Descriptive analytics is the utilization of analytics to describe what happened. Generally, descriptive analytics entails the gathering of historical data/transactions and using this data to answer questions about the past and provide context to historical activity. Questions like:
- What were the Company’s sales last month, last quarter, last year?
- Who were the Company’s largest and most profitable customer last month, last quarter, last year?
- Who were the Company’s largest vendors last month, last quarter, last year?
As one of the first steps in building an analytics platform is determining what questions the Company’s management or teams has, descriptive analytics are usually the entry into analytics and ground level on development of data aggregation, future analytic projects and deeper diagnostics or business intelligence. These initial questions provide the foundation for setting goals, determining key performance indicators (“KPIs”) by which the Company wants to evaluate its operations. Utilizing a dashboard or a series of graphs and charts, a Company can visually see the answers to What Happened?
While it might not seem apparent, majority of businesses are currently using descriptive analytics in their daily functions and reporting as a business typically learns from past experiences and behaviors. Examples include monthly financial statements, sales reports, customer reports, and inventory reports, thus providing surface level information. As a business continues to implement the use of descriptive analytics into their decision-making process, a Data Analytic platform will slowly move toward more diagnostic, predictive and prescriptive analytics.
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Kevin Bach, CPA