2 min.
CFO Unicon Outsourcing
Case study
Let me describe how results for the period were analysed at one of my former places of work, which was a production company. In addition to the plan-fact analysis of the income and expenditure budget implementation, a factor analysis of deviations was necessarily carried out to find out their causes and factors influencing their size.
Factors influencing the results were determined by our own effort, based on the specifics of operation. For example, we exported a large share of our products. Export revenues were calculated as the product of three indicators: the quantity of products, the exchange rate, and the price of products in foreign currency.
Using the method of absolute difference, it was estimated how each of these factors influenced the revenue deviation from the plan in the breakdown by product type. The following order for substitution of planned and factual values was used:
∆Rq = (Qf – Qp) × ERp × PCp
∆Rer = Qf × (ERf – ERp) × PCp
∆Rpc = Qf × ERf × (PCf – PCp),
where ∆Rq, ∆Rer, ∆Rpc – deviation of the revenue from the planned indicators under the impact of the products quantity, currency exchange rate and products price in currency, respectively;
Qp, Qf – planned and factual quantity of products, respectively;
ERp, ERf – planned and factual currency exchange rates, respectively;
PCp, PCf – planned and factual price in currency, respectively.
To estimate the impact of revenue in rubles, the impact of the price in currency and currency exchange rate was aggregated.
FIG. 1. REVENUE FACTOR ANALYSIS
For the motivation system, we used the concept of "normalisation", i.e. bringing the planned indicators into the factual conditions, when part of the planned information was replaced by the factual. As a normalisation criterion, an indicator was used that was beyond the management influence. For example, currency exchange rate. The normalisation criteria were fixed in the regulation on bonuses.
When it was necessary to calculate the annual bonuses for top managers and mid-level managers, we considered the exchange rate not only as a factor for analysing the causes of deviations, but also as a normalisation criterion for calculating the bonus fund. Thus, if the revenue in rubles has increased or decreased in comparison with the plan due to a change in the exchange rate only, it is not a result of the commercial department work. In order to determine whom and how much to reward, the plan indicators were recalculated as per the actual exchange rate, see Figure 2.
FIG. 2. NORMALISATION OF INDICATORS
The calculation in Figure 2 shows that according to the plan-fact analysis the revenue has increased by 5,988 thousand rubles against the budget. If we normalise the plan as per the actual exchange rate, then we see a drop in revenue by 2,994 thousand rubles. Consequently, there is no reason to reward the manager responsible for the sale of metal product No. 1.
By analogy to income, we also identified factors for analysing expenditures. The cost price was planned in the breakdown by product. When analysing the reasons for deviations of the fact from the plan, the factors of volume and prices were identified, and the impact of the production structure on the total cost was assessed.
Normalisation criteria which we took into account when calculating bonus were also applied for expenses. For example, in production, we used raw materials, which were a unique component and the price of which could not be influenced by managers. If the prices for the rest of the raw materials led to a deviation in the cost, we figured out what we had not taken into account in the plan: if it was due to the suppliers better or worse work, or, for example, due to mistakes in the budget. For unique raw materials, it was necessary only to assess the impact on the financial result in order to make managerial decisions.
With regard to fixed costs, a plan-fact analysis was carried out by items, which, in fact, themselves were the factors for the total amount of costs.
Source: 1fd.ru
