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ACCA Strategic Professional · Strategic Business Leader · Finance transformation

Tessing Group's finance function has built a model that predicts which customers will default within 90 days. The CFO now wants the system to automatically recommend, for each at-risk customer, whether to reduce the credit limit, call the customer or offer a payment plan, based on expected cost and recovery. Which step in the analytics maturity progression is the CFO requesting, and what is the key implication?

The CFO is requesting prescriptive analytics. Predicting default is only the predictive step; recommending whether to cut limits, call or offer a plan requires optimisation or decision rules with defined objectives, costs and constraints. Predictive analytics estimates likelihood but does not select the best action.

  1. APrescriptive analytics, which requires optimisation or decision rules and defined business objectives and constraints in addition to the predictionCorrect
  2. BDescriptive analytics, which requires only reports of past defaults
  3. CPredictive analytics, which already covers choosing the best action once the default probability is known
  4. DDiagnostic analytics, which requires explaining why past defaults arose before any action is chosen

Explanation

Recommending the best action given costs and recoveries is prescriptive analytics. It builds on the prediction but needs explicit objectives, constraints and decision logic. Predictive analytics stops at estimating the likelihood of default, so it does not itself choose among actions.

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