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ACCA Strategic Professional · Strategic Business Leader · Big data and data analytics

Lumen Bank uses historical loan records, applicant characteristics and repayment behaviour to build a model that estimates the probability each new applicant will default within two years. Which type of analytics and associated technique best describes this?

This is predictive analytics using statistical or machine learning models. The bank uses historical data to estimate the probability of future default for new applicants. It forecasts outcomes rather than describing the past, explaining causes or recommending a specific lending action.

  1. ADescriptive analytics using data visualisation
  2. BDiagnostic analytics using drill-down
  3. CPredictive analytics using statistical or machine learning modelsCorrect
  4. DPrescriptive analytics using optimisation of lending limits only

Explanation

Estimating the likelihood of a future event from historical patterns is predictive analytics, typically using regression or machine learning classification. The model does not itself recommend decisions, so it is not prescriptive.

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