Activity Sheet 08

FUNDAMENTALS OF PRESCRIPTIVE ANALYTICS - Course Packet 07

In-depth Introduction to Prescriptive Analytics

A.
2. What is optimization? (Note: Internet Search - your choice among the five)
- Optimization as a problem where you maximize or minimize a real function by
systematically choosing input values from an allowed set and computing the
value of the function. That means when we talk about optimization we are
always interested in finding the best solution. So, let say that one has some
functional form (e.g in the form of f(x)) that he is interested in and he is trying to
find the best solution for this functional form. Now, what does best mean? One
could either say he is interested in minimizing this functional form or
maximizing this functional form.
- Optimization is a procedure or technique which is used to find the most efficient
resolution. Its value may be minimum or maximum, which depends upon the
requirement. For example, if a firm is required to find a way to earn a maximum
profit on their products, then the condition will be maximum, and if they want to
find a way through which their firm gets minimum product cost on production,
then the requirement will be minimum.
- Optimization is the process of maximizing or minimizing a function of purpose
by keeping in mind the existing constraints.
- Optimization is a problem associated with the best decision that is effective and
efficient decisions whether it is worth maximum or minimum by way of
determining a satisfactory solution.
- Optimization refers to a process or analysis that determines the set of decisions
that maximize or minimize a key model output. These techniques can be applied
to any application and is commonly used in construction & engineering, logistics
& transportation, finance & banking, insurance & reinsurance, energy &
utilities, manufacturing & consumer goods and other industries.

3. What is Prescriptive Analytics? (Note: Internet Search - your choice among the five)
- Prescriptive analytics is a statistical method that focuses on finding the ideal
way forward or action necessary for a particular scenario, based on data. It uses
both descriptive and predictive analytics but the focus here remains on
actionable insights rather than data monitoring. The input of prescriptive
analytics is the outcome of predictive analytics algorithms. You not only predict
what the future holds, but you leverage that prediction to take the best course of
action for the future.
- Prescriptive analytics is a form of data analytics that helps businesses make
better and more informed decisions. Its goal is to help answer questions about
what should be done to make something happen in the future. It analyzes raw
data about past trends and performance through machine learning (so very little
human input, if any at all) to determine possible courses of action or new
strategies generally for the near term.
- Prescriptive analytics is the use of advanced processes and tools to analyze data
and content to recommend the optimal course of action or strategy moving
forward. Simply put, it seeks to answer the question, “What should we do?”
- Prescriptive analytics provides organizations with recommendations around
optimal actions to achieve business objectives like customer satisfaction, profits
and cost savings. Prescriptive analytics solutions from IBM use optimization
technology to solve complex decisions with millions of decision variables,
constraints and tradeoffs.
- Prescriptive analytics is a statistical method used to generate recommendations
and make decisions based on the computational findings of algorithmic models.
4. Distinguish the three types of business analytics according to purpose. (Note:
Internet Search - your choice if u want to paraphrase it)
- There are three types of analytics that businesses use to drive their decision
making; descriptive analytics, which tell us what has already happened;
predictive analytics, which show us what could happen, and finally, prescriptive
analytics, which inform us what should happen in the future.
- Descriptive analytics is focused only on what has already happened in a
business and, unlike other methods of analysis, it is not used to draw inferences
or predictions from its findings. Descriptive analytics is, rather, a foundational
starting point used to inform or prepare data for further analysis down the
line. While descriptive analytics focuses on historical data, predictive analytics,
as its name implies, is focused on predicting and understanding what could
happen in the future. Analyzing past data patterns and trends by looking at
historical data and customer insights can predict what might happen going
forward and, in doing so, inform many aspects of a business, including setting
realistic goals, effective planning, managing performance expectations and
avoiding risks. If descriptive analytics tells you what has happened and
predictive analytics tells you what could happen, then prescriptive analytics tells
you what should be done. This methodology is the third, final and most
advanced stage in the business analysis process and the one that calls businesses
to action, helping executives, managers and operational employees make the best
possible decisions based on the data available to them. 

5. How Does Prescriptive Analytics Work? (Note: Answer based on module)

- It requires clarity of thought. You have a problem in front of you, and you are
aware of the solution, as well. Prescriptive analytics lies in finding the right way
to arrive at the solution, given the data you have on hand. In technical terms, we
can say that those using this technique need unique algorithmic models and
precise directions to generate automated recommendations or decisions.
Everyone knows that no one can recommend a solution without understanding
the problem. Thus, prescriptive analytics begins with acknowledging the fact
that there is a problem that requires a solution.

6. Explain the 3 Advantages of Prescriptive Analytics (Note: Answer based on module)

- We have seen that it helps businesses find the right solution to a problem under
given circumstances. This method of analytics has several advantages. We shall
discuss some of them for your benefit.

1. Generation of revenue
- Prescriptive analytics applications can provide detailed as well as timely
information about the customers’ preferences. It also allows business managers
to identify new opportunities for cross-selling and accelerating the regular sales
cycles at the same time. Thus, businesses can use prescriptive analytics to
generate higher levels of revenue.

2. Management of Gross Margins

- Prescriptive analytics techniques when employed along with predictive analytics
can provide gainful insights into the optimal product mix for the given and
anticipated market conditions. Thus, a company experiences higher productivity,
thereby enhancing the profitability aspect.

3. Reduction of expenses
- When you apply prescriptive analytics techniques, it becomes easy to manage
inventory levels. You have a definite plan of action to achieve a specific objective.
Therefore, there is no need to store inventory for long durations. It also ensures
 to minimize manual processes and costs. Thus, a company ends up controlling
the expenses better.

7. Prescriptive Analysis Applications in Business (Note: Answer based on module)

Marketing and sales

- Marketing and sales agencies have access to large amounts of customer data that
can help them to determine optimal marketing strategies, such as what types of
products pair well together and how to price products. Prescriptive analytics
allows marketers and sales staff to become more precise with their campaigns
and customer outreach, as they no longer have to act simply on intuition and
experience.

Transportation industry
- Cost-effective delivery is essential for success and profitability in the package
delivery and transportation industry. Minimizing energy usage through better
route planning and solving logistical issues such as incorrect shipping locations
can save time and money.

- Shippers produce massive amounts of data. Rather than employing armies of

analysts and dispatchers to decide how to best operate, these businesses can
automate and build prescriptive models to provide recommendations.

8. Constraints of Prescriptive Analytics Techniques (Note: Answer based on module)

- We have understood the concept of prescriptive analytics and discussed various
prescriptive analytics applications, as well. We have also discussed its
advantages to businesses, whereby it becomes easy for them to manage
profitability aspects. Let us now glance through a couple of its constraints.

- From what we have read above, we can say that prescriptive analytics can
eliminate the levels of uncertainty and thus, help prevent fraud by limiting risks.
It also increases the efficiency of an organization, thereby creating more loyal
customers. However, it is not a foolproof technology in any way. It becomes
effective only if the organizations know what questions to ask and how to
respond to the answers that they get. Incorrect presumptions can lead to a mess.

- Secondly, prescriptive analytics techniques can help you face the situation and
not avoid it altogether. It prepares you to withstand the damage, but it does not
prevent the event from occurring. Thus, if predictive analytics forecasts the
occurrence of a cyclone, all that it can do is to prepare you to face the cyclone. It
does not prevent it from happening.

- Prescriptive analytics works depending on the data and the situation. Therefore,
what works for one company need not necessarily work for another. Everything
depends on the situation. One of the crucial aspects of prescriptive analytics is
data governance and the quality of data you have for analysis.