Explain Causes of Variances with the Reconciliation Format Intermediate Cost Analysis and Management © Could the Battle of the Bulge Have Been Won if All Battle Maps of Ardennes Forest Looked Like This? â Terminal Learning Objective • Task: Explain Causes of Variances with the Reconciliation Format • Standard: with at least 80% accuracy: Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors • • Describe content of effective cost intelligence briefing Prepare reconciliation for cost intelligence © 3d ACR Feb 7, 2011 Non-deployables Review 21 pages over 400 names © How Can the Cost War Be Won if All Cost Reports Look Like This? • • • • It can’t – Of course, someone needs to know where the trees are, but Effective command and control needs intelligence formatted in more useful ways Formatting cost information for effective command and control is critically important © After Action Reconciliation Case A Case B Spending What was Expected $X What was Achieved Delta $X $X - $20 $X+$20 $20 ($20) Good News Story $ $ Good News Story $ $ Bad News Story ($) ($) Bad News Story ($) ($) Total Explained $20 ($20) Reconciliation Format © After Action Reconciliation Case A Case B The coster provides Spending What was Expected $X What was Achieved Delta this part: the credible $X $X - $20 intelligence $X+$20 $20 ($20) Good News Story $ $ Good News Story $ $ Bad News Story ($) ($) Bad News Story ($) ($) Total Explained $20 ($20) Reconciliation Format © After Action Reconciliation Case A Case B Spending What was Expected $X What was Achieved Delta $X $X - $20 $X+$20 $20 ($20) Good News Story $ $ Good News Story $ $ Bad News Story ($) ($) Bad News Story ($) ($) Total Explained $20 ($20) Reconciliation Format © The accountable, operational manager prepares and presents this part: the story After Action Reconciliation Case A Case B Spending What was Expected $X What was Achieved Delta $X $X - $20 $20 $X+$20 ($20) or variance Reconciliation Format Good News Story $ $ Good News Story $This is a favorable $ variance since actual cost is lower than expected cost Bad News Story ($) Bad News Story ($) Total Explained $20 ($) ($) accounting term for this is a “goodie” The technical ($20) © After Action Reconciliation Case A Case B Spending What was Expected $X What was Achieved Delta $X $X - $20 $20 $X+$20 ($20) or variance Reconciliation Format Good News Story $ $ Good News Story $ $ This is an unfavorable variance since actual cost exceeds expected Bad News Story ($) ($) cost Bad News Story ($) ($) Total Explained $20 ($20) © The technical accounting term for this is a “baddie” 10 Exercise: Redo the Previous AAR by Considering Volume Variance Effects PLAN number cost per total civilian staff 10000 30000 variable variable cost cost military 12000 36000 variable variable cost cost contract cost 20000 trips 26000+39000+2000 8000 7500 total cost 93500 output units 10000 ACTUAL Actual VC/unit= 1500 number cost per fixed fixed cost cost variable variable cost cost total variable variable cost cost civilian staff 13000 26000 military 13000 39000 variable variable cost cost 25000 fixed fixed cost cost 2000 variable variable cost cost contract cost trips total cost 1000 92000 output units 8000 25 © Variance Template Plan Volume Variance (100 units) Flex Perf Actual (80 units) Variance (80 units) Var Cost Fixed Cost Total Cost © 26 Variance Template Plan Volume Variance (100 units) Var Cost 10000*7.35 14,700 73,500 Fixed Cost Total Cost Flex Perf Actual (80 units) Variance (80 units) 8000*7.35 58,800 (8,200) 8000*8.38 67,000 20,000 20,000 (5,000) 25,000 93,500 14,700 78,800 (13,200) 92,000 1,500 Total Cost Variance © 27 After Action Reconciliation Spending What was expected 93500 What was achieved 92000 Delta 1500 Reconciliation Total