Business Analysis Tools and How to Use Them
Keeping a business afloat and also striving for growth and expansion requires you to come with techniques and systems that help you serve your customers without exceeding your budget and depleting your resources. This in turn requires that you create a profile of your ideal customer, create and test your marketing mix, promote clarity in the organization, and also invest in human talent.
All this comes under the umbrella term of business analysis.
In this article, we will go through some of the most commonly used business analysis tools and how they help you achieve business success. But first, let us answer an important question:
Why Analyze your Business?
When you conduct market research or attempt to implement new technology, you need to communicate the technical data and difficult-to-understand jargon to all employees and stakeholders, most of whom lack the prowess to decipher the complexity of information on their own. However, if the information is not communicated clearly, then operations will suffer and the company will lose data. Business analysis helps managers to fulfill this function well.
Business analysis also helps you manage time and productivity. But more than that, business analysis is the key by which stakeholders are let into a common understanding of the organization’s need, and from this vantage point, they can make sound decisions to meet those needs. Not to mention, change also becomes easier when the needs of the organization are recognized. If the business is unable to achieve its goals, then certainly there is a need to move forward to a system where those desired needs reach fruition, and such a major transition isn’t possible without a solid business analysis serving as the road map.
To sum up, business analysis ensures that all decisions are made in line with business objectives and no unrealistic goals are pursued to avoid long-term disappointment.
Now let us go over the most common business analysis tools.
The abbreviation stands for:
- Strengths: The competitive advantage you have in the marketplace (e.g. customer service, better access to raw materials)
- Weakness: All things with which your competitors are able to grab your market share
- Opportunities: Unexplored market trends and untapped market niches that waiting to be taken advantage of
- Threats: Political, climatic, technological, and other external factors that can cause a problem for your business and get in the way of its long term goals
The benefit of SWOT is that it can be done by your business managers and you do not necessarily have to hire an analyst. And once the analysis is done, you can straight to the action and address the complex situation at hand.
You will note that S and W are to do with the business itself, while O and T are primarily external factors. However, no business analysis is complete without an understanding of external political, environmental, social, and technological factors as these can affect corporate strategy which in turn affects project scope. Hence, along with SWOT analysis, business analysts also make use of PEST, which stands for:
Political: Government legal factors that can affect the success and profitability of a business. Examples include political stability, employment laws, safety regulations and trade regulations.
Economic: This encompasses all the economic aspects that can play a role in the success of a business. Examples include economic growth, unemployment policies, business cycle of the country, as well as economic, interest and inflation rates need to be taken into consideration.
Social: These are all the cultural and demographic aspects that determine whether the business can compete in the market. Examples include age distribution, lifestyle changes, population growth, demographics, environmental, health and educational consciousness.
Technological: This factor analyzes the factors which affect the means it can bring its product or service to the market. Examples include government expenditure on technology, technological advancements, life cycle of technology available, as well as the role of internet.
Quantitative Analysis Tools
This includes things like a break-even analysis (break-even the point where costs=revenue) and cash flow analysis (all the money coming and out of the business). Profit is not the only measure of business success, and this is where quantitative analysis helps you out. For example, cash flow analysis may show that you are spending more than what is coming in, which is dangerous in the long-run. Similarly, break-even analysis may show that you simply covering cost of sales and not making any profit despite good sales figures.
Hence, quantitative analysis enables you to get a broader picture of the financial position of your business, and also allows for greater objectivity and accuracy. These tools also help you enhance the generalization of the factors under study. Only a few variables are used, while validated and reliability and ensured.
Enterprise Resource Planning (ERP)
While ERP software doesn’t analyze anything, it helps you significantly in doing business analysis because these systems gather data from key elements of your business (such as sales records, inventory records, and accounting systems) and they bring it all in one place in a standardized manner. Hence, when you have all this information easily available, analysis becomes easier as you can identify problems without devoting much time and energy. Hence, if you need to get started with business analysis, then you should have ERP software in place.
But this is not all, for ERP systems go one step ahead and help you improve customer satisfaction (and hence retention) as you now have a single information base for all customer interaction and billing. Not to mention, product development is also streamlined as you have all the data pertaining to suppliers, vendors, orders, and materials easily accessible. And when product development becomes streamlined, then the company will be able to launch new offerings on a regular basis to retain and boost market share.
To sum up, in order to make effective decisions for your business that lead to cost-cutting opportunities and improve the bottom line, you need to make effective use of the business analysis tools listed above.