Effectiveness YUSTIKA ADININGSIH-

Calculating a Volume-Adjusted Volume-Adjusted Profit F0319141-MINDMAP

2 Measurements
Profit Plan (or Flexible Budget) Plan SPM A CHAPTER 6
Efficiency

favorable
Computing Profit Plan Variances
variance analysis
in Absolute and Relative Terms
unfavorable

Variable costs = Input volume x Operating Efficiencies : profit (loss) from competitive
Cost per unit of input Variable Costs effectiveness + profit (loss) from
operating efficiencies
Efficiency variance Strategic Profitability
Calculating Production Efficiency
and Cost Variances (If Applicable) Cash Wheel
Spending variance

Strategic Profitability Strategic Profitability

Spending variance = Analysis Wheel Analysis
(Planned cost - Actual cost)
Evaluating
Strategic Profit ROE Wheel
Committed Costs
Calculating Variances Operating Efficiencies : Performance
for Nonvariable Costs Nonvariable Costs
Market size variance = market size
Discretionary Expenses X planned market share X planned
average contribution margin
Competitive Effectiveness : Computing Market
Activity-Based Costs
Market Share Variances Share Variances
Market share variance = market
share X actual market size X planned
Searching for Explanations Interpreting Strategic
average contribution margin
and Initiating Action Plans Profitability Variances

increase (or decrease) in profit

due to changes in prices

increase (or decrease) in profit

due to changes in product mix
Strategic Learning Competitive Effectiveness : Computing Revenue
Revenue Variances Variances
price premium
Early Warning and Using Strategic
Corrective Action Profitability Analysis
Contribution margin

Performance Evaluation product mix

Product mix variance = average standard
product mix variance
contribution x actual unit volume
 Set of formal routines and
procedures designed to process and
evaluate requests to acquire new assets
YUSTIKA ADININGSIH-
F0319141-MINDMAP
SPM A CH 7
Capital budget or capital investment plan

Senior managers must provide guidance

Limits on Asset Allocations to subordinates about what kind of
Evaluating Assets Acquired to Meet assets to acquire
Safety/Health/Regulatory Needs

The analyses
Asset Allocation
Payback Systems
Net Present Value (NPV)
Policies and Procedures The process
Discounted Cash Flow
Evaluating Assets to Enhance Operating
Weighted Average Cost of
Efficiency and/or Increase Revenue A time frame
Capital (WACC)

Hurdle Rate Internal Rate of Return Evaluating Asset Senior managers should
Acquisition Proposals communicate policies regarding who
Span of Accountability
Designing Asset has authority to approve the
Alignment of Proposal with Existing acquisition of assets
Allocation Systems
Strategy and/or Distinctive Capabilities

Spending Limits Limiting discretion

Risks in Acquiring the Asset

Assets to Meet Safety/Health/

Risk in Deciding Not to Regulatory Needs
Acquire the Asset
Evaluating Assets to be Acquired for
Competitive Effectiveness Sorting Asset by Assets to Enhance Operating
Quality of Information Category Efficiency and/or Increase Revenue
Supporting Proposal

Assets to Enhance Competitive

Track Record and Ability of Champion Effectiveness

Feasibility and Cost of

Reversing Decision

The Process of
Putting It All Together
Allocating Assets