Predictive Modeling Analytics

and
Machine Learning
By Katrina Wakefield, Marketing, SAS UK

For many organisations, big data – incredible volumes of raw structured, semi-structured and
unstructured data – is an untapped resource of intelligence that can support business
decisions and enhance operations. As data continues to diversify and change, more and
more organisations are embracing predictive analytics, to tap into that resource and benefit
from data at scale.

What is predictive analytics?

A common misconception is that predictive analytics and machine learning are the same thing.
This is not the case. (Where the two do overlap, however, is predictive modelling – but more
on that later.)

At its core, predictive analytics encompasses a variety of statistical techniques (including

machine learning, predictive modelling and data mining) and uses statistics (both historical
and current) to estimate, or ‘predict’, future outcomes. These outcomes might be behaviours a
customer is likely to exhibit or possible changes in the market, for example. Predictive analytics
help us to understand possible future occurrences by analysing the past.

Machine learning, on the other hand, is a subfield of computer science that, as per Arthur
Samuel’s definition from 1959, gives ‘computers the ability to learn without being explicitly
programmed’. Machine learning evolved from the study of pattern recognition and explores
the notion that algorithms can learn from and make predictions on data. And, as they begin to
become more ‘intelligent’, these algorithms can overcome program instructions to make highly
accurate, data-driven decisions.

How does predictive analytics work?

Predictive analytics is driven by predictive modelling. It’s more of an approach than a process.
Predictive analytics and machine learning go hand-in-hand, as predictive models typically
include a machine learning algorithm. These models can be trained over time to respond to
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new data or values, delivering the results the business needs. Predictive modelling
largely overlaps with the field of machine learning.

There are two types of predictive models. They are Classification models, that predict class
membership, and Regression models that predict a number. These models are then made up
of algorithms. The algorithms perform the data mining and statistical analysis, determining
trends and patterns in data. Predictive analytics software solutions will have built in algorithms
that can be used to make predictive models. The algorithms are defined as ‘classifiers’,
identifying which set of categories data belongs to.

The most widely used predictive models are:

 Decision trees:
Decision trees are a simple, but powerful form of multiple variable
analysis. They are produced by algorithms that identify various ways of
splitting data into branch-like segments. Decision trees partition data
into subsets based on categories of input variables, helping you to
understand someone’s path of decisions.

 Regression (linear and logistic)

Regression is one of the most popular methods in statistics. Regression
analysis estimates relationships among variables, finding key patterns
in large and diverse data sets and how they relate to each other.

 Neural networks
Patterned after the operation of neuronsin the human brain, neural
networks (also called artificial neural networks) are a variety of deep
learning technologies. They’re typically used to solve complex pattern
recognition problems – and are incredibly useful for analysing large
data sets. They are great at handling nonlinear relationships in data –
and work well when certain variables are unknown

Other classifiers:

 Time Series Algorithms: Time series algorithms sequentially plot data

and are useful for forecasting continuous values over time.

 Clustering Algorithms: Clustering algorithms organise data into groups

whose members are similar.

 Outlier Detection Algorithms: Outlier detection algorithms focus on

anomaly detection, identifying items, events or observations that do not
conform to an expected pattern or standard within a data set.

 Ensemble Models: Ensemble models use multiple machine learning

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 algorithms to obtain better predictive performance than what could be
obtained from one algorithm alone.

 Factor Analysis: Factor analysis is a method used to describe variability

and aims to find independent latent variables.

 Naïve Bayes: The Naïve Bayes classifier allows us to predict a

class/category based on a given set of features, using probability.

 Support vector machines: Support vector machines are supervised

machine learning techniques that use associated learning algorithms to
analyse data and recognise patterns.

Each classifier approaches data in a different way, therefore for organisations to get the results
they need, they need to choose the right classifiers and models.

Find out more about Machine Learning algorithms

Applications of predictive analytics and

machine learning
For organisations overflowing with data but struggling to turn it into useful insights, predictive
analytics and machine learning can provide the solution. No matter how much data an
organisation has, if it can’t use that data to enhance internal and external processes and meet
objectives, the data becomes a useless resource.

Predictive analytics is most commonly used for security, marketing, operations, risk and fraud
detection. Here are just a few examples of how predictive analytics and machine learning
are utilised in different industries:
1. Banking and Financial Services
In the banking and financial services industry, predictive analytics and machine
learning are used in conjunction to detect and reduce fraud, measure market
risk, identify opportunities and much, much more.
2. Security
With cybersecurity at the top of every business’ agenda in 2017, it should come
as no surprise that predictive analytics and machine learning play a key part in
security. Security institutions typically use predictive analytics to improve
services and performance, but also to detect anomalies, fraud, understand
consumer behaviour and enhance data security.
3. Retail
Retailers are using predictive analytics and machine learning to better
understand consumer behaviour; who buys what and where? These questions
can be readily answered with the right predictive models and data sets, helping
retailers to plan ahead and stock items based on seasonality and consumer
trends – improving ROI significantly.
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 Want to find out more about getting Predictive Analytics to work?

Developing the right environment

While machine learning and predictive analytics can be a boon for any organisation,
implementing these solutions haphazardly, without considering how they will fit into everyday
operations, will drastically hinder their ability to deliver the insights the organisation needs.

To get the most out of predictive analytics and machine learning, organisations need to ensure
they have the architecture in place to support these solutions, as well as high-quality data to
feed them and help them to learn. Data preparation and quality are key enablers of
predictive analytics. Input data, which may span multiple platforms and contain multiple big
data sources, must be centralised, unified and in a coherent format.

In order to achieve this, organisations must develop a sound data governance program to
police the overall management of data and ensure only high-quality data is captured and
recorded. Secondly, existing processes will need to be altered to include predictive analytics
and machine learning as this will enable organisations to drive efficiency at every point in
the business. Lastly, organisations need to know what problems they are looking to solve, as
this will help them to determine the best and most applicable model to use.

Understanding predictive models

Typically, an organisation’s data scientists and IT experts are tasked with the development of
choosing the right predictive models – or building their own to meet the organisation’s needs.
Today, however, predictive analytics and machine learning is no longer just the domain
of mathematicians, statisticians and data scientists, but also that of business analysts and
consultants. More and more of a business’ employees are using it to develop insights and
improve business operations – but problems arise when employees do not know what model to
use, how to deploy it, or need information right away.

At SAS, we develop sophisticated software to support organisations with their data governance
and analytics. Our data governance solutions help organisations to maintain high-quality data,
as well as align operations across the business and pinpoint data problems within the
same environment., Our predictive analytics solutions help organisations to turn their data into
timely insights for better, faster decision making. These predictive analytics solutions are
designed to meet the needs of all types of users and enables them to deploy predictive models
rapidly.

Find out more about predictive analytics

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