October 20, 2023

What is Data Analysis? A Guide to the Data Analysis Process

Written by
Why is TechnologyAdvice Free?

Key takeaways

  • Data analysis is a multi-step process that transforms raw data into actionable insights, leveraging AI tools and mathematical techniques to improve decision-making in businesses.
  • The methods of data analysis range from quantitative and qualitative to predictive and prescriptive, each serving specific business needs and contributing to cost reduction, revenue boost, and enhanced problem-solving strategies.
  • Challenges in data analysis include data quality, skill gaps, and the absence of a robust data governance program, making it crucial for businesses to prioritize these areas before selecting a data analysis software solution.

Data analysis helps businesses make better decisions using mathematical techniques and Artificial Intelligence (AI) tools to extract and transform data into actionable information that improves overall business operations. Data analysis is a critical component of business intelligence and plays a crucial role in making data-driven decisions.

What is data analysis?

Data Analysis involves collecting raw data that is cleaned, transformed, and analyzed to find patterns or other insights to draw accurate conclusions and improve decision-making. Data analysis tools and techniques are used to find answers in raw data not readily apparent without going through the data analysis process.

What is the data analysis process?

Before actionable information is derived from raw data, the raw data must go through a multi-step process to become meaningful. The multi-step process to convert raw data is as follows:

1. Identify the issue or situation and ask questions

The first step is to ask questions about a specific objective and what the business wants to accomplish. This question is crucial because it can skew the remaining steps in the data analysis process if it doesn’t address the particular objective. Therefore, individuals involved must clearly understand the problem or situation to formulate a question.

2. Prepare and collect data

The data that is collected and prepared is relevant to the objective identified. Collection methods are surveys, interviews, observations, or extracting data from a data source such as a database, spreadsheet, or text file. The data collected can also be qualitative (non-numerical) or quantitative (numerical). Hence, the data collection method chosen needs to be able to address the objective you are trying to accomplish.

Once the data is collected, it may need to be prepared, if required. Data can be normalized, consolidated into raw data sets, or receive new attributes or dimensions, which are a few examples of data preparation.

3. Clean and process the data

Data cleansing is an essential step in the data analysis process. In this step, you’ll check the data for inconsistencies and errors that must be removed or corrected. The cleansing of the data validates the quality and reliability of the data. This step ensures the data will generate meaningful results during the analysis.

4. Analyze the data

After cleansing the data, you’ll use AI tools and mathematical or statistical techniques to find insightful information, such as trends, patterns, and relationships. Programming software like R and Python are used in data analysis. R is a statistical programming language that can help with data cleaning, analysis, and visualization. Python is a general-purpose language used for various tasks, such as data manipulation and machine learning.

In addition to using mathematical techniques, you can also use Machine Learning (ML) algorithms, Natural Language Processing, or Deep Learning, which are sub-categories under the domain of AI that can help find insightful information.

5. Share the results

The analyzed data are the results or findings that need to be shared with interested stakeholders. Interested parties must easily interpret the results; therefore, displaying the results visually with a chart, graph, or other visual representations is the best way to show results. Displaying data visually helps the audience better understand complex data while providing a clear picture of the results.

Data storytelling is another way to share results. Storytelling uses a narrative form that is easy to understand and can help a non-technical audience better understand the findings of analyzed data.

6. Act or report on results

The final step is to act on the findings by making a data-driven decision. The finding can also be a report that accurately updates a specific business operation or situation and is compared against an established Key Performance Indicator (KPI).

Infographic illustrating the 5 key steps of data analysis.

What are the methods used to analyze data?

There are multiple data analysis methods used to help businesses. The most common are descriptive, diagnostic, predictive, and prescriptive used in data analysis. Yet, other methods are as important and beneficial as the most common data analysis methods. These data analysis methods help extract information from databases, identify trends and patterns, optimize marketing campaigns, and improve operational efficiency.

Overall, data analysis helps businesses reduce costs, understand their customers better, boost revenues, improve security, and provide better problem-solving strategies. Some of the most helpful data analysis methods are the following:

Quantitative analysis

Quantitative data focuses on numerical data and uses measurements, mathematics, and statistical modeling to derive a numeric value based on the inputs. This type of analysis can be used for risk management, credit analysis, inventory, and financial decisions. Quantitative analysis is objective and uses concrete numbers that remove variability, making the results accurate and reliable.

Qualitative analysis

Qualitative analysis is subjected to interpretation. Qualitative analysis uses interviews, observation, surveys, case studies, and focus groups that can be ambiguous information that is difficult to measure. This type of analysis is ideal for getting input from groups of people that can help businesses understand their perspective. For example, a retail business can use qualitative research to understand a target audience’s purchasing preferences.

Predictive analysis

Predictive analysis attempts to predict future outcomes, using historical data to make projections about the future. Predictive analytics uses artificial intelligence, machine learning, and mathematical and statistical methods to predict the value of something or the outcome of future events, such as projected sales revenue, detecting illness, or weather forecasts.

