Prescriptive
Analytics
Prescriptive Decision
Models
Prescriptive decision models help decision
makers identify the best solution.
Optimization - finding values of decision
variables that minimize (or maximize)
something such as cost (or profit).
Objective function - the equation that minimizes
(or maximizes) the quantity of interest
Constraints - limitations or restrictions.
Optimal solution - values of the decision
variables at the minimum (or maximum) point.
Prescriptive Analytics
Gartner's Definition
"Prescriptive analytics is the application of logic
and mathematics to data to specify a preferred
course of action. Prescriptive analytics outputs a
decision rather than a report, or estimate of
future outcomes."
Gartner defines two types of prescriptive
analytics
- Optimization
- Heuristics
Heuristics
-A standard procedure/ruling (having set of
rules) intended to increase probability of
solving problem.
Heuristics vs
Optimization
“An answer” or “best possible”
Heuristics Optimization
Rules based modeling creates a “map” that
represents
reality
Leads to “an answer” Leads to “the best possible”
answer
That may or may not be
feasible
Provides limited insight Provides added insight to
marginal
opportunities around demand and
business constraints
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Steps for Prescriptive
Analytics
1. Process & Decision Flow
Represent the process flow model for the
organization (resources, costs, capabilities)
Determine the range of possibilities for
decisions made by the organization
2. Data
Input data from representative historical
period to feed the model
Validate the process flow
3. Constraints
Define the upper constraint and lower
constraint limits for all decision
possibilities
Establish the objective function(s) to be
considered
[Link]
Identify the best way to utilize the
resources, costs, and capabilities of the
organization that maximizes the defined
objective(s)
Evaluate what-if scenarios
-Decision Making-
What are the business
Requirements
1. Compelling ROI - clear value add over and
above prior alternatives
2. Great user experience - easy to learn, easy to
use
Develop, maintain and extend models
Input, prepare, visualize and edit input data
[Link] business process - explicit,
collaborative
4. Agility - intelligent, fast
Proactively identify problems, including
comparison of actuals vs. plan
Main software used for
Business Analytics
1. MS-EXCEL
2. SPSS
3. E-views
4. Microsoft Power BI