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This Pocket Guide presents helpful information about Predictive Analytics from leading users, experts and analysts. To learn more about Predictive Analytics and to access additional Resources, please visit www.predictivesource.com
Predictive Analytics Defined
Unlike BI applications which merely present summaries of historical data, predictive analytics focuses instead on the prediction of future outcomes of events not yet observed in data. These predictions are made by creating a model from the observed data using statistical techniques. These models can range in complexity from simple linear equations to powerful techniques such as neural networks.
Colin Magee, Insightful Corporation Predictive Analytics for Competitive Advantage
CONTENTS Predictive Analytics Defined
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Quotes by Users & Experts Predictive Analytics Benefits Predictive Analytics Use Cases Predictive Analytics Best Practices
Predictive analytics is a proven technology that's been used successfully for decades. It encompasses a variety of mathematical techniques that derive insight from data with one clear-cut goal: find the best action for a given situation. Predictive analytics simplifies data to amplify its value, finding patterns that can guide decisions. When considering hundreds or even thousands of factors, and a universe of thousands or millions of customers, people just can't 'connect the dots' to make the ideal decision. Predictive analytics connects the dots scientifically, guiding each decision to greater success. Simply put, predictive analytics is the science that makes decisions smarter.
Enterprise Decision Management What is Predictive Analytics
Predictive analytics is a process, based on statistical and data mining techniques, that models current and historical customer performance data and traits to make 'predictions' about future outcomes and customer behaviors. These predictions can be expressed as numerical values, or scores, that correspond to the likelihood of a particular occurrence or behavior taking place in the future. In corporate America, predictive scores are typically used to determine the risk or opportunity associated with a specific customer or transaction. These evaluations assess the relationships between many variables to estimate risk or response.
Jeff Liebl, Multichannel Merchant Harnessing the Power of Predictive Analytics
Predictive analysis helps connect data to effective action by drawing reliable conclusions about current conditions and future events.
Gareth Herschel, Gartner An Introduction to Text Mining
[Predictive analytics is] leveraging data to provide context sensitive decisions, or more simply put, applying available information to understand current and future behaviors.
Richard Nikula, Nastel Predictive Analytics - A Good Investment for a Down Economy
Predictive analytics is a set of mathematical techniques applied to a data set for determining the probability that some scenario is likely to happen or be true. These techniques are applied to many research areas, including meteorology, genetics and marketing - areas in which there's an abundance of data and a need to forecast the future.
Jan Matlis, Computerworld QuickStudy: Predictive Analytics
In its purest form, predictive analytics is a discovery process supporting the analytics space. This threetiered process includes identifying data, finding hidden patterns in past or existing data, and applying that information in order to evaluate future behaviour.
Tim Wormus, Spotfire Building a Fact-Driven Enterprise
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Semilla Advisors and Amar Chhatwal. virtual reconnaissance that can help eliminate errors before they happen. Harrah's Knowing Beats Guessing: Analytics in the Public Sector In the future.Use transaction history to group customers or products 3) Decision Models . but using them to optimize a distinctive business capability certainly constitutes a strategy. (Perhaps even on the balance sheet). software availability will not be an issue in analytical competition.Types of Predictive Analytics 1) Predictive Models . It is well known that 80% of a data mining effort is in the data prep phase (identification. Deloitte Predictive Modelling for Commercial Insurance True Analytics is a reduction process. Thomas H.Use all known data and relationships between that data to predict a response Ted Nolte.Use historical data to identify patterns 2) Descriptive Models . products and processes . as in baseball. then the advantages of predictive analytics are clear. James Guszcza.. ESPN Knowing Beats Guessing: Analytics in the Public Sector Be on the lookout for fields where an expert is required to reach a decision based on judgmentally synthesizing quantifiable information across many dimensions. Do you want to ride the analytics horse to profitability. Predictive analytic techniques allow insurers to better understand their data and how to use it to predict future events. Lou Agosta. disturbing and occasionally almost offensive questions as part of the analytic process that leads to insight and refinement.or follow it with a shovel? Rob Neyer. acquiring. but it is my job to ask lots of penetrating. The Dow Chemical Company The Enterprise Analytics Journey: Establishing a Corporate Data Mining and Modeling Competency Center Through predictive analytics.Analyze past performance to predict the likelihood of an individual customer to exhibit a specific behavior in the future . The question is when. harmonization and model preparation) Tim Rey. Analytics themselves don't constitute a strategy. Harris Competing on Analytics: The New Science of Winning In business. extracting. Forrester Research QuickStudy: Predictive Analytics Quotes by Users & Experts It is not my job to have all the answers. Aaron Huff. an ocean of data can become a steady stream of valuable. Charles Nyce.Decision models predict outcomes of complex decisions. although the ability to use analytical software well won't ever be a commodity. Deloitte How Will Predictive Modeling Change the P&C Industry in the Next 5-10 Years? Data preparation can be up to 80% of the effort of predictive analytics. the question isn't whether or not you'll jump into analytics. relationships. Infosys Predictive Analytics If knowledge is power. James Guszcza. Gary Loveman. American Institute for Chartered Property Casualty Underwritiers/Insurance Institute of America Predictive Analytics White Paper Advanced real-time predictive analytics allow each interaction at any time and any channel to be tailored for each customer..Descriptive models identify different relationships between customers to group or segment for marketing or treatment . CCJ Magazine Fixing the Future 2 . Gartner CRM at DAB bank AG Data will be explicitly recognized as an asset. Davenport and Jeanne G. Gareth Herschel.
who discovered that an individual's credit score was highly predictive of their likelihood for filing an automobile claim.) cause the recorder to save the 10 seconds immediately before and after the triggered event. measurably. etc. Incorporating credit scores into their underwriting and pricing of automobile insurance immediately. only a few years ago [for the adoption of predictive analytics]. American Institute for Chartered Property Casualty Underwritiers/Insurance Institute of America Predictive Analytics White Paper Insurance-centric business objectives of building a predictive modeling solution: .Expand corporate competence .Gives better understanding of customers and helps target the right customers .Refine territorial rating . It alerts managers to problems BEFORE they impact the business. Other P&C insurers leapt to incorporate predictive modeling in their pricingeager to re-level the playing field.Challenges peoples current perceptions about a subject . significant advantage over their competitors. swerving. This information can be used to increase the marketing function's hit ratio and retention ration. Charles Nyce. hard braking. WNS Global Services Predictive Analytics Helps You Predict Customer Behavior .Simplifies the actuarial analysis process . If the clip scores .Develops business rules and models which can be integrated into systems architecture Patrick Shearman. Amitabh Bose. Predictive analytics is a capability based on complex event processing (CEP). eBizQ Predictive Analytics .Adds value to the overall business intelligence framework . Of course. ISO Innovative Analytics Building and Evaluating a Predictive Modeling Solution Internally My pick for an IT investment that has the potential to deliver ROI in the downturn and real competitive advantage once things start looking up is predictive analytics. Barry Senensky.Improve ability to segment risks 3 [The vendor] provide[s] an exception-based video event recorder that captures sights and sounds inside and outside a vehicle. and correlates them to patterns. collision. The catalyst was an innovative P&C firm.g.Build a tool that can be customized . Underwriting: Insurers can use predictive analytics to filter out applicants who do not meet a predetermined model score. This clip is routed to the operation center for review where a risk analyst scores the clip for risky behavior. enabling an insurer to more efficiently allocate resources to higher priority claims. CEP takes disparate events from across different processes. a set of events might indicate that a service level agreement or a compliance regulation is about to be violated.Get a step ahead of the competition . and visibly increased this firm's profitability. it also has great money saving potential in a down economy. their advantage did not last long. For example. Beth Gold-Bernstein. They had an instant. This type of screening can greatly increase an insurer's efficiency by reducing the employee hours it may have spent researching and analyzing an applicant who ultimately is not a desired insured. Claims: Insurers can use predictive analytics to help identify potentially fraudulent claims.A Good Investment for a Down Economy Six predictive analytics strengths: .Uses proven statistical methodology . It also can be used to score claims based on the likely size of the settlement. G-forces (e. While this can have real competitive advantage in enabling managers to recognize and act upon opportunities.Leverage internal data Glenn Meyers. They discovered this by experimenting with predictive modeling. HCF of Australia LTD Harnessing Predictive Analytics to Improve Customer Data Analysis and Reduce Fraud Predictive Analytics Use Cases Further discussions with my [property & casualty insurance] colleagues revealed that there had been a critical catalyst. cost optimization and risk management. Claim Analytics Predictive Modeling Insurance industry uses and benefits of predictive analytics: Marketing: Property-casualty insurers can use predictive analytics to analyze the purchasing patterns of insurance customers.Predictive Analytics Benefits The three major benefits being derived include revenue generation.
