What's an Analytical Report- Its Purpose and How to Use It

What Is Analytical Report August 07, 2020

Lauren Christiansen

Writer

Many businesses try to find ways to improve operational efficiency and productivity so they can continue growing and innovating. This process includes determining which internal and external factors affect the key performance metrics of different departments. A data-driven world provides businesses a unique opportunity to understand the inner workings of their company and what solutions are available to resolve concerns.

Analytical reports and reporting software utilize a variety of methodologies to help businesses solve difficult problems. To further understand why businesses should take advantage of analytical reporting tools, it's important to know what they are, what their purpose is, how they perform different types of analysis and some guidelines for using them.

What is an Analytical Report?

An analytical report is a type of report or evaluation of a particular set of circumstances that relate to a company's performance. Data is collected, analyzed, and presented to determine what the next course of action to be taken should be. Different departments within an organization can use analytical reporting software tools to evaluate how well the business is performing.

The Purpose of an Analytical Report in Business

Each department within an organization can use analytical reports to understand various solutions to problems. Additional ways to utilize analytical reports include-

1. Market Analysis
Market analysis helps owners and managers make decisions on how to allocate marketing resources appropriately. Market analysis can help owners reduce future risk by helping them fully understand their market conditions and customer problems. Market analysis can answer the following-

Who are the potential customers?
What are their purchasing habits?
How many customers are there?
How much are customers willing to pay?
Who is the competition and what are their weaknesses/strengths?
How quickly is the market growing/shrinking?
Are competitors changing their strategies? How will this affect the company?

For example, a market analysis might predict that the upcoming year will see a decrease in growth in a certain product's market. Perhaps the product has become less popular, or there are newer alternatives that are offered by the competition. The market analyst could suggest decreasing the marketing budget for that product to prepare for these unfavorable pending conditions. Or, funds could be allocated towards promoting another company product where the conditions are more favorable.

2. Operations Analysis
Companies typically strive to improve the efficiency of their operations so they can increase productivity and focus on selling more products/services. Operational analysis addresses the following-

How can the company increase productivity?
How are the current operational standards affecting sales?
Are customers negatively/positively affected by the current operational standards?
Is the company using the newest technologies to increase efficiency?
What new technologies & strategies are competition utilizing?
Are the current operational standards affecting the company's ability to innovate?

For example, an operational analysis might assess that competitors who are using dashboards, or information management tools that track and analyze key performance metrics, are seeing an increase in productivity. The analysis would recommend that the company acquire this technology to maintain the same productivity and efficiency as the competition.

3. Trend Analysis
Trend analysis looks for statistical trends in demographics, consumer preferences, and technological developments to identify growth opportunities and ways to increase sales. It also addresses ways for the company to innovate to maintain its customer base while also acquiring new ones. Trend analysis also utilizes historical information to predict any changes that may occur in the future. Questions addressed by trend analysis include-

What new services/products can the company offer to increase the company's customer base?
What type of external market trends affects the company's products or services?
What adjustments can the company make?
What are the company's long-range business development goals?
What is the competition doing to promote their own growth and business development?
What are the company's financial trends and what can be expected in the future?
How can the company continue to grow considering the current and predictive trends in the market?

For example, trend analysis could show a company's amount of sales per month for each franchise. The analysis might suggest the company take advantage of the upward trend in sales by hiring new employees or investing in new products.

4. Financial Analysis
The financial analysis determines how a company's current financial results vary from what had been forecasted. It explains the reasoning behind any negative or positive variances and what future action can be taken to address it. Trend analysis might answer the following-

What are the factors that affect the company's profitability?
What contributes to the company's liquidity?
How is the company's profitability compared to the competition?
What expenses are unnecessary and what can be done to address it?
Which departments or franchisees are having a negative financial impact on the company?
What were some historical trends that contributed to the company's past financial success?
Which products/services are no longer profitable and what can be done to remedy it?

For example, if a restaurant's gross revenue decreased over a monthly span, the financial analysis might attribute it to the change in menu items. The report could analyze which items were the least popular and how it contributed to a decrease in customers. It could then suggest the owner change the menu back to its original form, or offer different items that are more appealing to the customer base.

How to Use an Analytical Report

Analytical reports and reporting software tools exist to address and solve problems. To create an effective report that provides solutions, evaluations, recommendations, and assessments, consider the following guidelines-

Identifying the Problem
Begin by identifying a problem or situation within the company and then explain to whom that problem affects. When describing the problem, consider where it started, what measures have been taken to address it, and whether or not those approaches have been effective.

Explaining Methods
Explain in detail the methodology that has been previously used to address the concern, making sure to be thorough and precise in detail. Also, determine which alternative methodologies can be applied to resolve the set of circumstances.

Analyzing Data
This portion focuses on the success and failures of previous practices that were applied to resolve the problem. A detailed analysis of the available data that backs up his assertions should be included in the report.