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1、Author:Alton Shader,James Baker,Variance Analysis,March 1998,2,Agenda,What is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways,3,What is Variance Analysis?,Variance analysis is used
2、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 measures by breaking those measures
3、 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 issues,4,The Value of Variance Anal
4、ysis,Why do we need to perform variance analysis?,Gives business insight as to what drives revenue/cost/profit,Leads to actions,Bain uses variance analysis to gain business insight and to identify the most effective and valuable action steps.,Why does profit change?What driver has the most impact?Wh
5、at explains differences in relative cost position?,Used to determine product line profitabilityIdentifies areas of focus for cost reductionIndicates impact of lowering priceDrives customer segmentation strategies,5,Definitions in Variance Analysis,Most situations fall into one of three categories of
6、 variance analysis.,Description:,Two Component,Understanding individual impact of two variable on a single measure,Linear,Simple comparison of one component against another,More than Two Component,Understanding individual impact of more than two variables on a single measure,Example:,1998 revenue in
7、creases driven by 1998 price increase and unit sales,1990 total cost per unit versus 1995 total cost per unit,Differences in customer revenue driven by number of transactions,product mix and other fees,6,Agenda,What is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Je
8、sses BreweryVariance analysis with more than two components Boston VideoKey takeaways,7,Situation:,Orit and Toms Ice Cream Co.produce ice cream which they sell in gallon-sized containers at supermarkets around the countryThey have tracked their cost to produce ice cream per gallon over time and have
9、 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.),8,1995,1990,Variance,Production costs:(includes sales,labor,admin),$220,500,$210,000,$10,500,
10、Raw materials costs:,$63,000,$60,000,$3,000,Advertising expenses:,$31,500,$30,000,$1,500,Total gallons sold:,70,000,50,000,20,000,Linear Variance Example,9,Unit production costs:,$3.15,$4.20,($1.05),Unit raw materials costs:,$0.90,$1.20,($0.30),Unit advertising costs:,$0.45,$0.60,($0.15),Total per u
11、nit costs:,$4.50,$6.00,($1.50),1995,1990,Variance,Linear Variance Example(Variance per Gallon),10,Thorough Bain analysis of the data allocated the reduced costs into three components.,Linear Variances Example(Ice Cream Co.),11,Linear Variances Example,Management of Ice Cream Co.appears to have enjoy
12、ed 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 leverage in managing production costs as production volume increases,12,Agenda,What is variance analysis?Linear variance I
13、ce Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways,13,Situation:,Jesses Brewery produces high-quality beers which it sells in casesIn the past year,Jesses Brewery has experienced 15%revenue growth.During the same time,s
14、ales volumes and prices have both increased,Question:,Jesses Brewery would like to understand what percent of the revenue increase comes from the increase in sales volumes,and what percent from the increase in price,Two Component Variance Example-Jesses Brewery(1 of 6),14,Two Component Variance Exam
15、ple-Jesses Brewery(2 of 6),Case Price:,Cases Sold:,$18.20,$20.00,9.7MM,10.2MM,What percent of the$27MM increase in revenue is due tothe price increasing?the volume sold increasing?both the price and volume sold increasing?this is covariance,where part of the variance is not easily attributable to a
16、single variable,15,Volume,1998 Revenue,$203.5MM,1997 Revenue,Price,Variance,(Part of,revenue,change,attributable to,price),$18.20,(1997),$20.00,(1998),10.2MM,(1998),9.7MM,(1997),Price,Volume Variance,(Part of revenue change,attributable to volume),Covariance,(part of revenue,change attributable,to c
17、hange in both,volume and price),The best way to approach variance analysis problems is to use the rectangle diagrams to intuitively understand how the changes in the two variables account for the change in the overall quantity.,Two Component Variance Example-Jesses Brewery(3 of 6),16,Volume,1998 Rev
18、enue,(P2 x V2),1997 Revenue,(P1 x V1),Price,Variance,(Part of,revenue,change,attributable to,price),P1,(1997),P2,(1998),V2,(1998),V1,(1997),Price,Volume Variance,(Part of revenue change,attributable to volume),Co-,variance,Step 1:,Volume Variance,=(V2-V1)x P1,Step 2:,Price Variance,=(P2-P1)x V1,Step
19、 3:,:Covariance,=(V2-V1)x(P2-P1),Step 4:,Allocate covariance,to volume and price variance,based on the proportion of the,total for each variance,-e.g.,if:,volume variance=$2M,price variance=$1M,covariance=$.5M,then 66.7%of$.5 is,added to the volume and,33.3%is added to the price,A four-step process
20、leads to the solution.,Two Component Variance Example-Jesses Brewery(4 of 6),17,Jesses Brewery,1997,Variance,Data,Price per case,$18.20,$1.8,Number of cases sold(in MM),9.7,.5,Revenues(in$MM),$176.5,$27.0,Step 1:,Price Variance,$17.0,Step 2:,Volume Variance,$9.1,Step 3:,Covariance,$0.9,Revenue varia
21、nce excluding covariance,$26.1,Proportions for assigning covariance,Price,Volume,Assignment of covariance,to Price Variance,$0.6,to Volume Variance,$0.3,Adjusted Variances,Price Variance,Volume Variance,(P1),(P2-P1),(V1),(V2-V1),$176.5(P1 x V1),(193.5-176.5),(185.6-176.5),(P2-P1)x(V2-V1),(17.0+9.1),
22、(0.9x65%),(0.9x35%),63%,34%,3%,65%,35%,(17.0/27.0),(9.1/27.0),(0.9/27.0),(17.0/26.1),(9.1/26.1),$176.5(P1 x V1),1998,$20.00,10.2,$203.5,(P2),(V2),$185.6(V2 x P1),$193.5(P2 x V1),$17.6,$9.4,(17.0+0.6),(9.1+0.3),Variance%,Here is an example of an annotated spreadsheet to determine variance.,Two Compon
23、ent Variance Example-Jesses Brewery(5 of 6),18,Price variance:,Volume variance:,Covariance:,$17.0MM,$9.1MM,$0.9MM,Proportions are,65%,35%,65%,35%,to price variance,$0.6MM,to volume variance,$0.3MM,+,+,$17.0MM,$17.6MM,Price,$9.1MM,$9.4MM,Volume,Total variances:,(65%),(35%),If price and volume varianc
24、es are calculated correctly,then we,can take their proportions to allocate covariance.,Two Component Variance Example-Jesses Brewery(6 of 6),19,Negative Covariance,14.7,new,(1998),9.7,(1997),$18.20,(1997),$17.00,new,(1998),Volume,Price,Even if one variable decreases,the formula applies the same way.
