INSTITUTE –University School of

Business
DEPARTMENT -AIT
M.B.A

Basics of Business Analytics

Course Code-BBO-104
Faculty Name : Dr. Syed Abou Iltaf Hussain

Lecture no. 5 : Concept of Prescriptive Analytics

DISCOVER . LEARN . EMPOWER

UNIT-1: Introduction to Business Analytics

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 Introduction of Prescriptive Analytics

• Prescriptive analytics is a type of data analytics that attempts to answer the question "What do
we need to do to achieve this?"
• It involves the use of technology to help businesses make better decisions through the analysis
of raw data.
• Prescriptive analytics specifically factors information about possible situations or scenarios,
available resources, past performance, and current performance, and suggests a course of
action or strategy.
• It can be used to make decisions on any time horizon, from immediate to long-term. It is the
opposite of descriptive analytics, which examines decisions and outcomes after the fact.
 How Prescriptive Analytics Works

• Prescriptive analytics tries to answer the question "How do we get to this point?" It relies
on artificial intelligence (AI) techniques, such as machine learning (the ability of a
computer program without additional human input), to understand and advance from the
data it acquires, adapting all the while.

• Machine learning makes it possible to process a tremendous amount of data available

today. As new or additional data becomes available, computer programs adjust
automatically to make use of it, in a process that is much faster and more comprehensive
than human capabilities could manage.

• Prescriptive analytics works with another type of data analytics, predictive analytics, which
involves the use of statistics and modeling to determine future performance, based on
current and historical data. However, it goes further: Using the predictive analytics'
estimation of what is likely to happen, it recommends what future course to take.
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 Advantages and Disadvantages of Prescriptive Analytics

• Advantages
• Prescriptive analytics can cut through the clutter of immediate uncertainty and changing conditions.
It can help prevent fraud, limit risk, increase efficiency, meet business goals, and create more loyal
customers. When used effectively, it can help organizations make decisions based on highly analyzed
facts rather than jump to under-informed conclusions based on instinct.
• Prescriptive analytics can simulate the probability of various outcomes and show the probability of
each, helping organizations to better understand the level of risk and uncertainty they face than they
could be relying on averages. Organizations that use it can gain a better understanding of the
likelihood of worst-case scenarios and plan accordingly.

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 Advantages and Disadvantages of Prescriptive Analytics

• Disadvantages
• But prescriptive analytics is not foolproof. It is only effective if organizations know what questions to
ask and how to react to the answers. As such, it's only effective if its inputs are valid. If the input
assumptions are invalid, the output results will not be accurate.
• This form of data analytics is only suitable for short-term solutions. This means businesses shouldn't
use prescriptive analytics to make any long-term ones. That's because it becomes more unreliable if
more time is needed.
• Not all prescriptive analytics providers are made the same. So it's important for businesses to
carefully consider the technology and who provides it. Some may provide real, concrete results while
others make the promise of big data and fail to deliver

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 PROS CONS
• Prevents fraud, reduces risk, and increases • Only as effective as the inputs
efficiency among other things
• Simulates outcomes and shows probably of each • Not suitable for long-term predictions/solutions
• Some big data providers provide results while
others don't

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 Examples of Prescriptive Analytics
• Numerous data-intensive businesses and government agencies can benefit from using prescriptive
analytics. This includes companies in the financial services and health care sectors, where the cost of
human error is high. For instance, prescriptive analytics could be used to:

• Evaluate whether a local fire department should require residents to evacuate a particular area when a wildfire is
burning nearby
• Predict whether an article on a particular topic will be popular with readers based on data about searches and social
shares for related topics
• Adjust a worker training program in real-time based on how the worker is responding to each lesson

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 How does predictive analytics work?
• Step 3: Pre-process data: Raw data is only nominally useful by itself. To prepare the data for the predictive analytics
models, it should be cleaned to remove anomalies, missing data points, or extreme outliers, any of which might be
the result of input or measurement errors.
• Step 4: Develop predictive models: Data scientists have a variety of tools and techniques to develop predictive
models depending on the problem to be solved and nature of the dataset. Machine learning, regression models,
and decision trees are some of the most common types of predictive models.
• Step 5: Validate and deploy results: Check on the accuracy of the model and adjust accordingly. Once acceptable
results have been achieved, make them available to stakeholders via an app, website, or data dashboard.

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 Prescriptive Analytics for Hospitals and Clinics
• Prescriptive analytics can be used by hospitals and clinics to improve the outcomes for patients. It
puts health care data in context to evaluate the cost-effectiveness of various procedures and
treatments and to evaluate official clinical methods.

• It can also be used to analyze which hospital patients have the highest risk of re-admission so that
health care providers can do more, via patient education and doctor follow-up to stave off constant
returns to the hospital or emergency room.

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 Prescriptive Analytics for Airlines
• Suppose you are the chief executive officer (CEO) of an airline and you want to maximize your
company’s profits. Prescriptive analytics can help you do this by automatically adjusting ticket prices
and availability based on numerous factors, including customer demand, weather, and gasoline prices.

• When the algorithm identifies that this year’s pre-Christmas ticket sales from Los Angeles to New York
are lagging last year’s, for example, it can automatically lower prices, while making sure not to drop
them too low in light of this year’s higher oil prices.

• At the same time, when the algorithm evaluates the higher-than-usual demand for tickets from St.
Louis to Chicago because of icy road conditions, it can raise ticket prices automatically. The CEO
doesn’t have to stare at a computer all day looking at what’s happening with ticket sales and market
conditions and then instruct workers to log into the system and change the prices manually. Instead, a
computer program can do all of this and more—and at a faster pace, too.

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 Prescriptive Analytics in Banking

• Banking is one of the industries that can benefit from prescriptive analytics the most. That's because companies
in this sector are always trying to find ways to better serve their customers while ensuring they remain
profitable. Applying prescriptive analytical tools can help the banking sector to:

• Create models for customer relationship management

• Improve ways to cross-sell and upsell products and services
• Recognize weaknesses that may result in losses, such as anti-money laundering (AML)
• Develop key security and regulatory initiatives like compliance reporting

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 Prescriptive Analytics in Marketing

• Just like banking, data analytics is very critical in the marketing sector. Marketers can use prescriptive analytics
to stay ahead of consumer trends. Using past trends and past performance can give internal and external
marketing departments a competitive edge.

• By employing prescriptive analytics, marketers can come up with effective campaigns that target specific
customers at specific times like, say, advertising for a certain demographic during the Superbowl. Corporations
can also identify how to engage different customers and how to effectively price and discount their products
and services.

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 Conclusion

There are many things businesses can do to ensure their success and make better
decisions. Data analytics is one tool that they have at their disposal to reach these
goals. Prescriptive analytics is a form of data analytics that uses past performance and
trends to determine what needs to be done to achieve future goals. Even with the
obvious benefits, business leaders should understand that prescriptive analytics has its
own drawbacks. Knowing where to start and choosing the right company or software
to help you reach your goals can certainly help you in the long run.

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 Think yourself

1. What Does Prescriptive Analytics Mean?

2. Why Is Prescriptive Analytics So Important for Businesses?
3. What Are the Other Forms of Data Analytics?

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Reference

1. Winston, W. (2016). Microsoft Excel data analysis and business modeling. Microsoft
press.
2. Knaflic, C. N. (2015). Storytelling with data: A data visualization guide for business
professionals. John Wiley & Sons.
Thank you for your attention!

Discussion
THANK YOU

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