Three-way modeling is a powerful data analysis method that can help you drive insightful conclusions from datasets. It helps you converge on valuable insights more easily, and is often used to draw meaningful conclusions from complex data. This blog post will explore 3-way modeling techniques, discuss its advantages and drawbacks, and provide you with a guide on how to use 3-way modeling to improve your analysis.

Key Takeaways

  • Understand what 3-way modeling is and its advantages
  • Explore tips and best practices for using 3-way modeling
  • Learn about the drawbacks of 3-way modeling
  • Gain an understanding of how to use a 3-way modeling approach for effective data analysis

Benefits of 3-Way Modeling

Three-way modeling offers an array of advantages for businesses and analysts alike. This type of modeling provides improved access to a larger range of data, an improved understanding of relationships, and meaningful insights that aid in decision-making. Below, we discuss each of these advantages in more detail.

Access to a larger range of data

Three-way modeling produces more comprehensive results than traditional modeling techniques by analyzing and combining various types of data. This access to a larger range of data greatly enhances the accuracy of the final results, providing users with more comprehensive, reliable insights into various business processes.

Improved understanding of relationships

Three-way modeling also improves our understanding of the relationships among variables, allowing us to identify patterns that may be too subtle to be detected by other types of analysis. This insight into relationships can be invaluable when it comes to uncovering hidden drivers of change or identifying key areas of improvement.

Aids in decision-making

Lastly, three-way modeling helps to facilitate better decision-making by revealing key causal relationships and potential opportunities for optimization. By leveraging the insights offered by 3-way modeling, businesses can better understand how their different decisions and strategies may impact specific areas of their operation and make more informed choices.

Working With 3-Way Modeling

Working with 3-way modeling can be complex, but if done correctly, it can help unlock valuable insights for understanding and predicting customer behavior. Before drawing any conclusions based on the analysis, it is important to consider the following things.

Provide Sufficient Supporting Data

When working with 3-way modeling, it is essential to start with a good set of data that is large enough and comprehensive enough to generate accurate insights. It is important to consider the context of the data and to ensure it is sufficient to answer the analytical questions being asked.

Use the Correct Types of Statistical Tests

Part of working with 3-way modeling is knowing which statistical tests to use to best interpret the outcome. Different types of tests may be better suited to different data types or analytical questions, and the results need to be carefully considered when drawing conclusions.

Consider Various Parameters Before Drawing Conclusions

Before drawing any conclusions, it is important to consider the various parameters that could influence the results of the 3-way modeling. This could include factors such as the temporal frequency of the data, correlations between variables, and any potential outliers that could affect the accuracy of the analysis.

  • Provide sufficient supporting data
  • Use the correct types of statistical tests
  • Consider various parameters before drawing conclusions

Examples of 3-Way Modeling

Three-way modeling is used in a variety of scenarios to better understand the relationship between several variables or to explain cause-and-effect relations between them. Here are three different examples of 3-way modeling:

Event A Impacting Person B through Variable C

A three-way model could be used to understand how a certain event (Event A) can affect the behavior of a certain person (Person B) when combined with a certain variable (Variable C). For example, we could use a three-way model to understand the relationship between an environmental disaster (Event A), an individual's health (Person B), and the types of materials used in construction (Variable C). It could help us identify how particular building materials can increase the effects of an environmental disaster on someone's health.

Industry A Influencing Company B due to Factor C

Another example of a three-way model could be used to understand the relationship between a certain industry (Industry A) and the performance of a certain company (Company B) when combined with a certain factor (Factor C). For example, we could use a three-way model to understand the impact of a weakening global economy (Industry A), the performance of a certain company (Company B), and the rise of new digital technologies (Factor C). It could help us identify how the introduction of new digital technologies could both exacerbate or reduce the impacts of a weak global economy on a given company.

Demand for Good A Showing Correlations with Quality B and Price C

Finally, a three-way model could be used to understand the relationship between the demand for a certain good (Good A), its quality (Quality B) and its price (Price C). For example, we could use a three-way model to understand the relationship between the demand for a certain car model (Good A), the quality of the car (Quality B) and the price of the car (Price C). It could help us identify whether an increase in the quality of the car positively affects its demand, and how an increase in the price affects the demand for the car.

Relevant Tools for 3-Way Modeling

Three-way modeling requires certain tools if the insights are to be properly documented and discovered. Data collection, analysis, and interpretation all require guided tools to help the user draw valid insights from a three-way model.

Appropriate Software

A vast landscape of software exists, appropriate for many different types of computing tasks, from data collection, to analytics, to visualization. Some popular applications specifically dedicated to three-way modeling include R, EViews, and Matlab. Each of these provide platforms for constructing and exploring three-way models, and interpreting the results. Additionally, larger packages like STATA and SAS contain multidimensional modelling capabilities for more complex analyses.


Excel remains one of the best known tools for visualization and analysis. While Excel is most useful for analyzing relatively simple models, it can also handle more complex and multidimensional models. Excel has built-in functions and formulas designed to assist users in data manipulation and interpretation, allowing users to construct useful three-way models and draw insights from them. Additionally, software plug-ins can be added to Excel to facilitate the handling of larger, more sophisticated models.

Database Management Tools

Software designed for database management can be invaluable for constructing three-way models. Such tools provide a visual platform for users to design, capture and manage data from many sources. A wide range of database management tools are available, from open-source solutions, to licensed software from large vendors. Database management tools provide users with versatile and reliable data sets, which can then be analyzed using other software to draw more valid insights from the three-way models.

Factors to Keep in Mind When Evaluating 3-Way Modeling

Insightful decision-making requires thoughtful analysis, and that same principle applies when evaluating 3-way modeling. To ensure that any given results are meaningful and reliable, it is important to consider the accuracy of the data, any potential bias in the data points and the computing power that is available to process the data.

Accuracy of Data

To get a full understanding of the impacts of a business decision, it is critical that the data being considered is up to date and accurate. If data points are missing or outdated, the results of the modeling could be misleading and lead to decisions that negatively affect the company. Before proceeding with 3-way modeling, it is essential to have a full set of clean data available.

Bias in Data

Secondly, any analysis of data must consider the possibility of bias. Data bias can come from a variety of sources, such as sampling methodology, flawed algorithms, question wording or prioritization of certain data points over others. When running 3-way modeling, it is important to detect any potential bias in the data to help mitigate its effects and ensure the modeling is as accurate as possible.

Available Computing Power

Finally, it is important to take into account the computing resources required to process the data. Many 3-way modeling techniques require significant computing power to perform the necessary calculations on a large set of data. When evaluating 3-way modeling, ensure that the necessary processing power is available for the task.


In this blog post, we explored what 3-way modeling is and why it has become popular in recent years. We learned about its potential to draw key insights from raw data, utilizing a set of matrices to uncover new information. We also discussed the steps involved in 3-way modeling and why it is important for making informed decisions about data.

Summary of Key Points

The key points discussed in this blog post about 3-way modeling are:

  • What 3-way modeling is
  • The steps involved in 3-way modeling
  • Why 3-way modeling is beneficial
  • How 3-way modeling can be used to draw insights from data

Benefits of Using 3-Way Modeling

There are many benefits to using 3-way modeling. It can uncover correlations between variables that would not be visible with a simple two-way analysis, allowing for more informed decision making. It can help reduce complexity and make it easier to identify which factors are affecting an outcome. And it can help leaders gain deeper insights into the data, enabling them to make data-driven decisions that are more likely to be successful in the long run.

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