What Is Descriptive Analytics? (Plus Benefits And Examples)
By Indeed Editorial Team
Published 29 September 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies often use descriptive analytics to understand and identify changes in a business over time. Often, management and finance professionals use this information to gain an advantage in their work. Understanding these analytics and their uses can help you in your career. In this article, we discuss what descriptive analytics is, list the steps of the process, explain the benefits of using this method and provide examples of its practical use.
What is descriptive analytics?
Descriptive analytics is a method professionals use to interpret historical business data so they can understand the changes a business experiences over time. They calculate this information using a specific data collection period. Unlike other analytical methods, this one focus on what already happened rather than forecasts and predictions to make conclusions about the future. Many professionals use these analytics as a starting point for other types of analysis since it's relatively simple and uses fundamental mathematical concepts, such as statistics, percentages and averages.
Companies often use these analytics to create reports on basic financial metrics, including monthly sales growth, annual price changes, the total revenue a company makes per customer and the number of customers who purchase a company's specific products. These reports also use other metrics that show how the business evolved over its lifespan. Companies can use these reports to see what changes they may want to make to the business processes to improve their future results.
5 steps of the descriptive analytics process
Here are five steps you can follow when conducting a descriptive analysis:
1. Select the business metrics you plan to use
The first step in the analysis process is to choose metrics that evaluate the business's performance over a set period. You can review these metrics to see if you're meeting your goals in weeks, months or years. Your goals may include increasing profits or improving the efficiency of business operations. This first step is instrumental for the success of the analysis and lets everyone involved in the process know what the data means and what it aims to measure.
2. Collect the relevant data
Next, you can gather the data you plan to use in the analysis from various sources like company databases and previous reports. After choosing the data, it's important to ensure each source has a proper identification mark. Often, the data you collect comes from various sources and locations, so it's important to arrange them to ensure your information is consistent.
3. Prepare the data
After collecting the data, you can prepare it to ensure its accuracy. This part of the process usually takes the longest amount of time since it's a manual process. Data preparation usually includes locating, transforming, cleaning and organising the information after collecting it.
4. Analyse the data
After you've correctly organised all the data, you can use various tools to analyse it. Some tools you can consider are pattern tracking, statistics, clustering or regression analysis. The main purpose of this step is to identify patterns in the data. By identifying these patterns, you can also discover how key performance indicators change over time.
5. Present the data
After everyone on the team gathers and analyses the data, you can share it with external and internal stakeholders in the company. You can present this statistical information with visual tools like charts and graphs to make it easier for them to understand. Sharing information so others understand can also help leaders in the company discover new ways to set new performance indicators and goals for the business.
Benefits of descriptive analytics
Making use of descriptive analysis can help the company in various ways. Here are some benefits of using the method:
Assesses the company's current goals: When you identify the company's key business indicators, you can examine how effective the current processes in the company are and if they're achieving business goals. You can also use the patterns you've identified to check if the chosen metrics are relevant to reaching your targets, such as operations effectiveness or revenue gain.
Puts the company's actions in a historical context: Performing a descriptive analysis of a company can provide an opportunity to look into the company's past work and understand how customers interact with the products or services. You can use this new information to plan and strategise for the future.
Assesses the effectiveness of company's operations: Many companies usually operate with a large network of customers, contractors, suppliers and other parties and departments. When you use this method, you can learn how changes made in a company, such as changing a supplier or vendor or introducing a new product line, can affect operations in the company.
Identifies flaws and performance issues in procedures: When you use descriptive analysis regularly, you can identify if there are any procedures or processes irrelevant to the company's growth. You can remove these processes and replace them with ones that can help the company instead.
Helps in comparison of multiple periods in the company's past: Analysing the company with these analytics can give you insight into different periods in the company's lifespan and compare them with the key performance indicators. If some periods are doing better or worse than others, you can use the data from the analysis to find out why.
Requires minimal financial or statistical background: A benefit of using descriptive analysis is that it requires minimal background knowledge in finance or statistics to understand since it's easy to present the data in simple terms. This simplicity helps anyone who wants to read it understand the results and conclusions quickly.
Examples of descriptive analysis in use
Here are examples you can refer to when wanting to learn how these analytics can help a company:
Review the following example on the application of this type of analysis:
The Push and Bunny beauty company recorded total revenue of $800,000 for 2021, with a 40% rate of profit, which means it registered an annual profit of $320,000. At first glance, this information may show that the company has a healthy and profitable business with little reason to change its processes. After descriptive analysis, the business leaders found out the company had revenue of $1,000,000 and a profit rate of 45% in 2018, which was the last of a three-year streak of increasing revenue and profit.
With this analysis, the leaders presented the results to the company's stakeholders to inform them that a change in 2021 could have affected the company's ability to sell its usual amount of products, leading to a decrease in profit. The stakeholders could use this information and analysis to review the operations and efficiency of the previous years to discover what's affecting the growth. After identifying the issue, they can change procedures to improve the company's revenue and profit again.
Here's an example of using analytics to reduce wastage:
Ben and Stiller's Ice Cream Co. is facing a milk supply issue. They either have too much milk that goes bad within a few weeks or have a shortage of it during peak periods. After using descriptive analysis to look through historical data, they discovered that many of the locations where they sell their ice cream experience are near schools. The demand for ice cream is always much lower during the school holidays, which leads to a surplus in milk supply.
Using what they learnt from the analysis, the company can then tell their operations manager to order extra milk during school time and reduce their orders during school holidays. Budgeting this way can lead to the company saving costs since the milk won't go to waste.
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