Predictive and Prescriptive Analytics

Question 1

What is predictive analytics ?

Answer 1

Analysis that uses historical and current data to predict the future.

Question 2

What are some examples of predictive analytics ?

Answer 2

Linear regression
Decision trees
Simulations

Question 3

Why is linear regression useful for sensitivity analysis ?

Answer 3

It can demonstrate where changes will impact the NPV.

Question 4

What is a decision tree ?

Answer 4

A type of analysis used to identify the impact of different decisions on the outcome of an investment.

Question 5

What are the advantages of Decision trees ?

Answer 5

Simple.
Can be used to consider multiple decisions.

Question 6

What are the limitations of Decision trees ?

Answer 6

Large decision trees or many possible outcomes can become hard to interpret.

Question 7

What is the purpose of simulations (MC) ?

Answer 7

Simulation improves the effects shown by SA by looking at the impact of many variables changing at the same time.

Question 8

How does simulation predict the probability of different outcomes ?

Answer 8

1. Specify major variables, their probabilities.
2. Specify relationship between variables.
3. Simulate environment.

Question 9

Name another type of analysis that Simulation can improve ?

Answer 9

Environmental risk analysis -
gives more information about the impact of environmental costs on new ventures.

Question 10

What are the advantages of Simulations ?

Answer 10

Provides more information about possible outcomes and their sensitivities.
(non) analytical.

Question 11

What are the limitations of Simulations ?

DATE

Answer 11

Doesn’t make decisions.
Assumptions may be flawed.
Time-intensive without tech.
Expensive to implement.