Strategic Marketing: Planning and Control, Third Edition

and is a concept applicable to a range of activities. It is commonly used
along with budgetary control. We compare the actual results with
budgeted forecasts and then examine the variance in order to determine
the reason for the difference. Variance analysis allows us to identify the
main areas of concern and break problems down into component parts.
For example, in marketing, variance analysis is often applied to sales price
and sales volume. Standard formulae are useful in calculating the effect of
these variables on overall revenue.

● Variance in sales revenueActual revenuePlanned revenue
● Variance due to priceActual volume(Planned priceActual
price)
● Variance due to volumePlanned price(Actual volumePlanned
volume)
Consider the following example. We plan to sell 4200 units at £25 per
unit. However, due to market conditions, we actually sell 3850 units at £16
per unit. Hence the variance in sales revenue is:

Variance in sales revenue(385016)(420025)43 400

Variance analysis can be used to determine whether the loss of sales rev-
enue is predominantly due to the lower than expected volume or failure
to maintain planned price.

Variance due to price  3850 (1625) 34 650 80%

Variance due to volume 25 (38504200) 8750 20%

43 400 100%

Therefore, we can see that 80 per cent of the failure to achieve planned
revenue is due to the lower unit price. Management could then investi-
gate why we failed to achieve the planned unit price.
Note: Variance analysis is not limited to price and volume calculations.
A wide range of factors can be analysed in this fashion (e.g. profit, cost
and market size).

■ Performance appraisal

Performance appraisal concerns achieving better results from groups and
individuals. A performance appraisal framework is based on: planned
objectives, levels of achievement and competence. The focus is on the con-
trol and development of staff, and is critical to project implementation.
Effective performance appraisal requires managers to have good people
skills and appraisal should be constructive in nature. It is about doing a
better job. Three key skills are involved: reviewing performance, giving
feedback and counselling.

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