Using Predictive Models and Analytics for Financial Forecasting

Predictive models and analytics are a prime way to determine you or your business’ current and future financial status. These models, which help you to summarize important financial information and visualize trends, give you insight into the efficacy of your financial state and better predict which financial moves you should make moving forward.

One of the great benefits of predictive modeling is that it can be used in a vast array of industries and data sets. For example, predictive modeling can predict how a certain product will fare on the market, or how successful an email campaign will be. It can even use data from personal purchases to establish spending patterns. These predictions are typically based on the basic questions of what has happened in the past, what the financial outcomes of those events were, and what patterns can be seen over time.

Predictive Modeling vs. Predictive Analytics

Predictive modeling and predictive analytics are used in tandem to draw larger conclusions about financial decisions. The task of modeling often deals heavily with statistical probability of something happening. Using data mining and machine learning, models are created that represent projected outcomes. These models are not considered fixed, and can be updated and changed as data sets evolve.

Predictive analytics, alternatively, analyze those models to uncover potential risks, identify patterns, and recognize future opportunities for growth.

Together, both modeling and analytics allow you to make proactive financial decisions. In practice, this might look like collecting data on how often customers click a certain link on your company website, then modeling those projected outcomes, and then analyzing those outcomes to identify the patterns that cause a customer to click, or not click, on that link. The final step would be making financial or managerial decisions, based on those patterns, in order to encourage an increase in customer engagement.

Utilizing both predictive modeling and predictive analytics gives you greater insight into the potential success of your business and finances. Using these techniques together allows you to make proactive, rather than reactive, financial decisions.