Many organizations realize they want a better understanding of their data and have identified the need to implement advanced analytic approaches. They have built beautiful dashboard visualizations and hired large teams of data scientists (many with Ph. D.’s and commanding high salaries) to gain the insight they lack.
However, what is often forgotten are the significant benefits a strong advanced analytics solution, like prescriptive analytics. Prescriptive analytics can empower existing talent, including data scientists, and extract meaningful insights coupled with the right action steps to resolve them. Just knowing that something is an outlier and needs to be fixed, doesn’t guarantee the person receiving this information knows how to act. One without the other is bound to fail.
This article will debunk some of the most common misconception about advanced analytics solutions like prescriptive analytics.
“I already have data analytics.”
If you’re a typical CEO or CFO, you likely have access to extensive business intelligence, dashboards, and reporting. Your VPs and mid-level managers might email you similar-looking reports every week/month/quarter. This information provides valuable insight into performance at the aggregate level and is likely a critical and necessary resource used throughout your management ranks.
However, this approach has flaws, as averages at the aggregate can lie. An aggregated dashboard could show an increase of one percent in revenue, meaning everything is good. However, if you had a detailed view, one could find that your most important customer dropped in revenue by 27 percent, which is pretty significant. If this was caught and fixed quickly, it could increase the total revenue by another 0.5 percent.
Additionally, reports need to be interpreted and depending on the person doing the interpretation, they can bring their own personal and political biases to what they’re seeing in the report. It’s easy to look at a report and see your sportswear division’s Q3 sales are 10 percent lower than last quarter, or that associate productivity has changed significantly in a particular process. Using your business acumen, you will likely take some action leveraging your ‘gut’ feeling of what you believe is causing the results at the aggregate. Although these are important insights, they don’t tell you what caused the change and how to fix or act to ensure the future output you desire.
Prescriptive analytics eliminates the need for large quantities of reports. By compiling, analyzing, and interpreting detailed data and alerting you to any anomalies good or bad. These can include unusually low sales, late deliveries, high rates of product returns, over achieving goals, lowest time to deliver, etc. Prescriptive analytics also goes a step further than traditional analytics by not only telling you what your data means, but also telling you (or whoever needs to know) how to act on what the system finds to reduce costs and/or improve revenue.
“Our people are doing just fine.”
When analyzing tremendous amounts of data, even the most talented analysts will make mistakes, overlook important data (too complex, too much, or just too small to identify) or even miss real insights because they don’t know what they don’t know. When you rely on spreadsheets and reports, with your people doing the interpretation and analysis manually, the risk of human error is significant. It’s easy to miss or misinterpret findings when they’re buried in a dense, complicated report. Most importantly, you are limited to the knowledge of the person driving the analytic process.
Analytic solutions eliminate the risk of human error by automating the data process. A prescriptive analytics solution will take this a step further and incorporate machine learning into the technology — in other words, the system “learns” to recognize behaviors and execute tasks with data without being programmed to do so. The machine learning aspect of the solution learns through constant feedback what is real and what is faux. As the solution becomes “smarter,” it’s able to produce increasingly reliable results. Prescriptive analytics uses machine learning technology to uncover unknown events that will likely not be discovered through traditional analytic approaches.
For example, in a retail environment, you may analyze sales and identify the departments or products that are dropping in revenue. Although this insight is valid, it may actually represent a false positive finding. These products may be impacted by other unknown factors not included in the analysis such as weather, delivery method, lead time, waste, unsellables, sales rate, customer feedback, and inventory ownership level. When prescriptive analytics incorporates machine learning capabilities, it learns an unknown insight regarding a subset of products whose sales drop is normal for the cluster of products with similar data points. This kind of insight will likely never be uncovered by a human analyst or would take an extensive period of time to discover.
“I don’t have the budget”
Many executives believe it’s more economical to rely on reports and a team of data scientists to interpret them. However, this is not the only approach. In order to interpret the thousands of reports an average business generates, you’d need data scientists. Data science often requires someone with a Ph. D. — and by extension, a six figure salary — to handle the job. Multiply this salary by the number of data scientists you’ll need and the cost increases quickly.
Not only does an advanced prescriptive analytics system replace or empower the work of that team, it also does the job 24 hours a day. Prescriptive analytics can run constantly in the background, always searching for new opportunities and distributing them in near-real time. In addition, it’s important to account for the value of the opportunities that the system will identify and help you leverage. Our customers realize a minimum of a 2-5 percent increase in sales, better consumer experience, 10-15 percent basis point margin improvement, and labor productivity improvement within 6 months of leveraging our award-winning prescriptive analytics solution.
Understanding the value prescriptive analytics can provide is important. The right solution will augment both your people and your processes. This all leads to a robust ROI and more efficient business practices that will empower your people to deliver stellar results.