Explained © 28 After Action Reconciliation Spending What was expected 93500 What was achieved 92000 Delta 1500 Reconciliation Produced fewer units 14700 Higher variable cost/unit (8200) Higher fixed cost (5000) Total Explained 1500 © 29 Exercise: Redo the Previous AAR by Considering Volume Variance, Sales, and Profit Effects PLAN number cost per total civilian staff 10000 30000 variable variable cost cost military 12000 36000 variable variable cost cost contract cost 20000 trips 1500 7500 planned a $10 total cost 93500 per unit price output units 10000 ACTUAL number cost per total variable variable cost cost 13000 26000 military 13000 39000 variable variable cost cost 25000 fixed fixed cost cost 2000 variable variable cost cost trips unit price variable variable cost cost civilian staff contract cost got a $13 per fixed fixed cost cost total cost 1000 92000 output units 8000 30 © Variance Template Plan Volume Variance (100 units) Flex Perf Actual (80 units) Variance (80 units) Revenue Var Cost Fixed Cost Profit © 31 Variance Template Plan Volume Variance (100 units) Revenue 10000*$10 (20,000) 100,000 Var Cost 10000*7.35 14,700 73,500 Fixed Cost Profit Flex Perf Actual (80 units) Variance (80 units) 8000*$10 80,000 8000*7.35 58,800 24,000 (8,200) 8000*$13 104,000 8000*8.38 67,000 20,000 20,000 (5,000) 25,000 6,500 (5,300) 1,200 10,800 12,000 5,500 Total Profit Variance © 32 After Action Reconciliation Revenue and Cost Plan Actual Revenue Variable Cost Fixed Cost Profit Reconciliation Total Explained © 33 Delta After Action Reconciliation Revenue and Cost Plan Revenue Actual Delta 100000 104000 4000 Variable Cost 73500 67000 6500 Fixed Cost 20000 25000 (5000) 6500 12000 5500 Profit Reconciliation Increase in selling price 24000 Decrease in units (variable cost) 14700 Decrease in units (revenue) (20000) Increased fixed cost (5000) Increase in unit variable cost (8200) Total Explained 5500 â 34 Conclusions The AAR format is critically important to facilitating command and control • Some additional, possible formats and typical explanatory elements follow It varies to suit the issues at hand and can evolve as the issues change It pinpoints variances to expectation and demands a story from the accountable manager © 35 Simple Cost Results and Reconciliation Output A Plan or Prior Actual Delta Direct Cost Indirect Cost Total Cost X Reconciliation Explanation for Delta for Output A Reason 1: Change in Number of Units Reason 2: Change in Direct Cost Reason 3: Change in Indirect Cost Total Cost Explained 36 © X P&L View Results and Reconciliation Output A Plan or Prior Actual Delta Fee Revenue Cost Residual X Reconciliation Explanation for Delta for Residual Reason 1: Change in Revenue Reason 2: Change in Number of Units Reason 3: Change in Cost Total Explained 37 © X Unit Cost Results and Reconciliation Output A Plan or Prior Actual Delta Unit Cost A X Reconciliation Explanation for Unit Cost Delta Reason 1: Change in Number of Units Reason 2: Change in Direct Cost Reason 3: Change in Indirect Cost Total Explained X 38 â Spreadsheet Exercise Redo the previous exercises using the spreadsheet Which you prefer? â 39 ... Actual (80 units) Variance (80 units) 80 00*7.35 58, 800 (8, 200) 80 00 *8. 38 67,000 20,000 20,000 (5,000) 25,000 93,500 14 ,700 78, 800 (13 ,200) 92,000 1, 500 Total Cost Variance © 27 After Action Reconciliation... ($) Total Explained $20 ($20) © delta 11 Learning Check • • Who prepares the first part of the After Action Reconciliation report? What is the goal of the second part of the report? © 12 Exercise:...Could the Battle of the Bulge Have Been Won if All Battle Maps of Ardennes Forest Looked Like This? © Terminal Learning Objective • • Task: Explain Causes of Variances with the Reconciliation