Management decisions are typically based on comparing actuals against budget or a prior period. We identify why a variance occurred and then act: unfavorable variances get corrected, favorable ones get reinforced. And if the underlying conditions themselves have changed — we reforecast.
The most common way to make such comparisons is the analysis of variances in absolute and percentage terms. At the level of report line items it works well: you immediately see which line item is off and by how much. But it cannot explain why the line item itself deviated.
A report line contains only a total monetary amount. That amount, however, is shaped by values that never appear in the report: unit volumes, prices, discount rates, sales mix, usage rates, raw material quality, delivery distance, output per employee — any metric your business actually manages. When these values change, the line deviates.
So to explain a variance, you need to determine how the change in each of these values affected the line. That is exactly what driver-based variance analysis does — it decomposes the variance of any metric into the monetary impact of each underlying driver. You see precisely which driver moved the line. The search for the root cause becomes targeted.
But building such an analysis is no small task.
First, you need to know the decomposition methodology and be able to rearrange algebraic expressions in order to develop a driver model that matches your business process.
Second, you need to be an advanced Excel or Power BI user, because the model has to be implemented: entering complex formulas and building a report — separately for every metric.
Third, even when the calculation is ready, finding the cause is still hard: you cannot drill down from the total variance to the source data. The path from a number in the report to its origin has to be retraced manually every time.
So how do you actually implement driver-based variance analysis?
You can delegate this work entirely to Fincontrollex. You will not have to develop the mathematical model or wrestle with formulas — we do the full setup for you. You get not a generic PVM analysis, but a custom variance decomposition with drivers tailored to your business. And it is not limited to revenue or margin — you can request the analysis for any metric where you need to understand variances: cost of goods sold, logistics, working capital, and more.
Once the setup is complete, you get access to an analytics system that lets you pinpoint the cause of variances in just a few clicks: compare business units, product groups, or sales managers, and see the profit impact of new and delisted SKUs. If the cause lies at another level, you can switch between driver models — from margin to revenue, from revenue to volume — with no new formulas and no new reports.
If you don't have a specialist on staff for the monthly data transformation the analysis requires — you can delegate that to Fincontrollex as well.
Fincontrollex takes all the complexity of variance analysis off your plate — all that is left for you is to make decisions based on the results. And it costs less than an additional financial analyst on payroll.
Everyone has variances. But the company that finds the true causes faster makes decisions ahead of its competitors.
Leave a request here or email us — and we will set up variance analysis on your data free of charge and give you trial access to the analytics system.