Understanding Variance Analysis for Business Performance

1. Understanding the Drivers of Business Performance through Variance AnalysisTRI Corp Critical Equation # 2 for Business Leaders BPI – 3/26/2013 Dr. Thomas E. Conine, Jr. , President TRI Corp

2. Objectives for Our Session Understanding TRI Critical Equation #2 on Variance Analysis can: Enhance your company’s competitive advantage, Provide pro-active risk management, and Increase the probability of meeting your commitments.Our session will introduce you to: Financial Tools and Terminology routinely used in Op Reviews Accounting variances; prior year to plan, plan to actual, and prior year to actual Profit levers; price, volume, cost(inflation/deflation), and productivity

4. Please Respond in Chat with either Yes or No Question 1 – Are you familiar with this type of Financial Tool often referred to as an Op Walk or Bridge ? YesNo Question 2 – Does Your Company Use this type of tool ? YesNo

5. Question 3 – Again Using Chat Price or Volume Assume your only financial concern is this Quarter’s Net Income. Only the short-term. You have a product and have the following mutually exclusive options, either 1) you can raise price by 1%, or 2) you can sell 1% more volume You can not have both and the Market will accept either at this time. You have enough capacity should your reply be 2). At the level of 1% there is also no elasticity to be concerned with. Do you want ? Price Volume

8. Question 4 – Please Respond in Chat with either Price or Volume You in an Op Review and are responsible for the following business …. Plan Actual $ Variance V % Sales $100 $90 - $10 - 10% - Cost 80 80 0 0% Net Inc. $20 $10 - $10 - 50% ROS 20% 11.1%With the Information you have, did your business most likely miss plan because of Price or Volume ? PriceVolume

9. Price Volume Tradeoffs – Meeting Commitments Price Reduction Volume Increase Required To Maintain Margin $ For A Given Average Price Reduction Pre CM% 70% 60% 50% 40% 30% Analysis assumes no variable cost efficiencies with increased Volume… Variable Cost Productivity would reduce unit volume requirements

11. Where Do We Look for the Risk ?

13. TRI’s Simulation and EP Walks – EP Var

14. The Drivers of Operating Performance An “Op Review” of Your Business • ActualV%VP%Comments • Income Statement • Sales $1000 10.0 5.2 • Variable Costs 600 13.8 12.8 • Contribution Margin $400 4.7 (4.3) • Depreciation 100 0.0 (4.7) • Fixed 200 5.2 (2.4) • Operating Margin $100 8.7 (7.4) • CM% 40% • OM% 10% PY 909 Plan 950 532 418 105 205 108 44% 11.0% 527 382 100 190 92 42% 10.1% Price/Volume/Mix Sales Growth in Plan 4.5% CM Growth in Plan 9.4% Om Growth in Plan 17.4% Prod’ty/Supplier Mgt. Miss Actual $18 vs. Plan Purchase delayed ( = PY Dep) Lower infl., delay/cut, pdty Actual down $8 vs. Plan What were the Primary Drivers of Performance?

15. Example Walks from Investor Relations Presentations

18. Caterpillar Operating Profit Walk

19. Petrobras OP Variance Walk with P&L Leverage Note the Impact of the Negative Pricing Power … Net Rev is Off 5.4% while Operating Profit is Down 26 % … Sometimes A Risk Beyond Our Control

20. Toyota Operating Margin Walk with FX Strength of $ & Euro vs. Yen results in 300 positive FX impact

21. Pentair – Sales and Operating Income Walk

22. Pentair Pro forma Walks

23. Adecco Cash Flow Walk

27. Final Thoughts and Questions ?

28. TRI Virtual Simulations GE Finance TRI-Polar Flextronics Partnership with Strayer University and Jack Welch MBA (JWMI) Dell Finance TRI-Polar Microsoft

29. Thank You Cone009@AOL.COM