Harrah's casinos use data collected about repeat customers to predict the maximum a particular player can lose and still be willing to come back for more. fuel economy. agreeableness. If American Express. Satyam Predictive Analytics: Extending BI Infrastructure Progressive Insurance excels by seeking desirable sub-segments of undesirable risk pools. So. Aaron Huff. All motorcycling enthusiasts are not the same. Optimising payment options for customers to minimise future debt 3. Choosing the right customers to contact to maximise collections cash flow 2. and WalMart have found that personality traits such as conscientiousness. finds that a lot of your customers don't pay their bills on time. Analysing existing processes to identify improvements that increase collections and reduce debt 4. James Guszcza. with sterling credit. The idea is to use video clips of a driver to modify their behavior BEFORE they get into an accident. For some. Circuit City. . Talgentra Using Predictive Modeling To Improve Collections Performance . comes into your shop and pays for a widget with his American Express card.Direct marketing Ramya Ramakrishnana & Rajashekharappa Madure.. This leads them to lower the credit limit on Customer A.high enough then a coach reaches out to a fleet manager (or the parent of a teenage driver) and makes recommendations to change the driver's behavior. While data crunching may sound dull. it has given Tesco two major advantages: an unmatched ability to operate multiple retail formats-ranging in size from convenience stores to hypermarkets-and the market knowledge to offer what many analysts say is the best and broadest range of house brands from any retailer.' he or she might be visited by a 'luck ambassador' offering a free meal at the Harrah's restaurant. however. Harris. and any other credit card issuer that does this. Say you own a shop and you have-at least as far as you are concerned-a nice. CCJ Magazine Fixing the Future are better predictors of worker productivity and turnover than IQ.is its unrivaled ability to manage vast reams of data and translate that knowledge into sales. Enterprise Decision Management Blog Interesting Use for Predictive Analytics in Insurance As the amount of data available to fleet managers and executives has grown. Deloitte Analyzing Analytics: The Debate American Express is making the connection between merchants and their customers' payment habits.Stunt riders Jeanne G. Charles Cooper.Urban commuters . that's not good enough.Underwriting . America's Best Companies Credit Games: Adjusting Limits According to Where People Shop Analysts say that Tesco's big advantage over major international rivals. They want to know how to prevent exceptions in the first place.Include fraud detection . many have incorporated exception-based tools to view events or metrics such as speeds.Matchmaking websites such as eHarmony take a data-driven approach to human matchmaking. Carole-Ann Matignon. . particularly in the following 4 key areas: 1. and extroversion 4 Predictive analytics is a flexible technique. they will punish anyone who shops at your store with their card by lowering their credit limit. mileages and detention times .Portfolio analysis . American Express looks at the purchase and sees that other customers-Deadbeats A-X-also shop there.. .Enhance customer retention and loyalty . which can be utilised through the entire collections process to improve performance. in other words.Hell's Angels .Companies such as Lowe's. healthy customer base.that depart from the norm or the acceptable. When a customer approaches his or her estimated 'pain point. using combinations of personality traits of which even the clients themselves may be only dimly aware. Kerry Capell. Deploying real time collection strategies to reduce credit risk.Weekend suburbanites .Identify cross-sell and up-sell opportunities . BusinessWeek Tesco: 'Wal-Mart's Worst Nightmare' The most successful and rewarding predictive analytics processes: .Identify customer lifetime value . Accenture Knowing Beats Guessing: Analytics in the Public Sector . Customer A.
