growing interest in natural materials in fashion. Retailers can adjust their inventory and partnerships accordingly to meet this trend.
Businesses can use predictive technologies to handle low-risk, routine decision-making tasks, freeing up humans to focus on more valuable or high-risk strategic responsibilities.
Example
Predictive analytics plays a significant role in generating credit scores, processing insurance claims, and assisting in healthcare by predicting treatment success rates and identifying patients who would benefit from certain treatments.
Predictive analytics models analyse data from past operations to identify potential threats, their causes, and likelihood of occurrence. This information can be used to develop risk and crisis-management strategies proactively.
Example
Utilising predictive insights from Big Data can help food retailers track factors that impact shipping and distribution, such as weather or sea conditions. This enables retailers to adjust stock orders in real-time and plan ahead for potential shortages.
