The Stream by River Logic

Prescriptive Analytics Delivers Major Cost-savings to CFOs

May 31, 2018 | By River Logic

The age of connectivity is at it’s outset. While today nearly 40% of the world’s population has an internet connection, that number will only continue to increase. The Internet of Things (IoT), where products communicate with their surroundings via connectivity, like a car receiving instructions to slow down from sensors on a bridge detecting ice, is imminent.

Businesses and enterprises that wish to keep pace with innovation must find a way to harness insights that are contained in massive data sets. These insights may range from information about how much to charge for a product or service at a particular time of day, to demographic trends that indicate how to deploy a new facility in a new location.

Businesses leaders who harness the power of prescriptive analytics will gain advantage in the increasingly connected business environment that calls for data-driven risk management and capital deployment simulations. Here’s how decision makers will prevent their organizations from losing cash while also driving higher profits with prescriptive analytics.

Simulation To Initiate Cost Savings

As enterprise networks grow to serve larger numbers of customers, and employ more workers, data will become the key to bypassing risk and ensuring cost savings are locked in. With prescriptive analytics, leaders will have the power to identify how a system would behave under different configurations. Simulations make sure that integral performance metrics are met such as wait times, queue length, etc.

When decision makers are faced with a variety of choices, they can implement prescriptive analytics simulations to identify how their organization will function in the event of impending changes. For example, leaders can simulate the impact of regulatory changes, less employees working more hours, global price changes, fluctuations in the cost of their own products or services, an increase or decrease in emission, and the effects of various execution strategies to identify what situation might catalyze the highest cost savings.

When it comes to scope creep, prescriptive analytics will assist decision makers in simulating future project needs so that parameters can be more reasonably understood and defined from a project’s inception. For example, through a simulation, a leader would be able to establish procedure for a stage in the project that may be years down the line.

Prescriptive Analytics and Stochastic Optimization To Drive Profits

Prescriptive analytics do more than prevent risk; they will also automatically direct business leaders towards the most profitable business plans based on stochastic optimization.

Stochastic optimization leverages linear programming to measure the best action plan for a business given the desired outcome and functional constraints. Constraints can include:

    • Production headcount and capacities
    • Legal and regulatory constraints
    • Financial limitations like borrowing and working capital
    • Emissions

While the error of human analysis will be removed, profits will also benefit from precise analysis of how a given business plan will affect an organization and what the organization should do.

Major Industries Influenced

Nearly all industries benefit from the cost savings and increased profitability made possible by prescriptive analytics, but the most notable benefits have been experienced by enterprises in fields that serve large populations including:

    • Logistics: Prescriptive analytics help leaders assess how to scale as capacities change, how many employees to hire, and how to make the most of changing global prices.
    • Transportation: Prescriptive analytics help leaders identify how to drive profit when ticket rates change, usage fluctuates, and how many employees are necessary in varying demographic circumstances.
    • Sales and Service: Prescriptive analytics help leaders optimize price offers depending on the fluctuating nature and constraints of a customer relationship.
    • Healthcare: Prescriptive analytics help leaders drive cost savings and profits when outbreaks spread, as demo/prescriptive-analytics-in-healthcare graphics change, and how to scale as capacity changes.
    • Oil and Gas: Prescriptive analytics help leaders minimize risk by assisting with deciding on the best drilling locations.

Competitive Insights

If your organization is ready to utilize data-driven cost savings and experience stochastic simulations to gain insight as to how position yourself to drive profits, consider harnessing the power of prescriptive analytics.

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