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Steps in Factor Analysis

Factor analysis usually proceeds in four steps:

1st Step : the correlation matrix for all variables is computed
2nd Step : Factor extraction
3rd Step : Factor rotation
4th Step : Make final decisions about the number of underlying factors
1st Step : the correlation matrix
enerate a correlation matrix for all variables
!dentify variables not related to other variables
!f the correlation bet"een variables are small# it is unlikely that they share common
factors $variables must be related to each other for the factor model to be
'hink of correlations in absolute value&
(orrelation coefficients greater than )&3 in absolute value are indicative of
acceptable correlations&
*xamine visually the appropriateness of the factor model&
Bartlett Test of Sphericity:
used to test the hypothesis the correlation matrix is an identity matrix $all
diagonal terms are 1 and all off+diagonal terms are )%&
!f the value of the test statistic for sphericity is large and the associated
significance level is small# it is unlikely that the population correlation
matrix is an identity&
!f the hypothesis that the population correlation matrix is an identity cannot be
re,ected because the observed significance level is large# the use of the factor model
should be reconsidered&
The Kaiser-eyer-!lkin "K!# measure of sampling ade$uacy:
is an index for comparing the magnitude of the observed correlation
coefficients to the magnitude of the partial correlation coefficients&
'he closer the -M. measure to 1 indicate a si/eable sampling ade0uacy $&1
and higher are great# &2 is acceptable# &3 is mediocre# less than &4 is
unaccaptable %&
5easonably large values are needed for a good factor analysis& Small -M.
values indicate that a factor analysis of the variables may not be a good idea&
%nd Step : Factor extraction
'he primary ob,ective of this stage is to determine the factors&
!nitial decisions can be made here about the number of factors underlying a
set of measured variables&
*stimates of initial factors are obtained using &rincipal components
'he principal components analysis is the most commonly used extraction
method & .ther factor extraction methods include:
Maximum likelihood method
6rincipal axis factoring
7lpha method
8n"eighted lease s0uares method
enerali/ed least s0uare method
!mage factoring&
!n principal components analysis# linear com'inations of the observed variables are
'he 1st principal component is the combination that accounts for the largest amount of
variance in the sample $1st extracted factor%&
'he 2nd principle component accounts for the next largest amount of variance and is
uncorrelated (ith the first $2nd extracted factor%&
Successive components explain progressively smaller portions of the total sample variance#
and all are uncorrelated "ith each other&
'o decide on ho" many factors "e
need to represent the data# "e use 2
statistical criteria:
)igen *alues+ and
'he Scree &lot&
'he determination of the number of
factors is usually done by considering
only factors "ith *igen values greater
than 1&
Factors "ith a variance less than 1 are
no better than a single variable# since
each variable is expected to have a
variance of 1&
'he examination of the
Scree plot provides a visual
of the total variance
associated "ith each factor&
'he steep slope sho"s the
large factors&
'he gradual trailing off
$scree% sho"s the rest of the
factors usually lo"er than an
*igen value of 1&
!n choosing the number of
factors# in addition to the
statistical criteria# one should make initial decisions based on conceptual and theoretical
7t this stage# the decision about the number of factors is not final&