With the widespread use of technology and the increasing digitalization of businesses, companies now have access to vast amounts of self-generated data from multiple sources. And with data comes opportunity. But what good is all that data if you can’t easily interpret it? How do you separate the useful data from the rubbish? This is where data analysis comes into play.
Data analytics is the process of transforming raw data into actionable insights that can drive business growth. And the best part? There are five different types, each designed to answer specific questions and help you make informed decisions based on your data.
So, let’s dive in and take a closer look at these five types of data analytics and how they can benefit your team.
1. Descriptive Analytics
Business intelligence and data analysis rely heavily on descriptive analytics. It assists organizations in comprehending their data and providing insights into what has happened in the past. The main goal of descriptive analytics is to summarise, describe, and understand data patterns, trends, and distributions.
It provides a historical view of data and helps organizations to answer questions such as “What happened?” or “What was the trend?”
Key benefits:
- Summarisation of Data: Descriptive analytics summarises large and complex data sets into easy-to-understand information.
- Understanding Data Patterns: Descriptive analytics helps organizations to understand the patterns and trends in their data.
- Identifying Anomalies: Descriptive analytics can help organizations to identify unusual patterns and anomalies in their data.
- Historical View: Descriptive analytics provides a historical view of data, which can help businesses understand how their business has evolved.
Examples of Descriptive Analytics in Business
Here are some specific examples of how descriptive analytics is used in the marketing world:
- Sales and revenue analysis: You can use descriptive analytics to see what months or days had the highest sales and adjust your marketing strategy accordingly.
- Customer behavior analysis: Descriptive analytics can give insight into customer behavior, such as which products they buy the most, how frequently they purchase, and which promotions they respond to best.
- Market share analysis: You can see how your brand stacks up against your competitors by analyzing market share data.
- Inventory Analysis: Manufacturers and retailers can use descriptive analytics to track inventory levels, identify trends in demand, and optimize their supply chain.
2. Diagnostic Analytics
Diagnostic analytics is a data analysis focused on finding the root cause of a particular problem or issue. Businesses of any type and size use it to investigate and explore data In other words, it’s all about answering the question, “Why did this happen?”
Diagnostic analytics is often used in combination with descriptive analytics to provide a comprehensive understanding of a situation or issue. Descriptive analytics summarises what has happened, while diagnostic analytics helps us understand the underlying causes of that behavior.
Key benefits:
- Uncovers the root cause of a problem – This approach involves analyzing data to identify patterns, trends, and anomalies that can explain why a problem or issue is occurring.
- Can be used across the business – Diagnostic analytics can be applied to many issues, including troubleshooting, optimization, fraud detection, and root cause analysis
Examples of Diagnostic Analytics in Business
- Cause-and-effect Analysis: Root cause analysis is an essential application of diagnostic analytics in business. Big companies like Amazon leverage vast amounts of customer purchase history, browsing behavior, and shipping data to identify operational issues and find the root cause of problems.
- Supply Chain Analytics: Organisations use diagnostic analytics to identify the root causes of supply chain issues, such as delayed shipments, inventory shortages, and quality problems.
- Optimization: Companies use diagnostic analytics to identify areas for improvement and optimize their processes. For example, a manufacturer might analyse production data to determine why they are encountering bottlenecks in the production line and find ways to improve efficiency. Furthermore, the manufacturer has the potential to optimize the pricing of their products or services to maximize their revenue.
- Fraud detection: Using diagnostic analytics, companies can identify patterns and anomalies in their data that might indicate fraud, such as unusual spending patterns, or suspicious transaction activity, to include warning signs of identity theft.
3. Predictive Analytics
Predictive analytics is a type of data analytics that uses advanced statistical algorithms, machine learning, and other techniques to predict future events or outcomes. It aims to help organisations make proactive decisions and to provide insights into potential risks and opportunities.
Key benefits:
- It uses statistical algorithms and machine-learning techniques
- Predictive modelling for forecasting and estimating future outcomes
- Identification of patterns and trends in data
- Proactive decision-making for organisations
- Predictive analysis for risk assessment and opportunity identification
Examples of Predictive Analytics in Action:
- Retail Industry: Retail companies use predictive analytics to analyse customer data and forecast future sales. This information is used to optimize inventory levels and improve supply chain management.
