{"id":84434,"date":"2023-07-13T18:34:53","date_gmt":"2023-07-13T18:34:53","guid":{"rendered":"https:\/\/www.techopedia.com\/?post_type=definition&#038;p=84434"},"modified":"2024-02-13T06:01:22","modified_gmt":"2024-02-13T06:01:22","slug":"predictive-analytics-2","status":"publish","type":"definition","link":"https:\/\/www.techopedia.com\/definition\/predictive-analytics","title":{"rendered":"Predictive Analytics"},"content":{"rendered":"<h2><span id=\"what_is_predictive_analytics\">What Is Predictive Analytics?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Predictive analytics is where an organization uses mathematical or <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/6579\/computational-science\"><span style=\"font-weight: 400;\">computational models<\/span><\/a><span style=\"font-weight: 400;\"> or algorithms to predict future trends or events.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Apps or solutions that use predictive analytics will process historical data with <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/8181\/machine-learning-ml\"><span style=\"font-weight: 400;\">machine learning<\/span><\/a><span style=\"font-weight: 400;\"> (ML), statistical modeling, and <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/1181\/data-mining\"><span style=\"font-weight: 400;\">data mining<\/span><\/a><span style=\"font-weight: 400;\"> to identify potential patterns that could be replicated in the future. In short, it can process existing data to forecast potential scenarios, outcomes, and behavior.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Predictive future outcomes in this manner can help to create insights that enterprise stakeholders can use to make better decisions.\u00a0<\/span><\/p>\n<h2><span id=\"how_does_predictive_analytics_work\">How Does Predictive Analytics Work?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">There are six main steps when deploying predictive analytics in the enterprise:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>Set an objective<\/b><span style=\"font-weight: 400;\">: Identify what problem you\u2019re trying to solve and what insights you\u2019re trying to develop. For example, \u201c<\/span><i><span style=\"font-weight: 400;\">I want to increase customer acquisition by x%, and I want to understand what factors have the greatest impact on acquiring new customers.<\/span><\/i><span style=\"font-weight: 400;\">\u201d<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Compile your data<\/b><span style=\"font-weight: 400;\">: Find potential data sources like files, <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/4426\/spreadsheet\"><span style=\"font-weight: 400;\">spreadsheets<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/1185\/database-db\"><span style=\"font-weight: 400;\">databases<\/span><\/a><span style=\"font-weight: 400;\">, and sensors and start collecting the data for processing.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Begin pre-processing<\/b><span style=\"font-weight: 400;\">: Clean the raw data to remove errors and anomalous entries and then aggregate the sources together as part of a single repository.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Create a predictive model: <\/b><span style=\"font-weight: 400;\">Use machine learning, regression models, and <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/28634\/decision-tree\"><span style=\"font-weight: 400;\">decision trees<\/span><\/a><span style=\"font-weight: 400;\"> to process the dataset and attempt to solve your initial objective.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Check the accuracy<\/b><span style=\"font-weight: 400;\">: Verify the accuracy of the model output and adjust it as necessary, optimizing the parameters and validating the model over time.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Share the results<\/b><span style=\"font-weight: 400;\">: Once the output is accurate and usable, share the insights with decision-makers via an <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/2953\/mobile-application-mobile-app\"><span style=\"font-weight: 400;\">app<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">It\u2019s important to note that the effectiveness of a predictive analytics solution depends on a number of factors, including the amount of data the tool has access to, the data quality, and the techniques used to process it.\u00a0<\/span><\/p>\n<h2><span id=\"predictive_analytics_techniques\">Predictive Analytics Techniques\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">When looking at predictive analytics models, there are two main types of models organizations use: classification models and regression models.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>Classification models<\/b><span style=\"font-weight: 400;\"> classify data objects under one category or another;<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Regression models<\/b><span style=\"font-weight: 400;\"> attempt to predict continuous data like monthly sales volume or customer satisfaction scores.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There are then three main techniques that can be used to process data:\u00a0<\/span><\/p>\n<div class=\"su-table su-table-alternate\">\n<table>\n<tbody>\n<tr>\n<td><b>Regression analysis<\/b><\/td>\n<td><span style=\"font-weight: 400\">A statistical technique used to continually measure the relationship between variables. Essentially, it allows you to see what type of influence one variable has on another.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">For example, you could look at the relationship between how much users buy based on their location, age, demographic, gender, marital status, or device.