Sunday, September 5, 2010

Historical vs. Predictive Analysis

Oftentimes consumers of business information wish to summarize available data through data summaries and data visualizations (pivot tables, charts, graphs, etc.). While these tools are incredibly important to provide insight to past business outcomes, they are somewhat limited in telling a complete and forward looking story. They rely on a restricted set of past experiences and business scenarios (i.e. what have been sales results with current and past staff levels) and limit the ability to deduce potential future outcomes.

Predictive modeling, on the other hand, uses historical results to drive statistical models which can forecast outcomes for business scenarios that have not yet occurred (i.e. what will sales results be if we increase staff levels). This interpolation and extrapolation of allows for “what-if” analysis that informs the decision making process. Also, if correctly designed, predictive analysis will not only offer point estimates, but also expected outcome ranges that consider inherent business variability and uncertainty.

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