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CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Data Science for Business Decision-making

A Mumbai bank uses a model that estimates the probability of each loan customer defaulting in the next 12 months. Which type of analytics is this, and what question does it answer?

This is predictive analytics, which answers what is likely to happen. The bank uses historical data to estimate each customer's probability of default over the next year. Descriptive analytics only summarises the past, and prescriptive analytics recommends actions.

  1. ADescriptive; what happened
  2. BDiagnostic; why it happened
  3. CPredictive; what is likely to happenCorrect
  4. DPrescriptive; what should be done

Explanation

Estimating future default probability from past data is forecasting, which is predictive analytics, answering what is likely to happen. Descriptive summarises the past, diagnostic explains causes, and prescriptive recommends actions such as the loan limit to set.

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