Factor analysis in the economy

Economic science, in addition to its specific methods, also uses certain general scientific methods - synthesis, analysis, comparisons, abstractions and much more. One of the types of economic analysis is factor analysis, which is a powerful tool that allows not only to decompose this or that economic phenomenon into components, but also to determine which component has some influence on the process as a whole. In more detail, we will consider this type of analysis in this article.

By definition, factor analysis is a kind of mathematical analysis of a function of several variables that allows you to determine what effect a function has on a variable. Why is factor analysis particularly important in the economy? All because no economic indicator is dependent on just one factor. So, the price depends on supply and demand, wages - on the ability of the employee and worked time, the profit of the enterprise - on the totality of all indicators of the firm's activities taken together. But how to determine which of the factors has a key impact on a particular indicator? This is where we need factor analysis.

Let's start with a simple example. Let's try to make a factor analysis of the cost price. The cost of production is affected by factors such as the cost of raw materials, the wages of workers, the cost of electricity, the depreciation of equipment per unit of output. It turns out that the cost price is a function of all these factors, and, in fact, is the sum of the costs of all costs. Thus, the increase in each of these types of costs will lead to an increase in the unit cost of production. It is logical to assume that the cost of raw materials in most cases takes the largest share in the cost of production. We can conclude that it is she who has the greatest impact on prime cost, and therefore, it is on the search for cheaper raw materials that it is necessary to concentrate the search for reserves of cost reduction.

Let's try to make a factor analysis of labor productivity. Here everything is somewhat more complicated, because there are factors that contribute to both growth and productivity. Among the factors contributing to growth - the quality and reliability of equipment, the qualifications of staff, the convenience of staff, the ratio of working time and breaks in work. Among the factors that reduce productivity - the number of cases of equipment failure, the presence of "bottlenecks" - production sites with insufficient production capacity, distracting factors - noise, vibration and other external stimuli. Of course, all the above factors will have different coefficients in the function, and it is with their help that the degree of influence of this or that factor on labor productivity will be expressed, but the general principle is clear: the effect of factors that increase productivity must be strengthened, and factors that reduce the efficiency of labor - minimize.

Conducting a factor analysis of a phenomenon in the economy, you can make a plan of action, according to which it will be possible to maximize or minimize certain indicators of the firm's activity with minimal time and resources. This will help in the shortest possible time to make the company work as efficiently and profitably as possible. Widely applied factor analysis and in macroeconomics - analyzed the volume of GDP, the ratio of exports and imports, calculated the necessary amount of money in circulation and many other indicators of the effectiveness of the country's economy.