Prescriptive analytics goes beyond predicting future outcomes by also suggesting actions to benefit from the predictions and showing the decision maker the implications of each decision option. Prescriptive analytics not only anticipates what will happen and when it will happen, but also why it will happen.
Further, prescriptive analytics can suggest decision options on how to take advantage of a future opportunity or mitigate a future risk and illustrate the implication of each decision option. In practice, prescriptive analytics can continually and automatically process new data to improve prediction accuracy and provide better decision options.
Prescriptive analytics synergistically combines data, business rules, and mathematical models. The data inputs to prescriptive analytics may come from multiple sources, internal (inside the organization) and external (social media, et al.). The data may also be structured, which includes numerical and categorical data, as well as unstructured data, such as text, images, audio, and video data, including big data. Business rules define the business process and include constraints, preferences, policies, best practices, and boundaries. Mathematical models are techniques derived from mathematical sciences and related disciplines including applied statistics, machine learning, operations research, and natural language processing.
For example, prescriptive analytics can benefit healthcare strategic planning by using analytics to leverage operational and usage data combined with data of external factors such as economic data, population demographic trends and population health trends, to more accurately plan for future capital investments such as new facilities and equipment utilization as well as understand the trade-offs between adding additional beds and expanding an existing facility versus building a new one.
Another example is energy and utilities. Natural gas prices fluctuate dramatically depending upon supply, demand, econometrics, geo-politics, and weather conditions. Gas producers, transmission (pipeline) companies and utility firms have a keen interest in more accurately predicting gas prices so that they can lock in favorable terms while hedging downside risk. Prescriptive analytics can accurately predict prices by modeling internal and external variables simultaneously and also provide decision options and show the impact of each decision option.
See: Predictive, Descriptive, Prescriptive Analytics