The Type of Question Asked Leads to the Analysis Performed
What Happened? – Descriptive Analytics.
Why Did It Happen? – Diagnostic Analytics.
Will It Happen in the Future? – Predictive Analytics.
What Should We Do, Based on What We Expect Will Happen? – Prescriptive Analytics.
Descriptive Analysis characterizes, summarizes and organizes past performance.
Addresses questions like:
Did we make a profit last year?
How much did we pay in federal taxes last year?
How long have the existing accounts receivable been past due?
Diagnostic Analysis investigates the underlying cause of a phenomenon.
Addresses questions like:
Why did advertising expense increase but sales fall?
Why did we experience an unfavorable labor rate variance last year?
Why did overall tax increase even though net income did not?
Predictive Analysis provides foresight by identifying patterns in historical data.
Addresses questions like:
What is the chance the company will go bankrupt?
What is our expected sales and income next year?
Can we predict if the financial statements will be misstated?
Will the borrower pay us back the loan we’ve granted her?
Prescriptive Analysis identifies the best possible options given constraints or changing conditions
Addresses questions like:
What is the level of sales needed to break even?
How can revenues to maximized if there is a trade war with China?
Should the company lease or buy its headquarters office?
Should the company make its own products or outsource production to another company?