What can applying predictive analytics — the branch of analytics used to make predictions about unknown future events — do for an organization? A lot, according to the experts. As Viral Chawda says in one of the articles in this special report, (see “Five Ways CFOs Can Implement Advanced Analytics”), “Advanced analytics can extract hidden patterns behind big and unstructured data, model hundreds of possible scenarios, and optimize the best action plans among all alternatives.”
That’s a big, sweeping promise. The reality is different. Information technology is messy. Just because you have the data doesn’t mean you can extract meaning from it. The software you need may be too expensive or perhaps the data scientist capable of performing the analysis may be too costly or impossible to find. Or your organization may not have the drive or the time to get better at decision-making.
The numerous examples in the story “The Power to Predict” demonstrate, however, that predictive analytics is best attempted on small projects first (see the link to the story below). How is weather affecting ice cream sales in a convenience store? Which consumers are most likely to buy annuities and other life insurance products over the phone? Which medical claims can be pre-approved without human intervention? How much of a return will a company get on a direct mail marketing campaign? Which employees are most likely to resign in the next 12 months?
Taking baby steps with predictive analytics is the way to go, but it presents a problem: What if the use case does not have a high enough return on investment? If the results of an analytics project won’t cover the cost of its pursuit, it will be a tough sell. Open-source technologies and easier-to-use tools are supposed to bring predictive analytics to “the masses,” but we are clearly not there yet.
Given all these challenges, why would any company go down this path? It’s pretty simple. The ability to prove or disprove assumptions about the future is powerful. Shaheen Dil describes it in her piece about reducing uncertainty with analytics (see link to story below): “[Analytics] methods provide businesses with prescriptive actions likely to result in optimum results. This goes beyond hindsight and insight, providing foresight: the ability, coveted by every CFO, to see the future, to the degree the future can be drawn from what is known today.”
What CFO wouldn’t want to be able to do that?