Predicting the future has long been associated with superpowers or a link to the mystic realm. Throughout the ages, we’ve seen various types of attempts at clairvoyance, like using crystal balls and tarot cards, but businesses just couldn’t fit circus sideshow psychics every month into their calendars, so a better way needed to be discovered.
Thankfully, the age of technology came upon us, and we managed to tame the future with the help of machine learning and a lot of data. This leads us to our main topic – predictive analytics. It’s a constantly evolving area of interest that has the potential to transform a business from a small competitor to an industry-leading titan. This is thanks to the technology’s ability to constantly optimize your processes regardless of any dynamic or emergent events and circumstances.
So, today let’s go through some of the ways financial predictive analytics can help your company enhance its planning processes and what tools and techniques can help you best utilize it.
What is Predictive Analytics?
We can’t start listing the benefits of predictive analytics without first talking about what it is. As you may have guessed, predictive analytics in finance, marketing, or any other field is the ability to forecast future events using what current data we have. It uses all the data analytics tools like machine learning and historical data to make these predictions as accurate and data-informed as possible.
Furthermore, unlike prescriptive analytics, predictive analytics doesn’t tell the finance teams what to do; rather, it makes detailed claims about industry outlooks and allows the teams to base their decisions on that. Naturally, trying to predict the future by using historical data is nothing new to the finance sector. Businesses have been doing this for years.
The value predictive analytics brings to the table lies in speeding up the process while maintaining a fundamental precision of the forecasts. And thanks to the many technological improvements we’re witnessing nowadays, financial predictive analytics has become a vital part of any financial institution’s workflow and process implementation.
What are the benefits of predictive analytics?
By now, you’re probably thinking to yourself that predictive analytics in finance is quite impressive. And you’ll be correct, but it’s not just impressive; it’s also beneficial to your business in all kinds of ways.
Let’s start with the first and most obvious benefit!
Reduced financial planning costs
Which costs exactly, you ask? Well, whichever you want, really! Just integrate predictive analytics into your budgeting and risk modeling BI systems and generate the insight that will improve your everyday cash flows like a charm.
Increased revenue
As obvious as it may seem, it still bears mentioning that with predictive analytics at your side, you won’t just be reducing costs; you’ll be increasing revenue as well. We don’t just mean as a result of the first benefit but added to it – all thanks to machine-learning-enhanced predictive models. That’s quite the mouthful, we know, but it will help your employees to make more profitable decisions about the market.
Overall minimized risk
Another benefit that financial predictive analytics will provide your business is an overall minimized risk. Naturally, this is crucial for any financial institution and also ties back into the cost-saving benefit. With a predictive model, your business will be able to generate various economic scenarios that will provide you with all the evidence you need to make data-informed decisions that are as risk-free as possible.
We can go on like this for a while, but we think you got the general gist of financial predictive analytics and its benefits. So, let’s move to something more dynamic and trendy – the hottest predictive models amongst the industry-leading titans.
Popular Techniques
In this volatile market rife with uncertainty, financial predictive analytics users can find solace in the vast array of flexible modeling techniques available right now. These are necessary in order for you to get those much-needed forecasts on your data so that you can anticipate future trends, market risks, and even your customers’ behavior. But which are the most efficient ones? Well, there’s no one right answer to this question since, like in most things in life, it depends on what you want to analyze.
Classification model
There are several very popular machine-learning predictive models that have seen widespread use. Techniques like the classification model can help you predict whether a competitor’s shares will go up or down after a certain campaign or event. It’s usually used to guide decisions based on a broad assessment of the given data parameters.
Outliers model
If you want to reduce your planning costs, there is also the outliers model, which can help detect any major deviations from the standard datasets. In other words, it’s often used to spot fraudulent behavior, but it’s not limited to just that. Since the ability to spot outliers is generally quite helpful, it can also aid you with finding errors in your data by highlighting anything that’s out of the ordinary.
Neural Networks
When it comes down to it, nothing beats the power and versatility of AI models. In fact, a common one we see in many financial institutions is Neural Networks. It uses pattern recognition and is a perfect addition to any live trading system full of nonlinear and nonstationary data. There are various sub-models that can be highlighted here, but since that’s not the focus of this article, we’ll leave it for another time.
The Anaplan Way
Now that you’re armed with the knowledge of financial predictive analytics and its benefits, you’ll probably need a platform that will help you best utilize it. Luckily, we’ve got the answer to that as well. Anaplan is an excellent option to consider since it upgrades your financial planning to the next level – connected planning.
There are many benefits of connected planning, Generally, with connected planning, you’ll be able to easily promote company-wide cooperation between all your departments, but more importantly – you’ll be able to take advantage of predictive analytics. It has the built-in ability to run “what-if” scenario analyses for all your data so that you’re always prepared to make tough but optimal decisions. With it, Anaplan combines the predictive functionality with the planning functions and processes every business deals with daily.
Furthermore, with Anaplan you’ll be reducing your financial planning costs since you’ll easily be able to see and measure performance across your entire organization. This will result in a more agile workflow with the ability to re-forecast your plans at any time for greater accuracy and an improved ROI.
Additionally, by eliminating single-file spreadsheets and combining everything in one easy-to-access place, you’ll offer your teams a genuine single source of truth, which will generate a more confident and trustful environment.
If you’re doubtful about Anaplan, though, we get it! Making big changes and switching platforms always carries a certain risk, so why not get inspired by Markel’s transformation?
We’re talking about a financial holding company that managed to save around 6,000 hours a year by integrating Anaplan. Analyzing, predicting, and planning for so many scenarios and metrics used to be the main challenge their teams faced. And in the end, it turned out that the answer wasn’t to add more professionals to the mix but to let modern technology do its thing and save them a ton of time, money, and effort.
Conclusion
So, there you have it! A bunch of benefits and techniques that should get you interested in predictive analytics and a platform to help your company take advantage of some of that to boot. What more can a humble article like ours offer?
Well, our services, of course! If you want to know more about Anaplan and how it can fit into your current organization setup, then be sure to schedule a meeting or call with our experts.
Furthermore, if you don’t wish to go the Anaplan route but are still interested in predictive analytics and want to integrate some of that magic into your systems, then feel free to contact us as well. After all, there is no out-of-the-box deployment when it comes to financial predictive analytics techniques, so you’ll need a consulting firm, either way, to determine which approach will best fit your organization.
Finally, until we meet in another blog post, be sure to stop going to those circus psychics – they’re kind of a scam, after all.
