All types of organizations can benefit from making smarter decisions informed by data. Take the hypothetical example of a toy company. The executives at the toy company want to expand their product line and make new toys available in time for the holiday shopping season.
They could take one of the following actions:
- Make a guess regarding which toys are most likely to be enticing to children and appealing to their parents.
- Use data-fueled insights to evaluate trends in consumer demand and create new toys based on those sales trends and consumer behaviors.
The toy company executives might get lucky with the former route, but they’re more likely to achieve stronger sales with the latter strategy. In order to use the second strategy, the toy company executives need the insights produced by business analytics.
In short, business analytics can allow an organization to increase revenue and cut costs by making smarter decisions that are aligned with the organization’s strategic objectives.
In the field of business analytics, professionals rely on four primary types of analytics to interpret data and guide decision-making. The four main types of business analytics are:1
- Descriptive: Business analysts use descriptive business analytics when they need to understand and summarize historical data, such as past consumer trends.
- Diagnostic: When the data reveals a potential problem, such as a drop-off in sales, business analysts can use diagnostic analytics to find the reason. This involves applying data mining techniques to identify patterns and correlations. Diagnostic analytics can also identify new opportunities for the company and figure out how changing one area of the organization might affect another area.
- Predictive: Not all data focuses on the past. Business analysts can use predictive analytics tools, like machine learning and artificial intelligence, to identify trends that are likely to happen in the future. Through predictive analytics, companies may identify possible market trends and consumer behavior in the future.
- Prescriptive: Prescriptive analytics is a natural add-on to predictive analytics. Whereas predictive analytics tries to project future occurrences and trends, prescriptive analytics develops recommendations for actions to take in order to capitalize on anticipated future trends. Prescriptive analytics helps business leaders develop strategic responses to anticipated outcomes.
When comparing the main types of business analytics, it’s important to note that one type isn’t “better” than the others. Rather, all four are used together at varying times to generate robust business insights that fuel informed decision-making.
