All in Business Finance Hacks
To begin with, this is a rather technical post and not an easy read. So you should only go through it if you came across the problem and have a need to solve it. OK, let’s get to it.
Say you have a total margin of 40% and last year that was 30%. You want to show to which elements the +10% change is attributable to by breaking down the variance into effects. The challenge here is the complexity coming from having changes in absolute and margin %, changes in product mix and changes in revenue all baked into the margin % variance.
An organizational entity such as a department typically has three resources: Competence, Time and Money. These resources are employed in Activities which in turn give Results. Money is probably the most monitored and best understood of them, but here we will have a look at the TIME resource.
The main job of a business controller is to understand the business and present that understanding in a way that triggers reflection, action and change.
So, how to go about understanding a business? In this post, I will illustrate the simple example of understanding a change in sales revenue by breaking it down into volume and price effects.