Practical Uses of Factor Analysis

Factor analysis is what every business needs to get the most from their operation. Examining statistics allows you to dissect variables such as demographics and target consumers. By breaking down the key factors, you can tweak processes to create the most effective channels and strategies. Put simply, factor analysis takes the guesswork out of budgeting, advertising and even staffing. It is a practical tool created through successful market research and analysis in any industry.


Investing is a field that relies on data analysis to make vital choices. The safest approach to creating a portfolio is to diversify stocks. A balance of risk levels protects the investment in case adverse conditions alter one market. Investment professionals use factor analysis to anticipate movement in a variety of industries. It may provide clues that would otherwise go unnoticed. If one portfolio holds stocks in both commodities and technology, a sudden increase in the price of a related variable, oil for example, may not seem to factor into the equation without proper analysis.

Human Resources

Many factors influence the staffing of a company. Through statistical interpretation, human resource professionals can create a balanced environment. A staffer might combine different variables together to determine if a company can benefit from fewer contractors and more in-house talent. Testing allows proper screening of employees using factor analysis. Market research and analysis can be the key to getting the best fit in graduates each year.


Insurance companies rely on actuarial tables and statistics to create policies. Florida is prone to hurricanes. Certain data may show that drivers between the ages of 25-40 handle stress and emergencies better than any other age groups. Based on that fact, automotive policyholders in Florida who fall within that range may get discounts on coverage. Studying variables is the only way insurance companies can make decisions regarding deductibles, rates and available plans.


Even industries that seem less obvious need to focus on market research and analysis to survive. Restaurants take demographics and target customers into account when creating menus. The sweet shop next to a university is going to plan differently then the family restaurant in a tourist area for menu items and advertising. From competitors to the ethnicity breakdown of a community, data collection allows for cost-effective planning and a successful restaurant.


Education uses this technique in decision-making processes. A school council looks at classroom sizes and testing results to set salary and staffing limits for teachers. Data analysis goes into determining the curriculum each year for education from grade school to graduate programs. Even industries that require continuing education will look at different factors in creating options.

Factor analysis plays a role in most industries. Through statistical planning, companies can make better choices for everything from multi-channel marketing to inventory control. Data is a powerful tool and factor analysis uses it to get results.

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