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What is Predictive Analytics and Why Does It Matter?

What is Predictive Analytics?

Predictive analytics is a type of analysis that uses statistical models to predict outcomes and behaviors. It typically uses machine learning algorithms to identify patterns in historical data and forecast future trends and probabilities.

Predictive analytics can be used for a variety of applications, such as marketing, customer segmentation, fraud detection, healthcare, and more. By utilizing predictive analytics, organizations can uncover valuable insights from their data to make smarter decisions and improve business performance.

In layman’s terms, what could happen?

Why is Predictive Analytics Important?

Predictive analytics is important as it is an invaluable tool for organizations that rely on data to make informed decisions. By using predictive analytics, companies can identify patterns in their data and forecast future outcomes.

This enables them to proactively plan and act on insights from the data, rather than wait for events to occur. For instance, predictive analytics can be used to anticipate customer demand or behaviors, detect fraud and security risks, develop more accurate pricing models, and automate certain processes.

Additionally, predictive analytics can help improve resource allocation by providing more accurate predictions about which resources need to be allocated where and when.

By having a better grasp of what resources need attention in order to meet customer needs or other business objectives, organizations can make better decisions regarding resource distribution and management.

Finally, predictive analytics helps organizations reduce costs by automating manual processes and identifying new cost savings opportunities associated with existing processes.

By leveraging the power of big data and predictive analytics, businesses can streamline their operations while simultaneously improving customer satisfaction levels.

With its wide array of potential benefits, predictive analytics is quickly becoming one of the most important tools in today’s data-driven world.

Predictive Analytics Examples

1. Automated fraud detection: Predictive analytics can be used to identify fraudulent activity by analyzing patterns in historical data. By detecting fraudulent behavior early, organizations can avoid costly losses.

2. Marketing campaigns: Predictive analytics can be used to develop more effective marketing campaigns by identifying patterns in customer data. This information can be used to target specific customers with personalized messages that are more likely to result in a sale.

3. Resource allocation: Predictive analytics can be used to better allocate resources by identifying which resources are most needed and when they are needed. This information can help organizations save money and improve efficiency.

Predictive Analysis Techniques

Here are the common techniques used in predictive analytics. Read more about each of these below.

Decision Trees

If you’re intending to uncover the reasons behind someone’s choices, then decision trees may be your best bet.

With this model, data is organized according to certain factors such as price and market capitalization — shaping up like a tree with branches for available options and leaves for particular decisions. It’s an effective way of sorting information that can offer you invaluable insight into why people make their selections.

The utilization of decision trees is ideal when an answer to a complex problem must be found in quick succession. Not only are they easily comprehended, but they require the least amount of resources and provide swift results.


Regression is the model that many statisticians rely on to detect patterns in huge datasets and identify linear relationships between inputs.

This technique works by constructing a formula, which describes how all of the input variables interact with each other. For instance, if you needed insight into how pricing and other key aspects influence security performance, a regression can provide valuable insight!

Neural Networks

Modeled after the intricate functioning of the human brain, neural networks are a revolutionary type of predictive analytics that can apply artificial intelligence and pattern recognition to explore complex data relationships.

If you are facing multiple obstacles such as an overload of data, a lack of formulas needed to find correlations between inputs and outputs in your dataset, or needing predictions instead of explanations – then this is the tool for you. Utilizing it can help you overcome all those problems quickly and effectively.

Cluster Models

Predictive analytics clusters are unsupervised machine learning approach that categorizes data into distinct and meaningful groups. By finding patterns in this information, we can better comprehend its underlying structure of it. For instance, grouping customers based on their shopping inclinations provides us with a platform to deliver customized marketing tactics – tailored perfectly for them!

Time Series Modeling

Time series modeling for predictive analytics is a type of forecasting technique that uses past data to predict future trends and behaviors. It explores the relationship between variables over time and can be used for predictive analysis and forecasting scenarios. An example would be using historical stock market data to predict future stock prices.


Pros and Cons of Predictive Analytics


-Improved accuracy and reliability of decision-making

-Identifying trends and patterns in data more quickly

-Predictive analytics can help reduce costs associated with manual processes


-Predictive analytics can introduce privacy concerns

-It can be time consuming and costly to implement

-Requires a good understanding of data science and models for accurate results

-Can be descriminatory against racial or ethnic groups when it comes to credit, home lending, or employment.

What Are the Best Predictive Analytics Tools?

  • Alteryx
  • Board
  • H2O
  • IBM Watson Studio
  • KNIME Analytics Platform
  • Qlik Sense
  • RapidMiner Studio
  • SAP Analytics Cloud
  • SAS Advanced Analytics
  • TIBCO Statistica

Summing it all up

Predictive analytics is the practice of using data science and machine learning to identify patterns in large datasets and forecast outcomes.

While there are many different types of predictive analytics models out there, decision trees, regression, neural networks, cluster models and time series modeling are some of the most commonly used approaches.

Additionally, these tools have their own set of pros and cons that you’ll need to consider before choosing one for your business.

Finally, there are a variety of powerful predictive analytics tools out there such as Alteryx, Board, H2O, and more that can help make your job easier.

By understanding how predictive analytics works and what it can do for you, you’ll be well-equipped to make the best choice for your organization. Good luck!

About the Author

Dani Lehmer is a Quality Assurance Administrator by day, aspiring blogger by night. She loves to indulge in her passions for data, AI, analysis and crypto into helping people make informed decisions about their business.

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