Key Concepts in Business Analysis and Cost Management

Posted on Feb 6, 2025 in Modern Languages and Management

1: Information

  • Relevance: Does the data apply to current/future forecasts? Be cautious with past data.
  • Ease of Use: Is data accessible and usable?
  • Integrity: Verify if the source is reliable and accurate.
  • Timeliness: Is the data up-to-date or still relevant?

2: Types of Analytics

  • Descriptive: What happened? Uses historical data.
  • Predictive: What might happen? Statistical forecasting.
  • Diagnostic: Why did it happen? Identifies patterns.
  • Prescriptive: What should we do? Provides solutions.

3: Activity-Based Costing (ABC) & Activity-Based Management (ABM)

  • Operational ABM: Focus on efficiency, quality, and process improvement.
  • Strategic ABM: Focus on product design, supply-chain, and profitability.
  • Benefits: Improved costing, understanding overheads, eliminating non-value activities.
  • Costs: High implementation costs, unreliable cost drivers, duplication with systems.

4: Cost of Quality (COQ)

  • Prevention: Prevent defects (e.g., training, quality materials).
  • Appraisal: Costs for testing and inspections.
  • Internal Failure: Scrap, rework, downgrades.
  • External Failure: Recalls, warranties, and opportunity costs.

5: Variance Analysis

  • Sales Volume Variance: (Actual Units − Budgeted Units) × CM per Unit
  • Sales Mix Variance: (Actual Mix % − Budgeted Mix %) × (Actual Total Units × CM per Unit)
  • Sales Quantity Variance: (Actual Volume − Budgeted Volume) × Weighted CM
  • Sales Price Variance: Actual Volume × (Actual Price − Budgeted Price)
  • DM Mix Variance: ∑[(Actual Mix % − Standard Mix %) × Actual Units × Standard Price]
  • DM Yield Variance: (Actual Units Used − Standard Units) × Weighted Price
  • FOH Volume Variance: FOH Static Budget − FOH Applied
  • Market Share Variance: (Actual Share % − Budgeted Share %) × Actual Size × CM per Unit
  • Market Size Variance: (Actual Size − Budgeted Size) × Budgeted Share % × CM per Unit

6: Farmers’ Almanac

  • Relevance: General trends, not precise.
  • Ease of Use: Hard to apply for pricing.
  • Integrity: Anecdotal, lacks accuracy.
  • Timeliness: Pre-season but may not be reliable.

7: Qualitative Factors

  • Quality: Fewer defects with improved processes.
  • Employee Morale: Impact of workload changes.
  • Customer Satisfaction: Effect of pricing, quality, and service.
  • Supplier Relationships: Long-term cost negotiations.
  • Sustainability: Environmental and social considerations.

Theory of Constraints (TOC)

Constraint: Any factor that limits system performance, preventing it from achieving its goals (e.g., bottleneck machines, labor shortages, space).

Steps to Improve Bottlenecks/Constraints:

  1. Identify the constraint (weakest link).
  2. Exploit the constraint: Maximize its capacity with no additional resources.
  3. Subordinate: Align other processes to support the constraint.
  4. Elevate: Add capacity or resources to the constraint.
  5. Repeat: If the constraint shifts, restart the process.

Goal: Optimize flow to improve productivity and throughput.