Scribd
Upload
75 views6 pages

6 Applications of Predictive Analytics in Business Intelligence

Predictive analytics can be used for various business applications including customer segmentation, risk assessment, churn prevention, sales forecasting, market analysis, and financial modeling. For customer segmentation, predictive analytics identifies potential customers more accurately than traditional techniques. Risk assessment builds models to accurately predict profitable and unprofitable business operations. Churn prevention predicts which customers will end relationships and when to enable proactive retention.

Uploaded by

AishwaryaSantosh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
75 views6 pages

6 Applications of Predictive Analytics in Business Intelligence

Predictive analytics can be used for various business applications including customer segmentation, risk assessment, churn prevention, sales forecasting, market analysis, and financial modeling. For customer segmentation, predictive analytics identifies potential customers more accurately than traditional techniques. Risk assessment builds models to accurately predict profitable and unprofitable business operations. Churn prevention predicts which customers will end relationships and when to enable proactive retention.

Uploaded by

AishwaryaSantosh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

6 Applications of predictive analytics in business

intelligence

Predictive analytics extracts information from data sets in order to


discover complex relationships, recognize unknown patterns, forecasting
actual trends, find associations, etc. This allows us to anticipate the future
and make the right decisions. The applications of predictive analytics in
business intelligence are uncountable.

1. Customer segmentation
Customer segmentation is the practice of dividing a customer base
into groups of i ndividuals that are similar in specific ways relevant
to marketing, such as age, gender, interests and spending habits. It
enables companies to accurately target tailored marketing messages
to customers who are most likely to buy their products. It has bee n
proved that predictive analytics can identif y potential customers
much better than traditional techniques.

An example here is related with direct marketing campaigns (phone calls)


of a banking institution. The goal is to predict if the client will subscr ibe a
term deposit. Attributes include information related to the client, the
company, the product, the contact or the socio -economic context.

 Input variables:
 Socio-demographic factors (age, job, marital status, education...)
 Bank relationship factors (de fault, balance, housing, loan...)
 Past campaigns factors (contact type, day, month, duration...)
 Target variable:
 Conversion
The advantages for the bank here are: a better communication with the
customer, a considerable saving of money in marketing and a great
increase of profitability.

2. Risk assessment
Risk Assessment allows users to analyse possible problems
associated with a given business. The goal for data mining here is to
build decision support systems that can accurately predict which are
the profitable operations for a company and which are not.

An example in the banking sector is to determine which customers will


take over a credit. Here we use different types of information in order to
select if an applicant is adequate to receive a cred it. More specifically, we
assess the probability that a given customer does not pay a loan, therefore
mitigating the impact of default risk. The data set used in this study
contains multiple personal and financial factors of a customer, which are
listed next.

 Input variables
 Socio-demographic factors (gender, age, education, marital status...)
 Product details (credit amount, bill statement...)
 Customer behaviour (repayment status, previous payment...)
 Target variable
 Default
The next table lists the binary classification tests for this application. As
we can see, the accuracy of the predictive model is about 80%, which is a
good value in this kind of applications. Therefore, the neural network is
ready to assess default risk of new customers.

The classification accuracy is the ratio of customers correctly classified,


the error rate is the ratio of customers misclassified, the sensitivity is the
proportion of actual risk which are predicted risk and the specificity is the
proportion of actual non-risk which are predicted non -risk.

3. Churn prevention
Churn prevention aims to predict which customers, when and why
end their relationship with our company. This phenomenon can be
very expensive, since the cost of retaining an existing customer is
much lower than that of acquiring new one. By harnessing the power
of big customer data sets, companies can develop predictive models
that enable proactive intervention before it's too late.

This case study was developed to predict churn of telecom custome rs based
on information about their account. Half of the customers in the data set
are loyal to the company and the other half have moved to another one. The
variables used for this example are:

Account leng th
Area code
Inte rna tio nal plan
Voice ma il p lan
Numbe r mail messages
Total da y minu te s
Total da y ca lls
Total da y ch arge
Total e ven ing minu te s
Total e ven ing ca lls
Total e ven ing ch arge
Total nigh t min ute s
Total nigh t c alls
Total nigh t c harge
Total in te rnationa l min utes
Total in te rnationa l c alls
Total in te rnationa l charge
Numbe r o f custo mer se rvice calls

The following table contains the elements of the confusion matrix for this
case study. The element (0,0 ) contains the true churns, the element (0,1)
contains the false churns, the element (1,0) contains the false loyal, and
the element (1,1) contains the true loyals.
4. Sales forecasting
Examination of prior history, seasonality, market -moving events, etc.
results in a realistic prediction sales, which is the cornerstone of a
company's planning. In this regard, data mining could anticipate customer
response and changing attitudes by looking at all types of factors. Sales
forecasting can be applied to sh ort-term, medium-term or long-term
forecasting.

An example is to accurately predict power demand in the electric industry.


The project requires analyzing the following types of variables:

-Ca lend ar da ta : Sea son, hour, b ank ho lidays, etc .


-W eath er d ata : Te mpe rature, hu mid ity, rain fall, etc .
-Co mpan y d ata : P rice of e lectricity, pro motio ns or marketing campaigns .
-S ocial data : Econo mic and po litical facto rs that a cou ntry is experimenting .
-De mand da ta : H istorical co nsu mption o f electricity .

The results of this study are improved forecast accuracy, which means
better information to decide what the best course of action is.

5. Market analysis
Analysis of market surveys helps companies to address customer
requirements, therefore increasing their profit and reducing the attrition
rate.

An example is to model wine quality. The inputs include physicochemical


tests (e.g. pH values) and the output is based on sensory data (median of at
least 3 evaluations made by wine experts). Each expert graded the w ine
quality between 0 (very bad) and 10 (very excellent). The following listing
illustrates the data set used for this application.
Once the predictive model has been designed, the wine producer can
exploit it to search for that attributes fitting consumer taste

6. Financial modeling

Financial modeling is the task of building an abstract representation (a


model) of a real world financial situation. This is a mathematical model
designed to represent (a simplified version of) the performance of a
financial asset or portfolio of a business, project, or any other investment.
Financial modeling is a general term that means different things to
different users; the reference usually relates either to accounting and
corporate finance applications or to quan titative finance applications.
Financial modeling has been gaining acceptance and rigor over the years.
Typically, financial modeling is understood to mean an exercise in either
asset pricing or corporate finance, of a quantitative nature.

An example is to forecast the next day return of Istanbul stock exchange


national 100 index with seven other international indices: Standard &
Poor's 500 return index, Stock market return index of Germany, Stock
market return index of UK, Stock market return index of Japa n, Stock
market return index of Brazil, MSCI European index and MSCI emerging
markets index. The time series data set used here comprises five years of
records. The next list contains the first 5 days of that series.

In other words, financial modelling i s about translating a set of hypotheses


about the behavior of markets or agents into numerical predictions. These
predictive models are used for supporting a firm in decision -making
processes about investments or returns.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy