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1、Author: Alton Shader, James BakerVariance AnalysisMarch 19981Variance AnalysisAgendaWhat is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways2Variance Analysis What is Variance Analys
2、is?Variance analysis is used to understand and assess the drivers of change in measured variables.Variance analysis helps explain and understand what drives the difference between two measures of the same variable (e.g., 1998 profit vs. 1995 profit)Variance analysis explains differences between meas
3、ures by breaking those measures into their base components (e.g., 1998 revenue and 1998 OPEX as components of 1998 profit) and quantifying the impact of each componentBain frequently uses variance analysis to quantify and identify true profit drivershelp drive future analysis on the most leveraged i
4、ssues3Variance Analysis The Value of Variance AnalysisWhy do we need to perform variance analysis?Gives business insight as to what drives revenue/cost/ profitLeads to actionsBain uses variance analysis to gain business insight and to identify the most effective and valuable action steps. Why does p
5、rofit change? What driver has the most impact? What explains differences in relative cost position? Used to determine product line profitability Identifies areas of focus for cost reduction Indicates impact of lowering price Drives customer segmentation strategies4Variance Analysis Definitions in Va
6、riance AnalysisMost situations fall into one of three categories of variance analysis.Description:Two ComponentUnderstanding individual impact of two variable on a single measureLinearSimple comparison of one component against anotherMore than Two ComponentUnderstanding individual impact of more tha
7、n two variables on a single measureExample:1998 revenue increases driven by 1998 price increase and unit sales1990 total cost per unit versus 1995 total cost per unitDifferences in customer revenue driven by number of transactions, product mix and other fees5Variance Analysis AgendaWhat is variance
8、analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways6Variance AnalysisSituation:Orit and Toms Ice Cream Co. produce ice cream which they sell in gallon-sized containers at supermarkets around the
9、 country They have tracked their cost to produce ice cream per gallon over time and have seen it decline over five years by 25%Question:What has driven costs downward? What might Orit and Tom focus on to achieve better cost savings going into the future?Linear Variance Example (Ice Cream Co.)7Varian
10、ce Analysis19951990VarianceProduction costs: (includes sales, labor, admin)$220,500$210,000$10,500Raw materials costs: $63,000$60,000$3,000Advertising expenses:$31,500$30,000$1,500Total gallons sold:70,00050,00020,000Linear Variance Example8Variance AnalysisUnit production costs:$3.15$4.20($1.05)Uni
11、t raw materials costs:$0.90$1.20($0.30)Unit advertising costs:$0.45$0.60($0.15)Total per unit costs:$4.50$6.00($1.50)19951990VarianceLinear Variance Example (Variance per Gallon)9Variance AnalysisThorough Bain analysis of the data allocated the reduced costs into three components.Linear Variances Ex
12、ample (Ice Cream Co.)10Variance Analysis Linear Variances ExampleManagement of Ice Cream Co. appears to have enjoyed increasing economies of scale, particularly relating to production costs, which have driven costs downwardOrit and Tom might want to focus in the future on gaining even greater levera
13、ge in managing production costs as production volume increases11Variance Analysis AgendaWhat is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways12Variance AnalysisSituation:Jesses Br
14、ewery produces high-quality beers which it sells in cases In the past year, Jesses Brewery has experienced 15% revenue growth. During the same time, sales volumes and prices have both increasedQuestion:Jesses Brewery would like to understand what percent of the revenue increase comes from the increa
15、se in sales volumes, and what percent from the increase in priceTwo Component Variance Example - Jesses Brewery (1 of 6)13Variance Analysis Two Component Variance Example - Jesses Brewery (2 of 6)Case Price:Cases Sold:$18.20$20.009.7MM10.2MMWhat percent of the $27MM increase in revenue is due tothe
16、price increasing?the volume sold increasing?both the price and volume sold increasing? 8this is covariance, where part of the variance is not easily attributable to a single variable14Variance AnalysisVolume1998 Revenue $203.5MM1997 RevenuePrice Variance (Part of revenue change attributable to price)$18.20 (1997)$20.00 (1998)10.2MM (1998)9.7M
