Analytical Tools for Business Decisions

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Analytical tools help you make better business decisions.
Analytical tools help you make better business decisions. (Image: David De Lossy/Photodisc/Getty Images)

Analytic tools can help your business gain or increase its competitive advantage and improve decision-making. For example, while you might be aware that productivity is decreasing, quantitative analysis tools can help you determine the reason. Although some tools require extensive mathematical and statistical knowledge, even a small business with limited resources can use tools such as what-if simulations, trend charts, benchmarking and ratio formulas to improve work-flow processes and financial management and to increase efficiency

What-if Simulations

What-if simulations such as scenarios, data tables, Monte Carlo simulations and Goal Seek are useful financial and risk management analysis tools. These tools, which are available in spreadsheet software programs, help you determine what might happen if variables should change and enable you to see what you need to produce a specific result. Scenarios, data tables and Monte Carlo simulations allow you to change one or more input variables to see, for example, how different combinations of raw materials costs, pricing and consumer demand affect your net profit. A Goal Seek simulation starts with an expected result such as net profit and determines the input values required to produce that result.

Trend Charts

Trend charts display data over time to reveal both positive and negative trends. However, because it requires historical data, trend analysis is often more appropriate for an existing business. This tool is useful for analyzing productivity and operational efficiency and for making comparisons. For example, a trend chart might be useful for comparing annual employee turnover rates. Further analysis might help you determine whether the money that you’re investing in an employee engagement program is having the intended effect. In the same way, a trend analysis can assist in scheduling call center employees.

Benchmarks

Benchmarks are reference points such as ratios and percentages, and they are most often used for analyzing performance. Benchmarking assists with internal and external analysis. As an internal analysis tool, a benchmark is both an expectation and a way to determine whether employees are meeting productivity and performance goals or whether your sales department is meeting expectations. As an external analysis tool, the use of benchmarks provides ways to compare your business to national, regional and industry standards and assess how well your business is performing by comparing it with competing businesses.

Math and Statistics Ratios

Ratios are among the most helpful analysis tools. Financial ratios such as debt-to-equity, a liquidity assessment called the current ratio and net profit margin can help you analyze your current financial position. Human resources ratios such as cost per hire, turnover costs, time to fill jobs and health care costs per employee can help with planning and managing employee-related expenses. Customer acquisition and retention ratios are useful for both retail and service businesses.

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