Learn More About Predictive Analytics Software
Why use predictive analytics solutions?
There are a number of applications for predictive analytics software and reasons businesses should adopt them, but they all boil down to understanding what has happened in the past, what could happen in the future, and what should be done to ensure positive business outcomes. These are considered descriptive analytics, predictive analytics, and prescriptive analytics.
Descriptive Analytics (understanding the past) — Descriptive analytics deals with understanding what has happened in the past and how it has influenced where a business is in the present. This means undergoing data mining on a company’s historical data. This type of analysis can be obtained by using business intelligence tools, big data analytics, or time-series data. Regardless of how it is attained, providing descriptive analytics is a key foundation of predictive analytics and creating data-driven decision-making processes. It requires thorough data preparation and organizing the data for easy descriptive analysis.
Predictive Analytics (knowing what is possible) — Predictive analytics allows users and businesses to know and anticipate potential outcomes. Building predictive models based on descriptive analysis can ensure that businesses do not make the same mistake twice. It can also provide more accurate forecasting and planning, which helps to optimize efficiency. Ultimately, this analysis makes the unknown known.
Prescriptive Analytics (so now what?) — The final step and ultimate reason for using predictive analytics tools is to make clear actions based on the suggestions and recommendations of the predictive models. This is where machine learning and deep learning functionality come into play. Some predictive analytics solutions can provide actionable insights without human intervention. For example, it can provide a short list of sales accounts that should close quickly based on several variables. Becoming prescriptive takes analytics a step further and is the ultimate reason for adopting advanced, predictive analytics.
Who uses predictive analytics platforms?
To fully take advantage of predictive analytics platforms, businesses need to hire highly skilled data scientists with knowledge in machine learning development and predictive modeling. These skilled workers are not abundant, so they are often paid very well. Dedicating financial resources to these positions may not be an option for every company, but those who can afford data scientists have a leg up on the competition.
While data scientists or data analysts are the employees tasked with using predictive analytics software, there are many industries and departments that can be impacted by using predictive analytics:
Manufacturing and Supply Chain—One area that can be greatly enhanced by using predictive analysis is demand planning for manufacturing companies. With more accurate forecasting, businesses can avoid risks like shortages and surpluses. Additionally, companies can become predictive about quality management and production issues. By analyzing what has caused production failures in the past, companies can anticipate and avoid production breakdowns in the future.
Distribution is another major aspect of the supply chain that can be further optimized with predictive modeling. By better estimating where goods will need to be delivered and the risks that may hold up distribution modes, businesses can provide better service and more efficiently deliver their products to customers. Taking into account historical data, such as weather, traffic, and accident records, shipping can become a more precise science.
Retail — Retail is another industry that is ripe for optimization with the help of predictive analytics. Retail predictive analytics can provide businesses with insights on everything from pricing optimization to understanding how shoppers navigate brick-and-mortar stores for better in-store organization of merchandise. E-commerce businesses can track these factors in a much more efficient manner. All e-commerce interactions can be recorded into a database and influenced by predictive models. This is one of the main reasons Amazon has been so successful and disruptive to brick-and-mortar retailers. Every decision can be made predictive with the help of data.
Marketing and Sales — Being able to predict the actions of customers and prospects is an invaluable service for any business. Marketing teams can leverage predictive analytics software to project how marketing campaigns may perform, which segment of prospects to target with ads, and the potential conversion rates of each campaign. Understanding how these efforts impact the bottom line is critical to the success of marketing teams and translates into a much more efficient and productive sales team. At the same time, sales teams can leverage predictive modeling in such areas as lead scoring, determining which accounts to target first because they have a higher chance of closing. Ensuring that sales representatives are working smarter instead of harder means more revenue. A few CRM and marketing automation solutions provide some level of predictive functionality, but data scientists can separately funnel that data into dedicated predictive analytics tools to find cross-departmental correlations.
Financial Services—The banking industry has long been ripe for disruption, but financial administrations are using predictive analytics solutions to better predict risk. Historical data can power predictive analytics software to predict fraudulent transactions and determine credit risks, among other functions.
Types of predictive analytics software
Predictive modeling is a complex science that requires years of training to understand. There is a reason data scientists are in high demand: not many people have a complete grasp of how to build predictive models. There are two main types of predictive models: classification and regression models.
Classification Models—Simply put, classification puts a piece of data into a bucket or a class and labels it as such. Classification models essentially label data based on what an algorithm has already learned. The ultimate goal of classification models is to accurately bucket new data points into the proper classes so that the data can become predictive and prescriptive.
Regression Models—Regression models analyze the relationship between two separate data points and help forecast what happens when they are placed side by side. For example, in baseball, teams may perform a regression analysis on the relationship between the number of fastballs thrown and the number of home runs hit.
Decision Trees — One common type of classification model is a decision tree. These models predict several possible outcomes based on a variety of inputs. For example, if a sales team builds $1 million in a pipeline, they can close $100,000 in revenue, but if they create $10 million in a pipeline, they should be able to close $1 million in revenue.
Neural Networks—Neural networks, known in the AI world as artificial neural networks, are extremely complex predictive models. These models can predict and analyze unstructured, nonlinear relationships between data points. These solutions provide pattern recognition and can help track anomalies. Artificial neural networks were originally created and built to mimic the synapses and neural aspects of the human brain. They are one of the contributing factors to the accelerated growth in artificial intelligence and deep learning.
Other types of predictive modeling include Bayesian analysis, memory-based reasoning, k-nearest neighbor, support vector machines, and time-series data mining.
Potential issues with predictive analytics software solutions
Lack of Skilled Employees—The main issue with adopting predictive analytics software is the need for a skilled data scientist to interact with the data and build the models. There is a distinct skill gap in terms of finding users who understand how to pull data and build models and the implications that the data has on the overall business. For this reason, data scientists are in very high demand and, thus, expensive.
Data Organization—Many companies face the challenge of organizing data so that it can be easily accessed. Harnessing big data sets that contain historical and real-time data is not easy in today's world. Companies often need to build a data warehouse or a data lake that can combine all the disparate data sources for easy access. This, again, requires highly knowledgeable employees.
