What is Predictive Analytics?

People often ask, ‘what is predictive analytics?’ and while it may sound complicated, its really quite simple.  It’s making predictions on unknown future events.  Sorry, I haven’t yet figured out the algorithm to predict the next set of winning lottery numbers…

Predictive Analytics isn’t just numbers, its about high-performance businesses strategically applying analytics in their operations.  According to Davenport and Harris in “Competing on Analytics”, high performing companies were 50% more likely to use analytics in their decision making versus low performing companies.  Who are ‘these companies’?  You may have heard of a few…Amazon, Netflix, Walmart, Harrahs, Capital One and of course, a few sports teams.  The success of these companies, are from CEO’s who understood the value of analytics or had an educational background in numbers.  Of course, movies and books like Moneyball by Michael Lewis provides some insight into analytics.  The Red Sox’s new management (including John Henry who had a background as a quantitative hedge fund manager) in 2002 implemented predictive analytics and after over 85 years of not winning, won the World Series in 2004.

The best example of predictive analytics that people seem to grasp immediately is car manufacturing. Consumer configuration preferences such as color, options, engine size, etc. needs to be predicted ahead of time and delivered to the right geographical dealer to match manufactured supply.  Get it wrong and there can be a lot of expensive inventory being discounted during various promotions  ‘end of year clearance’ prices.

In one study, the Return on Investment (ROI) on projects using predictive technologies was 56% higher than those that did not use them (Dav

What is Predictive Analytics?

enport, Competing on Analytics, 2007).

According to Vendana Research, 68% of organizations who have implemented predictive analytics have gained a competitive advantage along with increasing additional ‘new’ revenues and profitability (Vendana Research, 2015.  Analytics and Business Intelligence 2015).