In business, foresight is incredibly powerful. If you have an idea of what’s coming next, you can make smarter decisions.
What is predictive analytics?
The term predictive analytics refers to the use of statistics and modelling techniques to make predictions about future outcomes and performance. It looks at current and historical data patterns to determine if those patterns are likely to emerge again. This type of analysis allows businesses and investors to adjust where they can use their resources to take advantage of possible future events. Predictive analysis can also be used to improve operational efficiencies and reduce risk.
Why use predictive analytics?
Whilst the widespread adoption of predictive analytics is relatively recent, it is not new. Large businesses have been employing statisticians and mathematicians for decades to get an edge on their competition whether it be through predicting market trends, eliminating the risk in their supply chains or even simulating their competitor’s actions. This kind of analysis has always been considered only something that the big end of town could afford. So, what has changed?
The advancement of computers and technology and the resulting improvements to accessing, gathering and storing data have made it easier than ever to perform predictive analysis on any scale. Every business, big and small, now has large amounts of data stored about their day-to-day operations.
Now that you have the data, what can you do with it? What exactly can predictive analysis give you that you don’t already have?
Some of the most common cross-industry cases for predictive analytics include:
- Matching market demand with accurate forecasting
- Minimising inventory costs and improving resource management with accurate forecasting
- Improving productivity by assigning the right employees to the right jobs
- Supporting new business models by identifying opportunities in the market
- Optimising pricing
How do I use predictive analytics in my business?
The first step to unlocking your business’ potential through predictive analytics is knowing where you currently stand. Our advisory team can do some analysis on your existing data and produce a steady state model of your business. The steady state tells us the story of how your business currently works, built from the data that makes it up. We also identify the gaps in your data that would be needed to measure and explain what is happening in your business more completely. Once we have completed this data analysis, we can get into the meat of making predictive models to take your business to the next level.
As an example; one of the most topical subjects in the current environment is supply chain optimisation, given the uncertain world we face now and have been facing for the last few years in particular. We are working with a number of clients to help them determine the optimum amount of product to order using their existing data. Predictive analysis lets you base the decisions on data and probability rather than simple averages and gut feel.
The majority of businesses will use average sales data, and average delivery times, to work out how much stock they need. A recent example we worked on of a product line with highly volatile demand, showed that relying on a simple average to predict the amount to order had a probability of almost 80% of being out of stock if only the average weekly sales data was used. Given this was a critical product line that was an unacceptable result for the client, they needed to increase their margin of safety or the results for the business could have been very damaging.
This analysis was achieved with sales data alone, which every business has.
Anywhere you could make a decision, predictive analysis lets you base it on scientific methods rather than overly simplistic averages and gut instinct.
KEY TAKEAWAYS
Predictive analytics is the process of using known results to create, process, and validate a model that can be used to make future predictions.
Companies can use predictive modelling to forecast events, customer behaviour, as well as financial, economic, and market risks.
Beyond Advisors has a unique capability with our own mathematician on our team to offer professional advice, including predictive analysis, for businesses of all shapes and sizes. For any help or assistance on the data you need for predictive analytics you can get in touch with our helpful team today.