Predictive analytics is a branch of advanced analytics that makes predictions about future outcomes using historical data combined with statistical modeling, data mining techniques and machine learning. Companies employ predictive analytics to find patterns in this data to identify risks and opportunities. Predictive analytics is often associated with big data and data science.
Today, companies today are inundated with data from log files to images and video, and all of this data resides in disparate data repositories across an organization. To gain insights from this data, data scientists use deep learning and machine learning algorithms to find patterns and make predictions about future events. Some of these statistical techniques include logistic and linear regression models, neural networks and decision trees. Some of these modeling techniques use initial predictive learnings to make additional predictive insights.
Predictive analytics models are designed to assess historical data, discover patterns, observe trends, and use that information to predict future trends. Popular predictive analytics models include classification, clustering, and time series models.
Classification models fall under the branch of supervised machine learning models. These models categorize data based on historical data, describing relationships within a given dataset. For example, this model can be used to classify customers or prospects into groups for segmentation purposes. Alternatively, it can also be used to answer questions with binary outputs, such answering yes or no or true and false; popular use cases for this are fraud detection and credit risk evaluation. Types of classification models include logistic regression, decision trees, random forest, neural networks, and Naïve Bayes.
Clustering models fall under unsupervised learning. They group data based on similar attributes. For example, an e-commerce site can use the model to separate customers into similar groups based on common features and develop marketing strategies for each group. Common clustering algorithms include k-means clustering, mean-shift clustering, density-based spatial clustering of applications with noise (DBSCAN), expectation-maximization (EM) clustering using Gaussian Mixture Models (GMM), and hierarchical clustering.
Time series models
Time series models use various data inputs at a specific time frequency, such as daily, weekly, monthly, et cetera. It is common to plot the dependent variable over time to assess the data for seasonality, trends, and cyclical behavior, which may indicate the need for specific transformations and model types. Autoregressive (AR), moving average (MA), ARMA, and ARIMA models are all frequently used time series models. As an example, a call center can use a time series model to forecast how many calls it will receive per hour at different times of day.
Predictive analytics can be deployed in across various industries for different business problems. Below are a few industry use cases to illustrate how predictive analytics can inform decision-making within real-world situations.
An organization that knows what to expect based on past patterns has a business advantage in managing inventories, workforce, marketing campaigns, and most other facets of operation.
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