<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>Decision trees<\/b><\/td>\n<td><span style=\"font-weight: 400\">A predictive classification model that classifies input data into a given category. It functions like a flowchart, starting with a single node, which branches out into other nodes mapping other potential outcomes.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">It not only shows what decisions can be made but also shows the probability of a potential outcome.<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>Neural networks<\/b><\/td>\n<td><span style=\"font-weight: 400\">A subset of the machine learning process where a large network of nodes is connected together to study the structure of a dataset. These neutral networks can be trained continuously on a dataset to recognize patterns and gradually make predictions according to them.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">For instance, they can predict sales trends, revenue, customer churn, and other data.\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<h2><span id=\"benefits_of_predictive_analytics\">Benefits of Predictive Analytics\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Being able to use data to read or prepare for the future effectively has a number of key advantages for organizations:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>Operational planning<\/b><span style=\"font-weight: 400;\">: With predictive analytics, organizations can check if current resources are adequate to meet future demand or if there are upcoming maintenance costs or supply chain shortages that need to be prepared for. This gives organizations a heads-up to take action to mitigate operational disruption.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>More personalized marketing<\/b><span style=\"font-weight: 400;\">: Predictive analytics enables organizations to offer customers personalized real-time recommendations, campaigns, and deals that they\u2019re most likely to be interested in. This can not only help boost sales but also increase customer loyalty by offering a more relevant <\/span><a href=\"https:\/\/www.techopedia.com\/crm\"><span style=\"font-weight: 400;\">customer experience<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Better decision-making:<\/b><span style=\"font-weight: 400;\"> Making data-driven decisions based on historic data and correctly anticipating future events leads to better overall decision-making that can <\/span><a href=\"https:\/\/www.techopedia.com\/project-management\/business-management-software\"><span style=\"font-weight: 400;\">grow a business effectively<\/span><\/a><span style=\"font-weight: 400;\"> while minimizing operational risk. This can offer a key competitive edge against other organizations. <\/span><\/li>\n<li><b>Cost-effectiveness:<\/b><span style=\"font-weight: 400;\"> Analyzing data at scale enables an organization to see how to better invest in growth. If running ads on certain marketing channels is significantly more profitable than another, they may opt to reduce spending on channels that generate less ROI.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Cybersecurity<\/b><span style=\"font-weight: 400;\">: Organizations can use predictive analytics to identify anomalous or malicious activity within a network early that could indicate a <\/span><a href=\"https:\/\/www.techopedia.com\/definition\/24748\/cyberattack#:~:text=A%20cyberattack%20is%20deliberate%20exploitation,technology%2Ddependent%20enterprises%20and%20networks.\"><span style=\"font-weight: 400;\">cyber attack<\/span><\/a><span style=\"font-weight: 400;\"> early so they can respond before a cybercriminal has a chance to steal or encrypt protected information.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span id=\"is_predictive_analytics_a_crystal_ball\">Is Predictive Analytics a Crystal Ball?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">With the right data and detailed statistical modeling, organizations can convert unactionable raw data into concrete insights that decision-makers can use to guide the success of the business as a whole.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While predictive analytics solutions can\u2019t predict the future, they can help enterprises to evolve to capitalize on market opportunities if they were to rely on human judgment alone.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What Is Predictive Analytics? Predictive analytics is where an organization uses mathematical or computational models or algorithms to predict future trends or events.\u00a0 Apps or solutions that use predictive analytics will process historical data with machine learning (ML), statistical modeling, and data mining to identify potential patterns that could be replicated in the future. In [&hellip;]<\/p>\n","protected":false},"author":286576,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"_lmt_disableupdate":"no","_lmt_disable":"","om_disable_all_campaigns":false,"footnotes":""},"definitioncat":[251,227],"class_list":["post-84434","definition","type-definition","status-publish","format-standard","hentry","definitioncat-analytics","definitioncat-data-management"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.7 (Yoast SEO v23.7) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is Predictive Analytics? Definition, Techniques, Advantages<\/title>\n<meta name=\"description\" content=\"Predictive analytics is the process of using mathematical or computational models to predict future trends or events. 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