What is Predictive Analysis (PA):
Predictive analytics is a data analytics category that helps connect data to meaningful action by drawing accurate predictions about current circumstances and potential events. Enable the company to use predictive modeling to leverage trends detected in historical data to detect possible threats and opportunities before they arise.
Importance of Predictive analytics:
Here are a few use-cases that demand predictive modeling.
· Increase the sales and retain customers competitively
· Maintain business integrity by managing fraud
· Advance your core business capability competitively
· Meet escalating consumer expectations
· Evaluate existing data and historical data to develop evolving models
· Enhance business intelligence and Analytics for actionable results
Applications of Predictive Analytics
Predictive Analytics helps executives and management to scale back risks, optimize operations, and increase revenue. Here are a few examples.
- Fraud detection and Management in Banking and Financial services
- Retail Industry
- Oil, Gas, and utilities
- Governments and the public sector
- Health insurance
Fraud detection and Management in Banking and Financial services:
Detecting and Handling measures to prevent fraud are overhead and add costs to every sector and financial firms. The severity of fraud is very dangerous today as it may result in even losing their identity in 1st place.
Manual and online frauds are still persistent and have emerged in more innovative ways to compete for the digitalization of banking and financial services. So to prevent leaks in security measures and keep cybercriminals out of their job, technology plays a vital role. New and emerging technologies facilitate intelligent systems and tools to handle fraud in advance. Big Data analysis, Predictive Analytics, Machine Learning algorithms are few technologies that are in execution to provide solutions to recognize deceptions that are not obvious. Predictive Analytics is fruitful to get in-depth analytics and help to enforce stringent measures.
Do you know, in supermarkets, how the items are organized!. The eggs are placed beside the bread and similar to others also. The infamous study that showed men who buy diapers also bought beer at the same time. How silly is this?. We cannot predict even what the customer is looking for and what interests them. So, retailers everywhere are using predictive analytics for merchandise up with pricing optimization to analyze the effectiveness of promotional events and to see that offers are most applicable for customers.
Oil, Gas, and utilities
Predicting machinery and instrumentation failures in Oil and Gas industries is very crucial for mitigating risks and enhancing future resource desires. Overall early prediction scores lead to improving performance, increase in safety measures, and embracing business values. It is learned, from incidents in history, consider the Salt River Project. For example, in Arizona, the Salt River project is one of the largest water suppliers and in the United States. It is the second-largest public power generation company. Early prediction analysis of sensor data resulted in actionable items to maintain power-generating turbines.
Governments and the public sector
Governments are key players within the advancement of technologies. The U.S. federal agency has been analyzing data to understand population trends for many years. To increase the service and make better policies, Governments use predictive analytics for high performance; detect and prevent fraud, and get insights into consumer behavior.
Governments currently use predictive analytics like several alternative industries – to enhance service and performance, detect and prevent fraud, and better understand consumer behavior. They additionally use predictive analytics to reinforce cybersecurity.
In addition to detecting claims fraud, health Insurance is taking steps to spot patients most in danger of chronic disease and notice what interventions are best. Express Scripts, a large pharmacy benefits company, uses analytics to identify those not adhering to prescribed treatments, leading to a savings of $1,500 to $9,000 per patient.
For manufacturers, it is vital to spot the factors resulting in reduced quality and production failures, as well as to optimize parts, service resources, and distribution. Moreover, the manufacturers should know the demand for their products, and for that, they will use predictive analytics.
Types of predictive analytics
There are different models of Predictive Analytics, popular ones have been discussed here.
- Forecast models / Regression models
- Classification models:
- Outliers models
- Time Series models
- Clustering models
Forecast models / Regression models
The forecast model is one of the most popular and common predictive analytics models. It handles metric worth prediction by estimating the values of the latest data based on learnings from historical data. These models are usually used to generate numerical values in historical data once there is none to be found. Predictive Analytics requires many multiple parameters as input that will help in better scores. One of the greatest strengths of predictive analytics is its ability to input many parameters. Here-by, they are one of the most widely used predictive analytics models in use. For example, a call center will predict how many support calls they will get during a day or consider a shoe-shop can calculate inventory they need for the upcoming sales period using forecast analytics. Forecast models inherit versatile nature make it widely used in various industries. Forecast models are popular because they are incredibly versatile.
Classification models are a more common form of Predictive Analytics. These models work by categorizing data supported historical data. Executives use Classification models, as a result, they can retrain with new data and may give broad analysis for answering questions. Classification models are popular in various industries like finance and retail, which explains why they are so widely used compared to other models.
While classification and forecast models work with historical data, the outliers model works with abnormal data entries within a dataset. As the name implies, uncommon information refers to data that deviates from the norm. It works by distinguishing unusual data, either in isolation or about different classes and numbers. Outlier models are useful in industries wherever characterized anomalies will save organizations millions of dollars, particularly in retail and finance. One reason why the predictive analytics model is preferable in detecting work fraud is that the outlier models are helpful to notice anomalies. Since an incidence of fraud may be a deviation from the norm, an outlier model is more likely to predict it before it happens. For example, when identifying a fraud transaction, the outlier model will assess the quantity of cash lost, location, purchase history, time, and hence the nature of the purchase. Outlier models are favorite and unbelievably valued because of their close connection to anomaly data.
Time Series models
While classification and forecast models target historical data, outliers focus on anomaly data. The time series model focuses on data wherever time is the input parameter. The time series model works by using different data points (taken from the previous year’s data) to develop a numerical metric that will predict trends within a specific period.
A Time-Series model is superior to traditional ways of calculating the progress of a variable since it forecast for multiple regions or comes at the same time or focus on one region or project, depending on the organization’s wants. This technique takes into consideration extraneous factors that might have an effect on the variables, like seasons.
The clustering model takes data and sorts it into different teams based on common attributes. The ability to divide data into various datasets based on specific variables is helpful in certain applications, like marketing. For example, marketers will divide a possible customer base based on common attributes. It works using two forms of clustering – hard and soft clustering. Hard clustering categorizes every data point as belonging to a data cluster or not. Whereas soft clustering assigns data probability when joining a related cluster.