In addition to its specific methods, economic science also uses some general scientific methods - synthesis, analysis, comparison, abstraction, and much more. One of the types of economic analysis is factor analysis, which is a powerful tool that allows not only to decompose a particular economic phenomenon into components, but also to determine which component has a particular influence on the process as a whole. We consider this type of analysis in more detail in this article.
By definition, factor analysis is a type of mathematical analysis of the function of several variables, which allows you to determine what effect a particular variable has on a function. Why is factor analysis so important in the economy? This is because no economic indicator is dependent on only one factor. So, the price depends on supply and demand, wages - on the employee’s ability to work and time worked, the profit of the enterprise - on the totality of all indicators of the company’s activity combined. But how to determine which of the factors has a key effect on a particular indicator? This is where factor analysis comes in handy.
Let's start with a simple example. Let's try to make a factor analysis of cost. The cost of production is influenced by factors such as the cost of raw materials, the wages of workers, the cost of electricity, depreciation of equipment per unit of output. It turns out that the cost is a function of all these factors, and, in fact, is the sum of the costs of all costs. Thus, an increase in each of these types of costs will lead to an increase in the cost of production per unit. It is logical to assume that the cost of raw materials in most cases occupies the largest share in the cost of production. We can conclude that it is it that has the greatest impact on production costs, and therefore, it is precisely on the search for cheaper raw materials that it is necessary to concentrate on the search for reserves to reduce costs.
Let's try to produce a factor analysis of labor productivity. Here, everything is somewhat more complicated, because there are factors that contribute to both growth and decrease in productivity. Among the factors contributing to the growth are the quality and reliability of the equipment, the qualifications of the staff, the convenience of the staff, the ratio of working hours and work breaks. Among the factors that reduce productivity are the number of cases of equipment failure, the presence of "bottlenecks" - production sites with insufficient production capacity, distracting factors - noise, vibration and other external irritants. Of course, all of the above factors will have different coefficients in the function, and it is with their help that the degree of influence of one or another 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 labor efficiency - minimize.
After conducting a factor analysis of a particular phenomenon in the economy, you can draw up a plan of action, according to which it will be possible to maximize or minimize some indicators of the company’s activity with minimal expenditure of time and resources. This will help in the shortest possible time to make the company work as efficiently and profitably as possible. Factor analysis is also widely used in macroeconomics - it analyzes the volume of GDP, the ratio of exports to imports, calculates the required amount of money supply in circulation and many other indicators of the effectiveness of the country's economy.