- Banking and Financial Services: Banks and other financial institutions use predictive analytics to detect fraud, assess credit risk, and identify potential investment opportunities.
- Healthcare Industry: Healthcare organizations use predictive analytics to forecast future demand for medical services, identify at-risk patients, and improve patient outcomes through personalized care plans.
- Manufacturing: Manufacturers use predictive analytics to predict when equipment is likely to fail, allowing them to schedule maintenance and prevent unplanned downtime.
4. Prescriptive Analytics
Prescriptive analytics is a type of analytics that takes predictive analytics one step further by providing recommendations and suggestions for action based on the predictions made.
It combines predictive analytics with optimization algorithms, decision science, and rule-based systems to help organizations make informed decisions and take proactive measures to optimize outcomes.
Prescriptive analytics answers the question, “What should we do?” by analyzing available data and recommending a course of action to achieve desired results.
Key benefits:
- Decision optimization: Prescriptive analytics uses mathematical algorithms and optimization techniques to find the best possible solutions for a given set of conditions and constraints.
- Predictive modeling: Predictive models use statistical algorithms, machine learning, and other advanced techniques to predict future events or outcomes.
- Real-time analysis: Prescriptive analytics operates in real-time, providing real-time recommendations and updated suggestions as new data becomes available.
- Dynamic visualizations: Prescriptive analytics uses interactive, dynamic visualizations to communicate the insights and recommendations generated from the data.
- Integration with other analytics types: Prescriptive analytics integrates with other analytics, such as descriptive, diagnostic, and predictive analytics, to provide a complete picture of the data and support informed decision-making.
Examples of Prescriptive Analytics in Business
Prescriptive analytics has a wide range of applications in the business world, including:
- Supply Chain Optimization: Prescriptive analytics in supply chain management helps companies make informed decisions on inventory levels, production schedules, and transportation routes.
- Fraud Detection: By analyzing historical data, prescriptive analytics can help financial institutions identify patterns and anomalies in transactions that may indicate fraud.
- Customer Segmentation: Prescriptive analytics helps companies better understand their customers by segmenting them based on demographic, geographic, or behavioral characteristics.
5. Cognitive Analytics
Cognitive analytics is an advanced type of data analytics that utilizes artificial intelligence (AI) and machine learning (ML) algorithms to process and analyze vast amounts of unstructured data.
Data can come in many forms, such as text, images, audio, or video. Cognitive analytics aims to help organizations extract insights and make predictions from complex and unstructured data sets that may be difficult to process using traditional methods.
Key Features:
- Advanced Natural Language Processing (NLP): Cognitive analytics uses NLP to extract insights from large amounts of unstructured data, such as customer reviews and social media posts.
- Deep Learning Capabilities: Cognitive analytics uses deep learning algorithms to analyze data and predict future trends and patterns.
- Automated Insights: Cognitive analytics automates the insights extraction process, reducing the time and effort required to analyze large amounts of data.
- Predictive Capabilities: Cognitive analytics uses algorithms to predict future events and outcomes.
- Interoperability: Cognitive analytics integrates with other tools and platforms, allowing organizations to easily combine insights from multiple sources and get a more comprehensive view of their data.
Examples of Cognitive Analytics in Business
Cognitive analytics is used in a variety of industries and applications, including:
- Healthcare: Cognitive analytics can analyze medical images, such as X-rays or MRIs, to help diagnose diseases or identify potential health risks.
- Customer service: Cognitive analytics can analyze customer feedback and sentiment, such as comments on social media or support tickets, to identify trends and patterns that can help improve customer experiences.
- Retail: Cognitive analytics can analyze customer purchasing patterns, such as the items they buy and when they buy them, to help retailers optimize their inventory and improve the customer experience.
- Market Research: Cognitive analytics can analyze consumer data to gain insights into consumer behavior and preferences.
Don’t run before you can walk with Data Analytics
In today’s digital age, data analytics has become necessary for businesses to stay ahead of the competition. However, as we’ve outlined in this post there are many ways in which you can approach data analytics and so it’s important to take your time and go step by step.
Each of the five types of data analytics is connected and can often be used in conjunction. This means getting to grips with descriptive analytics first before moving on to the next is a good way to ensure you are using them correctly and not overloading yourself. By taking it step by step you’ll be correctly applying the methods to your business to maximise success.
