Prescriptive

Analytics –
Simulation
SUBMITTED BY- Shaik Aadil Ahmed (191436)
Shivani Srivastava (191438)
SUBMITTED TO- Prof Meghna Verma
Date- 12 October 2020
Business Analytics

 A process of transforming data into actions through analysis in the context of

organizational decision making and problem solving.
 This data is collected from various sources, and processed by experts using
different methodologies to draw meaningful conclusions.
 It helps managers to know about their business operations and make better fact
based decisions.
Applications of Business Analytics

 Food and Beverage Industry

Example- Mc Donald's from mass-promotion to mass personalization.
 Transportation
Example-Uber using data to identify look-alike trips.
 E-Commerce
Example- Amazon Using Target Marketing to enhance customer satisfaction.
 Education
Example- University of Alabama using predictive analytics to reduce drop out rates.
Scope of Business Analytics

 Descriptive Analytics
-data is used to understand past situation.
 Predictive Analytics
-data is used to understand the future and predict what might happen.
 Prescriptive Analytics
-data is used to formulate techniques for stronger business performance.
Prescriptive Analytics

 Selecting the best alternative to minimize or maximize an objective among the many
choices available.
 It deals with the efficient allocation of resources.
 It allows users to prescribe a number of different possible actions and guide them
towards a solution.
 It attempt to quantify the effect of future decisions in order to advise on possible
outcomes before the decisions are actually made.
Value of Prescriptive Analytics to Business

 Increases the ability to evaluate more scenarios and delivering a faster approach to making
trade-decisions..
 It improves the effectiveness of the business against one or more objectives.
 Prescriptive analytics can address questions that other forms of analytics simply cannot.
 Addresses new planning challenges using the best method possible.
  Prescriptive analytics helps identify and better quantify the risk associated with both short
and long-term decision-making.
What is Simulation?

 Quantitative technique
 It is a representation of reality through a use of a model which will react in the same
manner as reality under a given set of conditions.
 It involves setting up a model of real situation and then performing experiments on
the model.
 Simulation is a versatile tool which is very useful when mathematical analysis is
difficult.
Reasons for using Simulation

 Used to conduct experiments without disrupting real systems.

 Allows experimentation with a model of the system rather than an actual
operating system.
 Enables a manager to provide insights into certain managerial problems where
analytical solution is not possible.
 Actual observation of a system may be quite costly.
Methodology for Simulation

i. Identify the problem

ii. Identify decision variables, decision rules
iii. Construct Simulation model
iv. Validate the model
v. Specify values of a decision variables to be tested
vi. Conduct the simulation
vii. Analyze data and examine the result
viii. Select best course of action and implement findings
Application of simulation in financial analysis of investment
strategies

Lets assume a scenario where we need to plan for the retirement there are two investment
vehicles
• The interest from the bank investment follows a generalized gamma distribution
with Mean = 1.7406, Standard Deviation = 0.1141 and Lambda = 4.3106.
• The profit from the NASDAQ investment follows a normal distribution with Mean
= 13 and Standard Deviation = 28
 You will choose to invest X% of your income per year for the next Y years.
Assume that your current income is $40,000 per year and, based on past history,
that your income will increase yearly by a percentage that is normally distributed
with Mean = 4 and Standard Deviation = 1.5.
 You will decide to put Z% of your investment money in the bank for the first year
and the remainder in NASDAQ. Given the volatility of NASDAQ, any profits made
in the stock market at the end of each year will be transferred into the savings
account for safe keeping. In addition, the amount invested in NASDAQ will not
increase as your income increases every year. It will always be equal to the first
year investment
Following Strategies

• Estimate your investment income over the next 20 years if you invest 5% of
your yearly income with 50% going to savings.
• Compare your investment income after 20 years, varying the investment
portion from 0% to 20% of your yearly income (with 50% going to savings).
1. First, to estimate your income over the next 2.To compare your income after 20 years
20 years for a given investment strategy, you when investing various percentages of your
can use RENO's Sensitivity Analysis feature salary, you can use the Sensitivity Analysis
to perform a separate simulation run for each feature to perform a separate simulation run
year from 1 to 20. After the software has for each percentage. After the software has
performed 1,000 simulations for the first year, performed 1,000 simulations for 0%, 1,000
1,000 simulations for the second year, and so simulations for 1% and so on up to 20%,
on up to 20 years, the results from each run the results from each run can be plotted
can be plotted against time against investment percentages
Prescriptive Analytic tools
 Improvado
 Rapid Miner
 Sisense
 Birst
 Knime
 AIMMS
 Looker
 Conclusion
 The RENO software provides a visual, intuitive and flexible way to construct flowcharts to model any probabilistic scenario and
then use simulation to estimate results of interest

 In the future prescriptive analytics will further facilitate analytical development for Automated Analytics where it replaces the
need for human decision-making with automated decision-making. This could lead to automated analytics that can use
applications to choose the best marketing email to send to customers instead of hiring a marketing director to make this
decision. The prescriptive analytics market is also growing exponentially and is expected to increase by 22% between 2014 and
in 2019 to $1.1 billion. Hence, if you wish to prepare your organisation for the data-driven future, prescriptive analytics should
definitely be on your agenda.
THANK YOU