Descriptive analysis

The descriptive analysis describes what happened while trying to answer the macro-level questions like Who, What, Where, and When. Descriptive analysis will use historical data to review and understand what has occurred in the past. For research, descriptive analysis uses statistical techniques like data dispersion, measures of central tendency to identify patterns, trends, summarizing data points, and relationships in data.

Diagnostic analysis

Diagnostic is used to find out why something happened or the root cause of an event. This analysis will use probability theory, regression analysis, clustering analysis, filtering, data drilling, data mining, and time-series analysis to find the why of an event. For example, a business shows two consecutive months of negative revenues, so the descriptive analysis provided this information but not the why.

The diagnostic analysis will evaluate all internal and external data sources with data mining and drilling techniques. After all the relevant data is collected, additional mathematical computations will be run on the accounting information to find out what is different about the last two months to help explain why.

Prescriptive analysis

Prescriptive Analysis focuses on how to make an event happen and is the most advanced type of data analysis. Prescriptive analysis can be used with any combination of descriptive, diagnostic, or predictive analysis, including all four to predict a future event a business purposely wants to happen. Prescriptive analysis uses artificial intelligence, machine learning, and any mathematical or statistical calculations that can influence a future outcome beneficial to a business.

Inferential analysis

 Inferential analysis uses a sample size of data from a larger data pool or population. The smaller sample used in inferential analysis will be used to draw conclusions or predictions about the larger population.   This type of analysis is a branch of statistics used to provide information about the larger sample size or population by only using a small sample size pulled from the larger data pool.

Statistical analysis

Statistical analysis is straightforward; it collects and analyzes large volumes of data to identify patterns and trends. Statistical analysis takes raw data to find correlations between variables that interested stakeholders can use to make informed decisions. Statistical analysis is helpful in many different businesses, such as health care departments, quality control departments of a business, weather forecasting, or sales tracking for retail organizations.

Text analysis

Text analysis involves machine learning techniques using computers to read and understand human-written text. Text analysis helps extract specific text from unstructured text data. Text analysis is also called content analysis since it can classify, sort, and extract information from text documents. Businesses can use content analysis to quickly digest and summarize online documents, which can help improve data-driven decision-making.

What are the challenges of data analysis?

Data quality is always an issue. Poor data can lead to erroneous decisions or misleading insights that can lead to revenue loss, incorrect treatment strategy for a hospital, or an unpatched cyber security vulnerability. A labor force that lacks the skills to select and understand how to use the correct data analysis tool can hinder the production of the most accurate data for decision-making.

The lack of a data governance board can impact data privacy, improperly validating data before it’s saved, and the uncertainty or looseness of a data management plan makes it extremely difficult to select the correct dataset for data analysis. Therefore, forming a data governance program needs to be a priority before considering a data analysis software solution.

Also read: Top Prescriptive Analytics Tools & Software 2023

Choosing the best data analysis software solution for your business

Whatever your industry-specific business does indicates the type of data analysis software solution you need to look for. If you work in a hospital or retail, find a data analysis solution focusing on that business type. If you can’t find a solution that addresses your business needs, you can use our data analysis software guide to narrow your choices.

Your final decision will be based on the three to five must-have analysis features you know your business will use consistently. Once you have validated the must-have analysis features, involve the staff in using the analysis tools to validate their usefulness.

Featured Partners: Business Intelligence

1 Yellowfin

Visit website

Yellowfin is an embedded analytics and BI platform that combines action based dashboards, AI-powered insight, and data storytelling. Connect to all of your data sources in real-time. Robust data governance features ensure compliance. Our flexible pricing model is simple, predictable and scalable. Easily configure Yellowfin to allow multiple tenants within a single environment. Bring your data to life with beautiful, interactive visualizations that improve decision-making.

Learn more about Yellowfin

2 Salesforce Data Cloud

Visit website

Activate all your customer data across Salesforce applications with Data Cloud. Empower teams to engage customers, at every touchpoint, with relevant insights and contextual data in the flow of work. Connect your data with an AI CRM to empower teams to act on relevant data and insights from your existing Salesforce processes and applications.

Learn more about Salesforce Data Cloud

3 Zoho Analytics

Visit website

Finding it difficult to analyze your data which is present in various files, apps, and databases? Sweat no more. Create stunning data visualizations, and discover hidden insights, all within minutes. Visually analyze your data with cool looking reports and dashboards. Track your KPI metrics. Make your decisions based on hard data. Sign up free for Zoho Analytics.

Learn more about Zoho Analytics


The data analysis process is a multi-step journey that starts with identifying a specific issue and formulating questions, followed by data collection, cleaning, analysis, and finally, acting or reporting based on the findings.

The challenges include issues with data quality, a workforce lacking the necessary skills for data analysis, and the absence of a data governance program to manage data privacy and validation.

TechnologyAdvice is able to offer our services for free because some vendors may pay us for web traffic or other sales opportunities. Our mission is to help technology buyers make better purchasing decisions, so we provide you with information for all vendors — even those that don't pay us.
In this article...