25、The,only difference is that price variance and covariance turn negative.,Volume,=(14.7-9.7)x$18.20,Price,=($17.00-$18.20)x 9.7,=,=,$91.0 MM,-$11.6 MM,Covariance,=(14.7-9.7)x($17.00-$18.20),=,-$6.0 MM,$73.4 MM,Total Variance,In some situations one variable may fall as the other rises.,The formula for
26、 covariance does not change.,20,Negative Covariance,To summarize,the methodology does not change in calculating negative covariance.,21,Agenda,What is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston V
27、ideoKey takeaways,22,More Than Two Component Variance Example,Situation:,Boston Video is a chain of video rental stores in the Northeast U.S.In addition to renting video movies and games,the stores sell a variety of movie-related items(popcorn,candy,film magazines).They also get money for late feesB
28、ain has been hired to help Boston Video segment its customer base and understand what drives the differences in spending patterns between segments,Question:,What variables impact revenue per customer?What is the overall variance by customer type?What are the breakdowns of that variance by customer t
29、ype?What should Bain focus on improving?,23,11,411 customers,74K transactions,$441K,Customers were segmented into 3 groups.“A”customers represent only 20%of Bostons customer base but generate 50%of store transactions and 60%of revenue.,A,B,&C Customers Data,How might you frame an analysis to underst
30、and a lot impacts revenues per customer?,More Than Two Component Variance Example,24,Revenue Drivers Framework,The differences in customer spending levels between segments can be identified and isolated into two broad categories.,Number of Transactions,LateFees and Other,Quantity,ProductMix,Revenue
31、per Transaction,More Than Two Component Variance Example,25,Number of Transactions,Revenue per Transaction,The following data was made available about customer habits.,Customer Segmentation,More Than Two Component Variance Example,26,Revenue Per Customer Per Month,“A”customers spent on average 2.6x
32、the average“B”customer and nearly 10 x the average“C”customer.,$11.82,$17.02,Customer segment:,More Than Two Component Variance Example,2.76 x$6.89,1.29 x$5.38,0.45 x$4.45,27,Drivers of Variance,How would you complete this slide showing the split between the two variance drivers?,More Than Two Compo
33、nent Variance Example,28,This spreadsheet details the calculations necessary to compute the variances and covariance for transactions and revenue per customer.,Sample Spreadsheet,More Than Two Component Variance Example,29,Sample Spreadsheet,More Than Two Component Variance Example,30,Now suppose th
34、e client wants to further understand what drives revenue per transaction.How would you complete this slide showing the split between the three revenue per transaction variables?,Customer segment:,More Than Two Component Variance Example,Revenue Per TransactionSources of Variance,Variance Analysis(Re
35、venue per Transaction),31,Sample Spreadsheet,This spreadsheet further allocates revenue per transaction variance into types of product purchased.,More Than Two Component Variance Example,32,Variance analysis showed that the primary difference between customer segments was how often they came to the
36、store.Over 70%of the variance between A customers and the others was explained by transaction frequency.,Drivers of Variance,26%,74%,70%,30%,More Than Two Component Variance Example,33,Revenue per transaction analysis was not very telling.,Customer segment:,Revenue per TransactionSources of Variance
37、,Variance Analysis(Revenue per Transaction),34,Summary,What drives A customer behavior is the number of transactions they completeso,Bain needs to help improve the frequency of transactions of B and C customers(assuming that A customers continue to remain loyal and that a retention strategy is there
38、fore not the most leveraged work),35,Agenda,What is variance analysis?Linear variance Ice Cream Co.Two component variance analysis Jesses BreweryVariance analysis with more than two components Boston VideoKey takeaways,36,Key Takeaways,Variance analysis is a simple way of breaking down changes in a,
39、variable into their component parts,to yield business insight,Know how to set up a spreadsheet and variance analysis becomes,straightforward,Often we only look at two components at a time,The basic approach is to change only one variable at a time and,observe the effect on the total,Covariance explains the amount of variance that is attributable to,the change of both variances(as opposed to one)and is normally,split between variables in proportion to their variances,37,Sample Spreadsheet,38,青苹果出品 必属精品http:/,囊括2007-2010几百G地产策划资料/企业管理人力资源全套/品牌策划资料/行业分析报告/PPT模板等。,
