1/23/2018 Descriptive, Predictive, and Prescriptive Analytics Explained

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Descriptive, Predictive, and Prescriptive An

Explained

The two-minute guide to understanding and selecting the right Descriptive,

Predictive, and Prescriptive Analytics
With the ood of data available to businesses regarding their supply chain these days, companies are turning to
analytics solutions to extract meaning from the huge volumes of data to help improve decision making

Companies that are attempting to optimize their S&OP e orts need capabilities to
analyze historical data, forecast what might happen in the future. The promise of doing
it right and becoming a data driven organization is great. Huge ROI’s can be enjoyed as
evidenced by companies that have optimized their supply chain, lowered operating
costs, increased revenues, or improved their customer service and product mix.

Looking at all the analytic options can be a daunting task. However, luckily these analytic
options can be categorized at a high level into three distinct types. No one type of
analytic is better than another, and in fact, they co-exist with, and complement each other. In order for a business have
a holistic view of the market and how a company competes e ciently within that market requires a robust analytic
environment which includes:

Descriptive Analytics, which use data aggregation and data mining to provide insight into the past and answer:
“What has happened?”
Predictive Analytics, which use statistical models and forecasts techniques to understand the future and answer:
“What could happen?”
Prescriptive Analytics, which use optimization and simulation algorithms to advice on possible outcomes and
answer: “What should we do?”

Descriptive Analytics: Insight into the past

Descriptive analysis or statistics does exactly what the name implies they “Describe”, or summarize raw data and make it
something that is interpretable by humans. They are analytics that describe the past. The past refers to any point of
time that an event has occurred, whether it is one minute ago, or one year ago. Descriptive analytics are useful because
they allow us to learn from past behaviors, and understand how they might in uence future outcomes.

The vast majority of the statistics we use fall into this category. (Think basic arithmetic like sums, averages, percent
changes). Usually, the underlying data is a count, or aggregate of a ltered column of data to which basic math is
applied. For all practical purposes, there are an in nite number of these statistics. Descriptive statistics are useful to
show things like, total stock in inventory, average dollars spent per customer and Year over year change in sales.
Common examples of descriptive analytics are reports that provide historical insights regarding the company’s
production, nancials, operations, sales, nance, inventory and customers.

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Use Descriptive Analytics when you need to understand at an aggregate level what is going on in your company, and
when you want to summarize and describe di erent aspects of your business.

Predictive Analytics: Understanding the future

Predictive analytics has its roots in the ability to “Predict” what might happen. These analytics are about understanding
the future. Predictive analytics provides companies with actionable insights based on data. Predictive analytics provide
estimates about the likelihood of a future outcome. It is important to remember that no statistical algorithm can
“predict” the future with 100% certainty. Companies use these statistics to forecast what might happen in the future.
This is because the foundation of predictive analytics is based on probabilities.

These statistics try to take the data that you have, and ll in the missing data with best guesses. They combine historical
data found in ERP, CRM, HR and POS systems to identify patterns in the data and apply statistical models and algorithms
to capture relationships between various data sets. Companies use Predictive statistics and analytics anytime they want
to look into the future. Predictive analytics can be used throughout the organization, from forecasting customer
behavior and purchasing patterns to identifying trends in sales activities. They also help forecast demand for inputs
from the supply chain, operations and inventory.

One common application most people are familiar with is the use of predictive analytics to produce a credit score. These
scores are used by nancial services to determine the probability of customers making future credit payments on time.
Typical business uses include, understanding how sales might close at the end of the year, predicting what items
customers will purchase together, or forecasting inventory levels based upon a myriad of variables.

Use Predictive Analytics any time you need to know something about the future, or ll in the information that you do
not have.

Prescriptive Analytics: Advise on possible outcomes

The relatively new eld of prescriptive analytics allows users to “prescribe” a number of di erent possible actions to and
guide them towards a solution. In a nut-shell, these analytics are all about providing advice. Prescriptive analytics
attempt to quantify the e ect of future decisions in order to advise on possible outcomes before the decisions are
actually made. At their best, prescriptive analytics predicts not only what will happen, but also why it will happen
providing recommendations regarding actions that will take advantage of the predictions.

These analytics go beyond descriptive and predictive analytics by recommending one or more possible courses of
action. Essentially they predict multiple futures and allow companies to assess a number of possible outcomes based
upon their actions. Prescriptive analytics use a combination of techniques and tools such as business rules, algorithms,
machine learning and computational modelling procedures. These techniques are applied against input from many
di erent data sets including historical and transactional data, real-time data feeds, and big data.

Prescriptive analytics are relatively complex to administer, and most companies are not yet using them in their daily
course of business. When implemented correctly, they can have a large impact on how businesses make decisions, and
on the company’s bottom line. Larger companies are successfully using prescriptive analytics to optimize production,
scheduling and inventory in the supply chain to make sure that are delivering the right products at the right time and
optimizing the customer experience.

Use Prescriptive Analytics anytime you need to provide users with advice on what action to take.

Click Here to Download the Halo Predictive Analytics Data Sheet

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