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Leveraging Variance Analysis in CPM

About Variance analysis:

Variance analysis or cause of change analysis(as some companies refer to it), is one of the important activities that gets done in any organization on a monthly basis. This is an exercise to review the operations and understand the reasons why the actual performance is varying from budgets or forecasts, in financial terms. The business unit heads would always like to understand some details or root causes for the variances.
Variances are measured for the various key performance indicators and it is done at a very detailed level analyzing each and every aspect of the financial results. Let us take an example of analyzing the cause of change for revenue. The business manager would like to explore the huge variance in revenue. As the manager explores the variance, they would get mixed reasons (both positive and negative) contributing to variances. This could be on account of the following:

• Price variance as the average realization were higher than expectations
• Volume variance as the total volume targets were not met
• Product mix variance – this is very important because the higher priced product may be selling less vs. the lower priced product, resulting in change in revenue targets
• Discount variance – net revenues could be affected due to discounts being larger than expected
• Market Segment variances – revenues estimated from customer segments could vary, resulting in the overall revenue being affected

As you see above, revenue variances, if explained with the above variants, would help decision makers to take corrective actions and get a perspective of where to concentrate in order to meet the targets and grow the business.



Detailed root cause without CPM

Without a set of integrated CPM solutions, the information worker is going to spend a lot of time for compiling this cause of change analysis. When this needs to be done frequently say every month, following are some issues without a CPM solution:
• More time would be spent compiling the information rather than using the information
• When done manually, it could be error prone and may not reflect accurate results
• The analysis could be redundant for taking decisions
• The information workers would be pained to do the whole thing manually month after month and may ignore doing some of the variance root cause, which could be the main cause of variance



Variance analysis enabled with SAP CPM

SAP gets serious about EPMfrom SAP is focused on transitioning the manager from a narrow role of transaction manager to a broader role of strategic advisor. See the chart below:

With the above vision, variance analysis is one of the topic that moves the manager to become a strategic advisor. The manager spends more time on using the information to make strategic advises.
One of the component of SAP CPM is built in variance analysis capabilities through which the users can get timely and accurate information on the primary cause of variance. The insight module within the SAP Business Planning and Consolidation allows for users to discover of the variance and understand the associated root cause of the variances. The solution Empowering the business user to implement business change with CPM,to discover the the primary contributing reasons for variance, both internal and external. Please see a snap shot of how the same is presented:

With a vision of Why EPM solution with integration to ERP and built in GRC are critical?, the information referenced by the variances are more accurate and generated faster.
SAP Business Planning and Consolidation 5.0 is available in service market place.

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