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Category : merger

To assess the gap between where the organization wants to be and what it currently can produce, I use the organizational process model shown in Figure 21. This tool helps me view the organization at the macro level and allows me to see at a glance what the organization is accomplishing from a task perspective. It helps indicate whether the work being done is consistent with the organization’s vision and mission.

Moreover, the model identifies any gaps between present processes and future plans. A credit card company I worked with had its genesis in the postwar boom of the 1950s and 1960s, enabling millions of consumers to buy electrical appliances. Although this company had been very successful for decades, competition for market share of appliances increased as the market became saturated. In addition, the spread of other credit resources began to squeeze this company’s profits. Soon the company was expanding into other kinds of businesses including dealer financing, retail space design, inventory financing, and even the financing of capital improvements for dealers. Each area now competed for the resources of the original credit card business, and the company found itself spread too thin. Divisions competed against each other for personnel and budget. And as the top leadership increasingly abandoned initiatives that didn’t produce short-term profits, the whole company’s morale spiraled downward.

Knowing when a project or new business will break even is important in any decision to invest money, time and resources in it. Break-even point is when sales cover costs, where neither a profit nor a loss results. It is calculated by dividing the costs of the project by the gross profit at specific dates, making an allowance for overhead costs. Break-even analysis is used to decide whether to continue development of a product, alter the price, or provide or adjust a discount, or whether to change suppliers in order to reduce costs. It also helps with managing the sales mix, cost structure and production capacity, as well as forecasting and budgeting.

For break-even analysis to be reliable, the sales price per unit should be constant, as should the sales mix, and stock levels should not vary significantly.

However diligently a budget is prepared, things will not turn out as planned. There will be a variance between what was anticipated and what happened. Understanding the differences between actual and planned performance is known as variance analysis. It is useful to analyse such variances in order to understand why things are going better or worse than expected and act on the lessons learned.

The process starts by breaking down substantial variances into their component parts, identifying exactly where and why the variance occurred. For example, small variances in unit costs or unit prices will have substantial effects on the bottom line in a mass volume business. Key performance indicators (kpis) can be used to track and identify variances and areas where the firm’s performance is deviating from expectations.

Common causes of variances include inefficiency, such as poor cost control, poor or flawed planning (for example, relying on historically inaccurate information), poor communication and random factors. Variance analysis is something that every business should undertake but in a practical and pragmatic way that is cost-effective.