Prescriptive Analytics
Prescriptive Analytics
• is the process of using data to determine an optimal course of action. By considering all relevant
factors, this type of analysis yields recommendations for next steps.
• gathers data from a variety of both descriptive and predictive sources for its models and applies them
to the process of decision-making.
• includes combining existing conditions and considering the consequences of each decision to
determine how the future would be impacted.
• measure the repercussions of a decision based on different possible future scenarios.
• suited to those in leadership positions than it is for those running daily operations.
Benefits
• Make data-driven, not instinct-driven decisions
• Simplify complex decisions
• Focus on execution rather than making decisions.
Challenges
• Difficult to define a fitness function
• Human bias in models
• Complex constraints
Applications
Financial Services
Banks and other financial institutions use prescriptive analytics and prescriptive economic analysis to
reduce risk. By looking at factors like credit history and economic trends, for example, banks can predict
loan defaults, allowing them to adjust lending policies proactively and maintain a healthier portfolio.
Hospitality
In the world of hospitality, it's essential to understand guests' wants and needs. Hotels segment their
customer base using prescriptive analytics, which allows them to promote more tailored packages and
experiences. The result is improved customer satisfaction, leading to repeat bookings, positive reviews
and potential brand advocates.
Retail
Whether people shop in stores or online, retail is an industry driven by consumer behavior. Retailers can
use prescriptive analytics to forecast product demand based on historical sales and seasonal trends,
meaning they can maintain optimal stock levels, ensure popular items are always available and reduce
overstock costs.
Applications
Transportation
One major priority for transportation companies is efficient route planning. Airlines and freight companies
use prescriptive analytics, factoring in variables like weather and fuel costs, to determine the quickest and
most fuel-efficient routes. The result is timely deliveries and reduced operational costs.
Marketing
Prescriptive analytics helps marketers analyze emerging trends and data-driven insights, allowing them
to fine-tune ad placements or content types. For instance, if younger audiences engage more with
interactive polls on social media, marketers can adjust their strategies to feature more of that content,
leading to greater reach and engagement.
Healthcare
Hospitals can use prescriptive analytics to improve patient care and operational efficiency. It allows them
to forecast patient readmission rates or optimize bed allocations, meaning patients receive timely care
while hospitals can maximize resource utilization.
What-if Analysis
• is a data-intensive simulation whose goal is to inspect the behavior of a complex system.
• measures how changes in a set of independent variables impact a set of dependent variables with
reference to a given simulation model such a model is a simplified representation of the business,
tuned according to the historical corporate data.
Benefits
• Competitive advantage: Companies that build contingency plans recover from impacts faster than
those that don’t.
• Better risk management: Understanding the financial impacts of change reduces key areas of
operational risk.
• Stronger decision-making: When you understand what’s possible, you can decide on what’s
preferable. Scenario planning allows you to look at all available courses of action.
Business Optimizations
Business optimization is the process of identifying and implementing new methods that make the
business more efficient and cost effective.
Examples of business optimization:
• Introducing new methods, practices and systems that reduce turnaround time
• Reducing costs while improving performance
• Automation of repetitive tasks
• Machine-learning techniques that improve equipment operation
• Increasing sales through enhancing customer satisfaction
• Reducing all kinds of waste such as wasted time, scrap production and repeat work.