more and more disconnect orders get bypassed or deferred compounding the problem Q: How do you determine which orders should be worked and which orders could be suppressed? Ted Nolte. Infosys Predictive Analytics . Semilla Advisors and Amar Chhatwal.Commitment to aggressively apply analytic results to decision making is needed at all levels of the business .As the temperature rises.Higher risk customers ask for more extensions and deferred payment agreements .There's a risk associated with poor decisions-and a reward for making better ones. 2 . Carole-Ann Matignon. Paul Haley.The larger number of late paying customers increases field activity to collect or disconnect .Analytics will also be used to better understand employee behavior.Technical actuaries will find many new opportunities beyond the pricing department. 5 . bills go up and delinquencies start to climb .g.With limited field staff. sustainable growth.Data will be explicitly recognized as an asset. The second factor is intimate knowledge of business domains and data. US Department of Energy Technosocial Predictive Analytics Initiative Keys to competing on analytics: . Robert Monroe. Deloitte How Will Predictive Modeling Change the P&C Industry in the Next 5-10 Years? Demonstrated predictive.One model does not best fit all.You need to carefully select where to apply your analytical prowess to create competitive advantage. Only certain types of industries have the right data useful for predictive analytics.You need a lot of high quality data to do this well. .Reality is not stationary. 3 . Carnegie Mellon University Competing on Analytics Predictive Analytics Best Practices Signs that a business can benefit from predictive analytics: 1 . and health of our nation. is intuition and insight driven by experience.More Property & Casualty insurers' competitive strategies will be tied to analytics. . insurance. . e. And models are never perfect in the first place. It is noted that this cannot be obtained without the second factor. 3 . naturalistic decision making and dynamic social collaboration that advance our ability to influence system and organizational design.You need to make fast decisions while weighing many variables. US Army Technology for the Soldier Things change.You know more about what your customers have done than about what they will do. James Guszcza.Analytics will be applied to better understand consumer behavior and market-based (not merely cost-based) pricing. . Enterprise Decision Management Blog What are the Signs that My Business can benefit from predictive analytics? The most important factor that can lead to successful implementation of predictive analytics is the availability of useful information.You want a consistent decision process that helps you differentiate customer treatment. defense.You use a large number of rules to guide customer decisions. 1 . . This is not something that exists everywhere. computational models of the processes underlying situation awareness.Competing on Analytics requires much more than just a few stats geeks with powerful computers. Rosella The Cookbook for Predictive Analytics Predictive analytics-related predictions: 5 . .. The third factor. 4 . ultimately improving the Soldier's performance and survivability. credit finance. direct marketing. etc. Automata Super Crunchers: Predictive Analytics is Not Enough The ability to estimate the likelihood of future events based on current and historical data is paramount to the decision-making processes of our government agencies in addressing challenges to the security. which may be most important one. 2 .There are special cases.
and scope the effort.com. insurers are beginning to consider analytic approaches to better understanding the tradeoff between price and volume of sales. extract. This ranges from sharing insights with business users to embedding models into applications to automate decisions and business processes. and validate models. promote reuse..e. These are all areas of insurance where experts-who are smart and talented but. Deloitte Analyzing Analytics: The Debate Predictive Analytics Reference Materials Learn more about Predictive Analytics from the library of high-quality information at www. after all. 5. Data Preparation: Select. Exploration: Analyze source data to determine the most appropriate data and model building approach.Regardless of methodology. 4. Deployment: Apply model results to business decisions or processes. standardize toolsets. most processes for creating predictive models incorporate the following steps: 1. only human-make better and more profitable decisions when aided by predictive analytics. test. and evaluate whether they will meet project metrics and goals. Wayne Eckerson Predictive Analytics: Extending the Value of Your Data Warehousing Investment The emerging field of insurance price optimization is a further example: Rather than rely primarily on the instincts and tacit knowledge of pricing managers.S. Model Building: Create. Model Management: Manage models to improve performance (i. control access. Project Definition: Define the business objectives and desired outcomes for the project and translate them into predictive analytic objectives and tasks. and transform data upon which to create models. accuracy). benefits and risks • To gain access to valuable Predictive Analytics best practices • To access the newest Resources added to the Guide • To download updates to the Predictive Analytics Pocket Guide 6 . Visit the Guide: • To learn how leading organizations are implementing Predictive Analytics • To save time learning about the latest trends and insights from industry experts • To help you make better Predictive Analytics decisions for your organization • To weigh Predictive Analytics’ costs. 3. 2. U. and minimize redundant activities. James Guszcza.predictivesource. 6.
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