1.11 Financial Control Analysis
This will be about the value proposition that your company has based on the relationships with your competitors, customers, collaborators and co-workers.
To analyse financials you need to look at things like variances, a so called Variance analysis which will include both price (Ho much more money spent due to higher price) and quantity (How much more money spent due to more products at budget price) variance.
Variance = Planned result — Actual result = (Budgeted quantity x Budgeted price) — (Actual quantity x Actual price) = [(Budgeted quantity — Actual quantity) x Budgeted price] + [Actual quantity x (Budget price — Actual price)] = Quantity variance + Price variance
When calculating a variance you need to split it up in ways that will increase your understanding and that it can help you answer the “Why?” The variance should be easily explainable to be most useful.
When this budget moves over different departments you need to work on co-operation no matter if you are on target or not in your budget as otherwise they will work against each other.
If you look at outsourcing or not you will need to look at what part of the money you spend will really flow out of the company to get the full picture. In pricing deals that might be outsourced there are several methods which are called transfer pricing.
\- Market based transfer pricing
\- Cost based transfer pricing
concerns: I) only marginal costs to be used as unavoidable costs would continue when outsouced; ii) does not make profit centres; iii) when capacity limit no real world link
\- Negotiated transfer prices (net realisable value = product revenue — additional costs needed)
\- administered transfer prices
If you look at financial information then you need to have enough information to make a good decision. You should have actual and budget figure as well as this from different periods. You need the full picture.
If something is loosing you money then you need to look at:
1\. The sales you loose
2\. The gross profit you loose if you can remove the costs of the goods sold
3\. You need to reduce the overheads by the amount of gross profit next
4\. Then you need to reduce the overheads some more if the product got charged more than the gross profit.
You will need to look at what are joint costs and what will fall away.
Just looking at the bottom line is just not enough.