How can you benefit from predictive analytics?
We can already predict opportunities in business but we should also predict compliance and integrity risks. Traditionally, risk management has had a backwards-looking view. Mostly focused on mitigation and remediation - what might happen, what happened and what to do to prevent it from recurring.
This approach was acceptable some 15 years ago (where it was very much a standard for the industry). Now, in an era when we can predict potential risks before they even happen, this approach is no longer good enough. Predictive analytics has created new ways of measuring and managing risk, using a combination of data mining, machine learning, artificial intelligence and cognitive analysis to predict future happenings. It also allows you to be aware of the trends, behaviour and patterns of key stakeholders in the market, which then helps determine and predict where potential risks may arise.
The use of predictive analytics
In finance and banking, predictive analytics can be used to predict potential bad debtors by using set creditworthiness scores before a loan is granted. Predictive analytics could have saved Nestle from their supply chain issues of the past.
“In 2015 Nestlé’s third parties were found to have engaged in slavery and child labour. In 2015, the Swiss food and beverage company admitted that a part of its supply chain in Thailand used workers trapped in illegal and brutal working conditions. The company also allegedly purchased cocoa from the Ivory Coast, despite knowing that it was an area known for child slavery”
Future-thinking compliance
Predictive analytics can stop an organisation from suffering compliance or integrity issues. They no longer have to wait for something to happen, figure out what went wrong and remediate. Instead, they can take a future-thinking view that prevents issues before they impact the business.
For instance, the historical and current behavioural patterns of a target can be analysed to determine whether they are likely to engage in any illicit practices like corruption, bribery or fraud. Armed with this knowledge, a company can then deploy remedial measures in real-time.
In compliance, predictive analytics can forewarn of potentially risky markets, suppliers, channel partners, industries and even transactions or dealings. Predictive analytics can automate supplier and channel partner approval processes, whilst also providing recommendations through pre-defined risk algorithms.
How to use predictive analytics now
There are many ways to bring predictive analytics into your operations now, without significant investment in a dedicated team. Reporting tools use predictive analytics to provide recommendations on mitigating risk. Rating systems can rank the most urgent risks to be addressed, allowing you to focus resources on the issues that will damage your organisation the most.
Further analytics can consider the suppliers and partners who are part of your organisation’s wider network. No company exists in a bubble, and issues with one supplier can soon spread to its clients and partners.
The same data can be used to benchmark risk and performance against industry peers. Using this, organisations can determine what suppliers and partners are likely to expose them to more risk (and those that won’t).
Available to every business
Knowing about potential risks before they happen can save a lot of time, cash and effort. By avoiding risky behaviours, you avoid the heavy fines and reputational damage that often accompany them. Plus, there’s the added sense of security that you receive when you know that risks are being remediated before they make an impact. This level of risk prediction was almost impossible a few years ago, but thanks to advances in technology that are now readily available, it’s at the fingertips of every business leader.