Prescriptive analysis

Prescriptive analytics – making decision using some kind of analytical model

• Descriptive and predictive analytics creates the foundation (i.e., choice alternatives) for prescriptive analytics (i.e., making best possible decision)

  
  

Descriptive and Predictive leads to Prescriptive

• Descriptive, Predictive → Prescriptive

  
  

Example: Profit maximization based on optimal spending on promotions and product/service pricing

Mathematical Programming: A family of tools designed to help solve managerial problems in which the decision maker must allocate scarce resources among competing activities to optimize a measurable goal

Optimal solution: The best possible solution to a modeled problem

Linear programming (LP): A mathematical model for the optimal solution of resource allocation problems. All the relationships are linear.

Linear Programming Steps

1. Identify the ...

– Decision variables - optimal values that will maximize or minimize the objective function

– Objective function

• Objective function coefficients

– Constraints

• Capacities / Demands / ...

2. Represent the model

– EXCEL: Input data into specific cells in Excel

3. Run the model and observe the results