In previous INSIGHTS I discussed Mental Models and their impact on decision-making. Organizations can examine mental models to determine if their decisions are fact based or the result of bias. Business analytics combines the use of data, information technology, statistical analysis, quantitative methods, and mathematical and computer-based models to help leaders gain improved insight about their business in order to make better, fact-based decisions.
There are three typical types of analytics; descriptive, predictive, and prescriptive. Descriptive analytics are the most common and are used to categorize, characterize, consolidate, and classify in order to convert data into useful information for the purposes of understanding and analyzing business performance. Examples include understanding the number and types of customer complaints resolved or providing productivity or quality comparisons.
Predictive analytics look at past performance in an effort to predict the likely future by examining historical data, detecting patterns or relationships in these data, and looking for trends. Predictive analytics can predict risk and find relationships in data not readily apparent with traditional analysis. Predictive analytics also helps to answer questions related to the impact today’s decisions may have on the future.
Finally, prescriptive analytics identifies the best alternatives using optimization techniques to minimize risk or maximize benefits related to a particular decision. Mathematical and statistical techniques of predictive analytics can also be combined with optimization to make decisions to address data uncertainty. While the tools used in descriptive, predictive, and prescriptive analytics are different, the most powerful applications involve all three.
You have likely been impacted by analytics if you shop at companies like Amazon or Starbucks, watch movies or other shows on Netflix, use Capital One or American Express credit cards, in addition to a wide variety of other purchases. In many cases companies can use analytics to help you’re your purchasing decisions easier and of course to generate higher revenues based on their predictions of your likes and dislikes.
While there are certainly privacy concerns, your organization is likely falling behind the competition if you are not utilizing analytics. Fortune 500 Companies, the Federal Government, and many others utilize analytics. Professional football, basketball, baseball, hockey and other sports are currently hiring analytics experts to support a variety of decisions, on and off the field of play. Isn’t it time your organization takes advantage of this now commonplace tool?