Understanding Analytics Capabilities

Today, many organizations and individuals understand the need of analytics but struggle with various capabilities, uses of analytics and how to derive value from them. Lately, I have also been hearing about types of analytics, and hence decided to describe different types of analytics starting with the definition of analytics and how organizations can use them to address their business needs. 

What is Analytics?

Analytics has acquired several different meanings over many years. Gartner defines analytics as "A discipline that applies logic and mathematics to data to provide insights for making better decisions".

What is Analytics used for?

• Giving insights into business
• Create simulation environments
• Obtain data-driven decision policies

Types of Analytics Capabilities

Gartner describes four analytic capabilities that helps businesses to take actions based on asking right data questions. They are as follows:-

Descriptive Analytics:- This is used to answer the question - "What happened?" by querying data and summarizing key performance metrics. Business leaders use this information and apply their judgement and experience to make a decision/take an action. Descriptive analytics leaves user to do much of decision making. Ex: A new business wants to see its sales performance, or a new website that needs to monitor downtime.

Diagnostic Analytics:-  This answers the question - "Why did it happen?" This can be considered as a detailed and interactive descriptive analysis to understand why outcomes, events or trends occurred. Applications such as OLAP (Online Analytical Processing), Visualization tools are used. In this, business leaders rely more on analytics and less on human input to make decision.

Predictive Analytics:- This answers the question - "What will happen?" This analytics provides forward looking insights by recognizing patterns and assessing likely outcomes with statistical or machine learning techniques. This is used to predict future behavior and estimate unknown outcomes. 

Prescriptive Analytics:- This answers the question - "What should I do?" Rather than a report, statistic, probability or estimate of future outcomes, prescriptive analytics as the name implies supplies a decision to business leaders. This is a more powerful analytic capability. Prescriptive analytics deliver a "best" decision when objectives, constraints or criteria are specified. 

Using all Capabilities for Decision Making:-

For any business, leaders can start with the present, to create awareness that a decision must be made using descriptive capabilities (for example, reports, dashboards and alerts) and perhaps some diagnostic analysis (for example, data visualization).Predictive analytics, simulation and forecasting can help make better estimates of possible outcomes. The next step in the process is identifying the best course of action. This can be done by gut-feeling or data-driven prescriptive analytics. In this way, all analytics methods are used together at different stages by organizations to make effective data-driven decisions in the presence of wider set of opportunities.

References:-

• Kart, L., Linden, A., & Schulte, W. R. (2013). Extend your portfolio of analytics capabilities. Gartner, Retrieved from www.gartner.com