Wikipedia defines Forecasting as the process of making statements about events whose actual outcomes (typically) have not yet been observed.
Examples of forecasting would be predicting weather events, forecasting sales for a particular time period or predicting the outcome of a sporting event before it is played.
Wikipedia defines Predictive Analytics as an area of statistical analysis that deals with extracting information from data and using it to predict future trends and behavior patterns.
Examples of predictive analytics would be determining customer behavior, identifying patients that are at risk for certain medical conditions or identifying fraudulent behavior.
Based on these definitions, forecasting and predictive analytics seem to be very similar…but are they? Let’s break it down.
Both forecasting and predictive analytics are concerned with predicting something in the future, something that has not yet happened. However, forecasting is more concerned with predicting future events whereas predictive analytics is concerned with predicting future trends and/or behaviors.
So, from a business perspective, forecasting would be used to determine how much of a material to buy and keep on stock based on projected sales numbers. Predictive analytics would be used to determine customer behavior like what and when are they likely to buy, how much do they spend when they do buy, and when they buy one product what else do they buy (also known as basket analysis).
Predictive analytics can be used to drive sales promotions targeting certain customers based on the information we know about their buying behavior. Likewise, the information obtained from predictive analytics can be used to influence sales projections and forecasting models.
Both, predictive analytics and forecasting, use data to achieve their purposes. But, it’s how they use that data that is much different.
In forecasting, data is used to look at past performance to determine future outcomes. For instance, how much did we sell last month or how much did we sell last year at this time of year. In predictive analytics, we are looking for new trends, things that are occurring now and in the future that will affect our future business. It is more forward looking and proactive.
So, although forecasting and predictive analytics are similar and closely related to one another, they are two distinctively different concepts. In order to be successful at either one, you have to have the right resources and tools in place to be able to extract, transform and present the data in a timely manner and in a meaningful way.
A common problem in business today is people spend much more time preparing and presenting information than they do actually determining what the data is telling them about their business. This is because they don’t have the right resources and tools in place.
At Making Data Meaningful we have the resources, strategies and tools to help businesses access, manage, transform and present their data in a meaningful way. If you would like to learn more about how we can help your business, visit our website or contact us today.