What Is Prescriptive Analytics? How It Differs From Predictive Analytics

As data continues to drive business decision-making, understanding how to leverage analytics becomes critical. You’ve probably heard about predictive analytics, but what about prescriptive analytics? Explore how the two compare, when to use each and the key concepts behind prescriptive analytics.

What Is Prescriptive Analytics?

At its core it goes beyond forecasting what might happen in the future. It suggests actions you should take to achieve a desired outcome. While they focus on predicting future trends based on historical data, prescriptive analytics provides recommendations or solutions to either take advantage of a prediction or prevent an undesired result. In other words, predictive analytics doesn’t just answer “What will happen?” — it answers “What should you do about it?”

They use advanced techniques like organization algorithms, simulation, and machine learning to analyze different scenarios. These tools allow you to weigh possible decisions and evaluate the potential outcomes for each option. As a result, prescriptive analytics helps you make informed decisions in real time.

How Do They Work?

Prescriptive analytics analyzes historical and real-time data using models that simulate various scenarios. These models can take into account a range of variables — such as available resources, external constraints and possible future events. Running these simulations allows data to identify the best course of action from a set of potential decisions.

Here’s how they typically operate:

• Data Collection: It gathers relevant data from various sources, such as internal business data or external market conditions.
• Modeling: Advanced algorithms and machine learning models simulate different scenarios, adjusting variables to assess various outcomes.
• Recommendation: Based on these simulations, prescriptive analytics recommends the most effective solution or strategy for achieving your desired goal.

Predictive vs. Prescriptive

Predictive analytics uses historical data and machine learning algorithms to identify patterns and predict future events or trends. For example, if you run an online store, predictive analytics might help you forecast which products will likely be in high demand during the holiday season.

Here’s a closer look at the differences between prescriptive vs. predictive analytics:

Purpose

• Predictive analytics answers the question, “What might happen?” by using data to forecast trends or behaviors.
• Prescriptive analytics goes a step further by answering the question, “What should you do?” and providing recommendations for specific actions based on predictive outcomes.

Data Analysis

• Predictive analytics relies heavily on historical data to make forecasts, often using statistical methods or machine learning models to predict trends.
• Prescriptive uses that same data but adds a layer of decision-making tools — such as optimization algorithms or simulation models — to suggest actionable steps.

Outcome

• Predictive analytics leaves the decision-making up to you. After identifying trends or future events, it’s still up to you to determine how to act on those predictions.
• Prescriptive suggests the best course of action, factoring in various variables and constraints.

When To Use Predictive vs. Prescriptive

Knowing when to use prescriptive vs. predictive analytics depends on the specific needs of your business or project.

Use Predictive Analytics When:

• You need to forecast future trends, such as predicting customer behavior or market changes.
• You want to understand potential risks or opportunities based on past performance.

Predictive analytics is beneficial for long-term planning and strategy. It gives a clearer picture of future possibilities to guide decision-making.

Use Prescriptive Analytics When:

• You have multiple options and need a recommendation based on real-time data.
• You want to automate decision-making processes for faster, more effective outcomes.

They are ideal for making quick, data-driven decisions in dynamic environments. It’s often used in healthcare, logistics and finance industries, where timely decisions are crucial.

Prescriptive Analytics: 4 Real-World Applications

So, how is prescriptive analytics used in the real world? Here are a few examples across different industries:

1. Healthcare

Prescriptive analytics can recommend treatment plans based on patient data, predicting the effectiveness of different options.

2. Supply Chain Management

By simulating various logistics scenarios, it helps businesses optimize shipping routes, reduce costs and minimize delays.

3. Finance

In financial services, it might recommend the best investment strategies by evaluating market trends and risk factors.

4. Retail

For retailers, it can suggest optimal pricing strategies based on customer demand, competitor pricing and inventory levels.

4 Advantages of Using Prescriptive Analytics

Using it offers several key benefits to businesses:

1. Better Decision-Making

It doesn’t just provide information but helps you choose the best path forward, improving the quality of decisions.

2. Increased Efficiency

It can help you reduce waste, lower costs, and boost productivity by optimizing processes.

3. Customization Options

The ability to factor in unique constraints and variables means recommendations are tailored to your specific situation.

4. Real-Time Solutions

It can recommend immediate actions when integrated with real-time data, ensuring quick responses to changing conditions.

5 Steps To Implement into Your Business

If you’re ready to leverage prescriptive analytics, knowing how to implement it effectively is important. Here are a few steps to guide you:

1. Collect Quality Data

Reliable data is the foundation of any analytics strategy. Ensure you have access to clean, accurate, and up-to-date data from all relevant sources in your business.

2. Choose the Right Tools

Implementing it requires advanced software to handle complex simulations and algorithms. Popular tools include IBM’s Decision Optimization and SAS’s Prescriptive Analytics Solutions.

3. Work With Experts

If your business lacks in-house data science expertise, consider partnering with consultants or hiring specialists who can build and maintain prescriptive models tailored to your specific needs

4. Integrate With Existing Systems

To maximize the impact, ensure it integrates smoothly with your other business systems, like customer relationship management (CRM) software, supply chain tools, or financial platforms.

5. Test and Optimize

Once implemented, continuously test your prescriptive models to ensure they produce accurate, actionable recommendations. Adjust your algorithms and simulations as your business needs or external conditions change.

When To Leverage Prescriptive Analytics

Prescriptive analytics is a powerful tool for organizations that want to go beyond understanding what may happen in the future. By providing actionable recommendations, it helps streamline decision-making processes and maximize outcomes. While predictive analytics is still essential for forecasting trends and behaviors, prescriptive analytics takes it further by offering guidance on what to do next.

Understanding the differences between prescriptive vs. predictive analytics can help you choose the right approach for your business. If you want to make smarter, data-driven decisions quickly, prescriptive analytics is worth exploring. By integrating prescriptive analytics into your operations, you’ll be better equipped to navigate uncertainty and make confident, informed decisions that drive success.