How Does Predictive Analytics Work?

As any fortune-teller will assure you, predicting the future is an art as well as a science. And that truism applies as much to business decisions as to any other aspect of life. So on the one hand we can say that predictive analytics is a branch of statistics in which information extrapolated from historical data is applied to the projection of future conditions. That’s the science side.

On the other hand, we can say that predictive analytics is using information you do have to compensate for information you don’t have (yet), in order to make better business decisions. That’s the artful part, and it can depend as much on intuition and imagination as on algorithms.

Bringing the two sides together successfully is “what’s new” in the practice of predictive analytics.

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Performance Measurement Vs. Performance Management

It’s the 2012 Olympics. How do you think performance is going to be measured at the games by the teams involved? The number of gold medals? The number of world records?

Now come back a few years to when a team is preparing for the games. How is performance going to be managed? You can be sure it won’t be in terms of the number of medals they hope to win.

Instead the focus will be on the type of training being given, the diets being prepared, the way in which equipment and facilities are being used. To ensure these activities can take place, budgets and other resources are allocated to the appropriate activities. In short, the focus is on the process of preparing the athlete and not on the outcomes they hope to achieve.

Now compare this approach to the way in which organizations typically plan and budget.

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The Role of BI / Performance Management Systems

Many organizations are confused as to the difference between BI and Performance Management and how the two fit together. This is made worse as Performance Management has become synonymous with planning, budgeting and forecasting systems, while BI is seen as systems that provide detailed analyses. Gartner introduced the term Corporate Performance Management (CPM), which they defined as “… the processes, methodologies, metrics and systems used to monitor and manage an enterprise’s business performance”. The promise of CPM was to improve decision-making and provide more effective control over organizational activity.

Leave a commentCareers, Finance, FP&A, Management, White Papers

How Smart Is Business Intelligence?

Everywhere one turns these days, one hears about Big Data, Business Intelligence (BI), and analytics, and ways in which they can be consolidated through new technologies to grant businesses the god-like ability to peer into the very souls of their customers (by reading their Twitter feeds, Facebook postings, and even logging their mouse movements), optimize every business function under the sun, and allow financial planners to run so many “what if” scenarios in their FP&A processes that for every question the future may pose — strategic or operational, micro- or macroeconomic — the right answer will come running, eager to present itself.

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10 Rules for Highly Effective BPM: A Manifesto for the New Economic Reality

In October 2008, Apple CFO Peter Oppenheim commented that “visibility is low and forecasting is challenging,” which seemed to be a polite way of saying “We have absolutely no idea what will happen tomorrow.”

In June 2010, UPS CFO Kurt Kuehn reported that “normally we are very obsessive about building good and accurate plans, but as the recession dragged on we realized that trying to build a forecast was almost a waste of time.”

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