Predictive analytics encompasses a variety of techniques from statistics and data mining that process current and historical data in order to make “predictions” about future events. Such predictions rarely take the form of absolute statements, and are more likely to be expressed as values that correspond to the odds of a particular event or behavior taking place in the future.
In business, the models often process historical and transactional data to identify the risk or opportunity associated with a specific customer or transaction. These analyses weigh the relationship between many data elements to isolate each customer’s risk or potential, which guides the action on that customer.
Predictive analytics is widely used in making customer decisions. One of the most well-known applications is credit scoring, which is used throughout financial services. Scoring models process a customer’s credit history, loan application, customer data, etc., in order to rank-order individuals by their likelihood of making future credit payments on time. Predictive analytics are also used in insurance, telecommunications, retail, travel, healthcare, pharmaceuticals and other fields.