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Why Is Prescriptive Analytics Crucial for Your Business?

Home / Why Is Prescriptive Analytics Crucial for Your Business?

The global economy is undergoing major changes affecting American businesses. Ongoing trade wars and political changes such as Brexit are creating uncertainty. Technological innovations like the introduction of 5G and the growth in E-commerce are disrupting traditional commence. Although many organizations use business intelligence tools that identify trends and challenges, these tools have a fundamental limitation.

This is an inability of backward-looking analytics to guide decision making in an increasingly complex business world. The solution lies in prescriptive analytics, a technique that uses data and logic to determine a preferred course of action, making it crucial tool for business success.

Global Business Trends

A report from the Global Business Policy Council titled Competition, Disruption, and Deception identifies several trends likely to affect global business in the next four years. The most significant is the battle for technological dominance between the US and China. This is seeing the emergence of trade sanctions and punitive trade tariffs that are disrupting free trade and global supply chains. Fake news is another trend where malicious false information is used to mislead consumers and potentially harm companies. A related trend is the focus on developing clean foods that have a low environmental impact. What’s significant about this is the speed with which consumer eating habits are changing as this new concept spreads through social media.

Coping with Rapid Change

Disruptive change often occurs quickly, with little warning, meaning there’s little time to prepare business strategies to deal with rapid change. Examples include the effects of off-and-on import tariffs, which are disturbing supply chain pricing, trade bans, and disruptions caused by extreme weather that trigger widespread supply interruptions.

Business Complexity and the Need for Rational Decision Making

Companies must react quickly and decisively to limit the impact of rapid unexpected change. Not only that, they need to process massive amounts of data quickly if they are to make informed, rational decisions rather than ones based on gut feel.

The problem is that most forms of business analytics are backward looking, measuring what happened and why it happened. Although this information is important, it doesn’t guide executives on the best way forward. Much the same applies to predictive analytics used to determine future trends. While knowing what’s likely to happen is crucial, this still doesn’t tell you what to do to minimize the downside and maximize the upside. Prescriptive analytics is the one tool that can guide intelligent decision making.

How Prescriptive Analytics Allows You to Determine the Best Decisions

So, how can prescriptive analytics guide you to the right business decisions? The answer is twofold. Firstly, you need to model your business. This model takes into account physical as well as financial parameters so the impact of, for example, reducing prices is measured in terms of physical sales, production volumes, supply chain costs, and profitability. To ensure the model works, it must be tested and validated against known outcomes.

The second step is to use algebraic and algorithmic solver programs to compute the best outcome against criteria such as profitability and sales. In this way, it’s possible to arrive at a single business decision that’s based on how your company functions. It’s this ability that separates prescriptive analytics from descriptive, diagnostic, and predictive analytics.

It’s Not as Difficult as You Imagine

While prescriptive analytics solutions require significant effort, commitment, and buy-in, there are code-free programs that reduce the time and effort needed to prepare the business model. For example, River Logic’s prescriptive analytics modeling tools use intuitive drag-and-drop modeling techniques that avoid the need to use programming code. This allows the use of in-house business analysts instead of data scientists to prepare models, if necessary, with vendor support.

In today’s fast changing business world, prescriptive analytics can make the crucial difference between poor business decisions and those that drive your company forward.