Variance analysis

(noun)

The difference between a budgeted, planned, or standard amount and the actual amount incurred/sold. This difference can be computed for both costs and revenues.

Examples of Variance analysis in the following topics:

  • Financial and Budgetary Controls

    • Some tools that project managers can use to control finances and budget include payback period and other financial forecasting calculations, and budgeting techniques, including variance analysis.
    • This is called a variance analysis.
    • A variance is the difference between a budgeted, planned, or standard amount and the actual amount incurred/sold.
    • Variances can be computed for both costs and revenues to show a project manager whether they are adhering to the project budget.
    • Once a project receives funding, the project manager will need to use budgeting controls such as variance analysis in order to stay within the budget and ensure the success of the project.

  • SWOT Analysis

    • A SWOT analysis allows businesses to assess internal strengths and weaknesses in relation to external opportunities and threats.
    • A method of analyzing the environment in which businesses operate is referred to as a context analysis.
    • One of the most recognized of these is the SWOT (strengths, weaknesses, opportunities, and threats) analysis.
    • Identifying SWOTs is essential, as subsequent stages of planning can be derived from the analysis.
    • Explain how a SWOT analysis can be used as a tool in strategic decision making

  • Break-Even Analysis

    • Break-even analysis can determine the minimum amount a company needs to sell in order to cover its costs with no gains or losses.
    • Business leaders use this information to determine whether or not they will produce and sell 200 tables per month and proceed based on that analysis.
    • A break-even analysis is typically depicted by a graph showing the midpoint between profit and loss with the axes as units sold and price of goods sold.
    • Break-even analysis lets companies compare their production or sales with the minimum point (the break-even point) they need to achieve in order to stay in business.
    • Employ a break-even analysis and derive a break-even point when analyzing a business initiative or project

  • Competitive Dynamics

    • This analysis provides both an offensive and defensive strategic context in order to identify opportunities and threats.
    • Competitor analysis is an essential component of corporate strategy.
    • It is argued that most firms do not conduct this type of analysis systematically enough.
    • Competitor analysis requires the specific selection of key success factors within an industry.
    • Through this competitive analysis, Ralph Lauren can improve its competition.

  • Ratio Analysis

    • Ratio analysis is a useful tool for benchmarking the financial and operational efficiency of a project compared with other projects.
    • Ratio analysis is used in finance and accounting to determine how a company is performing financially compared with other companies; efficiency and other production metrics may also be assessed.
    • In project management, a ratio analysis may be related to the efficiency of a project and how well the project managers are controlling resources.
    • The goal of any organization is profits, and ratio analysis allows organizations to see where dollars are being invested and the results on that investment in terms of profitability percentage.
    • Recognize the importance of ratios and ratio analysis in financial assessment and project control

  • Defining Decision Making

    • While they are related, problem analysis and decision making are distinct activities.
    • Problem analysis involves framing the issue by defining its boundaries, establishing criteria with which to select from alternatives, and developing conclusions based on available information.
    • A major part of decision making involves the analysis of a defined set of alternatives against selection criteria.

  • Combining Internal and External Analyses

    • This internal analysis requires careful consideration of the following models and factors:
    • Combining these two constitutes context analysis, which is a method of analyzing the environment in which a business operates.
    • Context analysis considers the entire environment of a business, both internal and external.
    • Using context analysis, alongside the necessary external and internal inputs, companies are able to generate strategies which actively capitalize on this knowledge in pursuit of competitive advantage.
    • Here is an example of the SWOT analysis matrix, which arranges strengths, weaknesses, opportunities, and threats.

  • Evaluate Alternatives

    • This typically involves analysis of quantitative data such as costs or revenues.
    • A first step in analysis is identifying all the sources of data needed to understand the various alternatives and their potential outcomes.
    • The results of data analysis are typically gathered, summarized, and synthesized as the basis for discussions and deliberations by decision makers.
    • There are a few approaches that can be used to help structure the analysis and assessment of potential decision alternatives.
    • Model potential decision alternatives through utilizing pro/con analysis, influence diagrams, decision trees and Bayesian networks

  • Strategic Management

    • Strategic management entails five steps: analysis, formation, goal setting, structure, and feedback.
    • Analysis – Strategic analysis is a time-consuming process, involving comprehensive market research on the external and competitive environments as well as extensive internal assessments.
    • Strategy Formation – Following the analysis phase, the organization selects a generic strategy (for example, low-cost, differentiation, etc.) based upon the value-chain implications for core competence and potential competitive advantage.
    • The above model is a summary of what is involved in each of the five steps of management: 1. analysis (internal and external), 2. strategy formation (diagnosis and decision-making), 3. goal setting (objectives and measurement), 4. structure (leadership and initiatives), and 5. control and feedback (budgets and incentives).

  • Culture-Specific Nuances of Human Resources Management

    • Differing perspectives can result in increased creativity, variance in problem solving approaches, increased market share potential, higher productivity (due to larger spectrum of skill sets) and the potential for value-added collaboration.
    • If hiring locally eventually becomes a glass ceiling environment, a multinational is likely to substantially reduce the advantages they would have otherwise gained from incorporating cultural variance.