Difference between PCA & FA
PCA
• In PCA the task before us is to identify a linear
combination of independent variables.
• We can do PCA without knowing much about
the data and context.
Example : Let’s say we have data on different
technical aspects of automobile design:
number of cylinders, gross horsepower, rear
axle ratio , weight , engine (v-shaped/straight) ,
transmission (automatic/manual) , number of
forward gears.
If we don’t really have prior understanding
about the automobiles as to how these
variables could be related, we will choose to
perform PCA.
FA
• In FA we are trying to find the latent variables
with the help of observed (independent)
variables.
• We need to understand the data and context
to be able to perform FA, as we need to derive
the latent variable(s).
Example : Let’s refer to some common features
seatbelts, air bags, antilock braking system and
rear sensing system etc are observed variables
whereas the underlying latent variable is
Safety. Likewise, we can talk about a latent
variable Comfort where the observed variables
could be - rear ac vents, height adjustable
driver’s seat, legroom, storage etc.
If we understand the latent relationships of the
given variables we will perform FA.
 Difference between PCA & FA
In a Hotel, feedback on ease of check-in , ease of check out impacts the Front Desk; Feedback related to
cleanliness, air-conditioning and overall ambience goes to Housekeeping; Likewise, feedback related to the food
and beverage goes to appropriate department.
Let’s assume if we don’t have this understanding as to how a Hotel has clearly defined these responsibilities, we
can only perform PCA because we don’t understand the latent structure. However, if we understand it, we will do
FA.
Which technique between PCA and FA to choose depends on the presence and understanding of the latent
relationships between the variables.

x1 x1

x2 PC FA x2

x3 x3

x1 = b1FA + e1
x2 = b1FA + e2 Where e1, e2, e3 are error terms
PC = a1x1 + a2x2 + a3x3
x3 = b1FA + e3