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1、Author AltonShader JamesBaker VarianceAnalysis March1998 2 Agenda Whatisvarianceanalysis LinearvarianceIceCreamCo TwocomponentvarianceanalysisJesse sBreweryVarianceanalysiswithmorethantwocomponentsBostonVideoKeytakeaways 3 WhatisVarianceAnalysis Varianceanalysisisusedtounderstandandassessthedriverso
2、fchangeinmeasuredvariables Varianceanalysishelpsexplainandunderstandwhatdrivesthedifferencebetweentwomeasuresofthesamevariable e g 1998profitvs 1995profit Varianceanalysisexplainsdifferencesbetweenmeasuresbybreakingthosemeasuresintotheirbasecomponents e g 1998revenueand1998OPEXascomponentsof1998prof
3、it andquantifyingtheimpactofeachcomponentBainfrequentlyusesvarianceanalysistoquantifyandidentifytrueprofitdrivershelpdrivefutureanalysisonthemostleveragedissues 4 TheValueofVarianceAnalysis Whydoweneedtoperformvarianceanalysis Givesbusinessinsightastowhatdrivesrevenue cost profit Leadsto actions Bai
4、nusesvarianceanalysistogainbusinessinsightandtoidentifythemosteffectiveandvaluableactionsteps Whydoesprofitchange Whatdriverhasthemostimpact Whatexplainsdifferencesinrelativecostposition UsedtodetermineproductlineprofitabilityIdentifiesareasoffocusforcostreductionIndicatesimpactofloweringpriceDrives
5、customersegmentationstrategies 5 DefinitionsinVarianceAnalysis Mostsituationsfallintooneofthreecategoriesofvarianceanalysis Description TwoComponent Understandingindividualimpactoftwovariableonasinglemeasure Linear Simplecomparisonofonecomponentagainstanother MorethanTwoComponent Understandingindivi
6、dualimpactofmorethantwovariablesonasinglemeasure Example 1998revenueincreasesdrivenby1998priceincreaseandunitsales 1990totalcostperunitversus1995totalcostperunit Differencesincustomerrevenuedrivenbynumberoftransactions productmixandotherfees 6 Agenda Whatisvarianceanalysis LinearvarianceIceCreamCo T
7、wocomponentvarianceanalysisJesse sBreweryVarianceanalysiswithmorethantwocomponentsBostonVideoKeytakeaways 7 Situation OritandTom sIceCreamCo produceicecreamwhichtheysellingallon sizedcontainersatsupermarketsaroundthecountryTheyhavetrackedtheircosttoproduceicecreampergallonovertimeandhaveseenitdeclin
8、eoverfiveyearsby25 Question Whathasdrivencostsdownward WhatmightOritandTomfocusontoachievebettercostsavingsgoingintothefuture LinearVarianceExample IceCreamCo 8 1995 1990 Variance Productioncosts includessales labor admin 220 500 210 000 10 500 Rawmaterialscosts 63 000 60 000 3 000 Advertisingexpens
9、es 31 500 30 000 1 500 Totalgallonssold 70 000 50 000 20 000 LinearVarianceExample 9 Unitproductioncosts 3 15 4 20 1 05 Unitrawmaterialscosts 0 90 1 20 0 30 Unitadvertisingcosts 0 45 0 60 0 15 Totalperunitcosts 4 50 6 00 1 50 1995 1990 Variance LinearVarianceExample VarianceperGallon 10 ThoroughBain
10、analysisofthedataallocatedthereducedcostsintothreecomponents LinearVariancesExample IceCreamCo 11 LinearVariancesExample ManagementofIceCreamCo appearstohaveenjoyedincreasingeconomiesofscale particularlyrelatingtoproductioncosts whichhavedrivencostsdownwardOritandTommightwanttofocusinthefutureongain
11、ingevengreaterleverageinmanagingproductioncostsasproductionvolumeincreases 12 Agenda Whatisvarianceanalysis LinearvarianceIceCreamCo TwocomponentvarianceanalysisJesse sBreweryVarianceanalysiswithmorethantwocomponentsBostonVideoKeytakeaways 13 Situation Jesse sBreweryproduceshigh qualitybeerswhichits
12、ellsincasesInthepastyear Jesse sBreweryhasexperienced15 revenuegrowth Duringthesametime salesvolumesandpriceshavebothincreased Question Jesse sBrewerywouldliketounderstandwhatpercentoftherevenueincreasecomesfromtheincreaseinsalesvolumes andwhatpercentfromtheincreaseinprice TwoComponentVarianceExampl
13、e Jesse sBrewery 1of6 14 TwoComponentVarianceExample Jesse sBrewery 2of6 CasePrice CasesSold 18 20 20 00 9 7MM 10 2MM Whatpercentofthe 27MMincreaseinrevenueisduetothepriceincreasing thevolumesoldincreasing boththepriceandvolumesoldincreasing thisiscovariance wherepartofthevarianceisnoteasilyattribut
14、abletoasinglevariable 15 Volume 1998Revenue 203 5MM 1997Revenue Price Variance Partof revenue change attributableto price 18 20 1997 20 00 1998 10 2MM 1998 9 7MM 1997 Price VolumeVariance Partofrevenuechange attributabletovolume Covariance partofrevenue changeattributable tochangeinboth volumeandpri
15、ce Thebestwaytoapproachvarianceanalysisproblemsistousetherectanglediagramstointuitivelyunderstandhowthechangesinthetwovariablesaccountforthechangeintheoverallquantity TwoComponentVarianceExample Jesse sBrewery 3of6 16 Volume 1998Revenue P2xV2 1997Revenue P1xV1 Price Variance Partof revenue change at
16、tributableto price P1 1997 P2 1998 V2 1998 V1 1997 Price VolumeVariance Partofrevenuechange attributabletovolume Co variance Step1 VolumeVariance V2 V1 xP1 Step2 PriceVariance P2 P1 xV1 Step3 Covariance V2 V1 x P2 P1 Step4 Allocatecovariance tovolumeandpricevariance basedontheproportionofthe totalforeachvariance e g if volumevariance 2M pricevariance 1M covariance 5M then66 7 of 5is addedtothevolumeand 33 3 isaddedtotheprice Afour stepprocessleadstothesolution TwoComponentVarianceExample Jesse s
