If you detect that the actual values are not in line with the standard values, you can take timely action. You can specify which values are still acceptable, to mark the danger zones. If the first limit is exceeded, it is a sign for you to keep an eye out. If the second value is exceeded, all alarm bells should start ringing. You can set a lower danger zone, for instance to detect insufficient turnover, and an upper danger zone to detect excessive costs, for instance. The limits are expressed in variance percentages. If these limits are exceeded, you will receive a warning, enabling you to take appropriate action.
First and/or second limit. The first signals that there is a large difference between the standard values and the actual values. The second signals that the difference between the standard values and the actual values has become alarmingly great.
Upper and/or lower limit. The upper limit indicates the maximum acceptable values, for example by how much the actual costs may deviate from the standard costs. The lower limit indicates the minimum acceptable values, for example by how much the actual quantity of sales orders may deviate from the standard quantity.
Note: Specify a negative value for the lower variance percentages. A variance percentage of -10% indicates that the actual values may be 10% below the standard values.
Example of lower variance percentages
Example of upper variance percentages
The Variance percentage for forecast versus standard sum field and the Variance percentage for forecast versus standard quantities field show by how much the actual values vary from the standard values.
The First maximum variance exceeded and Second maximum variance exceeded fields will tell you whether or not the variance is acceptable. The fields will be activated whenever the specified variance percentage is exceeded. Based on this information, you may decide whether action should be taken.
Example
The standard quantity of sales orders for the KPI '2009SalesOrders' is 100 per quarter. A drop of 10 orders per quarter is worrying; a drop of 30 orders is alarming.
First lower quantity variance percentage: -10/100*100%= -10%
Second lower quantity variance percentage: -30/100*100%= -30%
Example
The standard overhead costs for the KPI '2009OverheadCosts' is $ 5000 per month. An increase of $ 750 per month is worrying; an increase of $ 1250 is alarming.
First upper quantity variance percentage: 750/5000*100%= 15%
Second upper quantity variance percentage: 1250/5000*100%= 25%
When you run the Check for allowed variance process, the software checks for unacceptable discrepancies. The actual values are compared with the standard values. In case the variance percentages are exceeded, the First maximum variance exceeded and Second maximum variance exceeded fields will be activated. Based on this information, you may decide whether action should be taken.
When you run the Check for allowed variance process, the software checks for unacceptable discrepancies. The actual values are compared with the standard values. In case the variance percentages are exceeded, the First maximum variance exceeded and Second maximum variance exceeded fields will be activated. Based on this information, you may decide whether action should be taken.
You can specify that a notification should be created automatically whenever the specified standard is exceeded. This notification will be created for the person responsible for the KPI. To do so, follow these steps:
Open the Management Information module, open the Key performance indicators form, select the Edit menu, and then select Check for allowed variance.
Select the Create notification for person responsible check box.
In the Notification type field, choose the appropriate type of notification.
Notifications can be linked to KPIs. You could do this, for example, if the KPI still needs to be defined and has the 'Provisional' status. In that case, users can create notifications (and actions, where necessary) for colleagues. KPIs can also be linked to customers, employees, etcetera.
Tip: You are recommended to execute the 'Check for allowed variance' process as a batch process, to automatically check for discrepancies on a periodical basis. The person responsible will automatically be informed of any discrepancies by means of a notification.
Variance percentage for forecast versus standard sum, Variance percentage for forecast versus standard quantities
