Predictive analytics are statistical analysis based on your data, to determine the most likely outcome AND provide a magnitude estimate of risk.
For example: let’s say your firm has been in business for 5 years and tracked your hours, consulting costs, and expenses. If you have collected that data well and segmented the data, you could predict how many hours would be required, what consultant fees should be, and what expenses might be for a new project. A well-constructed analysis will also tell you not just the most likely (mean), but it will tell you how wide the spread of possible outcomes. Imagine that your mean is 100 hours and the spread is +/- 5%. Now you know the most likely number of hours you will need. But because of your spread, it could be from 95 to 105 hours.
This should cause you to consider where the risks in this opportunity, and how could you manage that risk. Maybe there are clauses in the contract that could move risk, or build in contingency, or propose a T&M arrangement which gives you and your client share the risk more equitably to both sides.
-Ed Shriver
