Introduction
The financial report cycle consists of 4 activities: Budget, Quarterly reports, Annual Report and Re-Calculation.

During the ‘Re-calculation-activity’ a new budget is created, regarding the actual sales results and the expected cost levels in relation with the actual sales. With this information it can be analysed where expenses has grown faster than expected or has been cut down due to taken measurements.

 
Calculating KPI’s and the budget; an example
(KPI = Key Performance Indicator)

At the start of the subsidiary of this company a simple bookkeeping system was used; clear insight in expenses, cost structure and their relation to revenues was not available. Anyway, with the scanty information given by this system it was already possible to calculate some budget rules between various costs and revenue. After closing the books for a certain period it is important to re-calculate the budget in relation to the realised revenue of the latter period, and to analyse where expenses have been higher or lower than expected and the reason behind that result.

 
Conclusion:
The amount of paid salaries is lower than expected, as expenses on travel and office costs.
The productivity has been increased, the subsidiary is keen on expenses – possibly a direct result of the extra production manager that was employed this year.

Introduction
When applying “benchmarking” you can compare the results of your own business in the last period with those of your competitors, averages of the sector and also compare them with results in the past of your own organization. This in order to find indicators where your own organization is doing better than competitors and of course to see where your organization can improve, in comparison with your competitor.

Benchmarking in practice, an example
A certain bank has 5 subsidiaries offering the same services. By comparing the results of the 5 subsidiaries with each other and the average results of companies in the same business, it can be analyzed in which areas the subsidiaries have relatively good results or areas to be improved.

Conclusion:

Analysing the profitability, Bank B is performing best (+/+ 11,7%) and Bank B the least (-/- 3,2%). Biggest difference between Bank B and C lies in the salaries and allowances. In Bank B these count up to 70% of total costs, where in Bank C this percentage grows to 82%. Next step in the analysis should be: what are the real amounts paid on salaries and allowances in relation with revenue / received interest and will these results lead to measurements accordingly.

Introduction
The management of an organization can be of the opinion that a certain factory, plant or machine within the company doesn’t give the necessary profitability. However, before taking measurements to close that department it would be worthwhile to analyze how the results of various parts of the company are influencing each other.

An example
The situation below shows that raw materials are entering factory A, sold as semi-manufactured products to Factory B and afterwards to Factory C. At the same time, the raw material and semi-manufactured products can be bought from and sold to third parties. In the scheme below all the various margins and profitabilities are calculated. Secondly, it is calculated what will happen with the total result and profitability of the total company, if one factory is closed or sold.

Interpretation and conclusion

All three factories realize a positive result. Calculated in Euros, most interesting scenario is Scenario E – all the 3 factories remain operating.
From profitability point of view Factory B performs meagre. Nevertheless, if the management closes Factory B, the total profitability of the company decreases from 11,3% to 10,3%. Factory B plays therefore a very important role within the company in order to realize the best profit.

Introduction
In such an analysis a consumer segment is analyzed how many persons are potentially interested in a product or service offered by the organization. Secondly, it is calculated how many people are really buying the product or making use of the service. The difference between these 2 figures is called the growth potential: the number of potential clients that is potentially interested in the product or service, but up till now didn’t buy it.

An example

The organization organizes in various towns a certain course. Per town is known which part of the population would be in need of this course and which part of them is actually taken part in the course. The graph below shows the result and consequently the management could decide to increase promotional efforts in town 9 and 11; town 12 is of lesser priority – although bigger in size, growth potential here for this company is less than in towns 9, 10 and 11.

Conclusion:

The biggest participation comes from town “12″ but the biggest number of potential participants live in town “11″. So it could be wise for the management to improve their marketing and promotion efforts in town “11″ in order to receive more customers in their course.

Introduction
In various situations it can be very useful / necessary to forecast the effect of proposed measurements or forecast results when the business environment is changing, like prices of raw materials, gross margins, selling prices or labour contracts.

An example

In the calculation sheet below effects on net profit are calculated in order to give the management an idea of the business result when the prediction becomes real. So, with the help of such a calculation model, the management is more able to anticipate on what can happen in the near future. In the yellow areas you can fill out your own data, and the model will automatically calculate the resulting net profit in your own scenario. The resulting net profit levels are presented in the graph aside. Your own data and result is presented in scenario 5.

Conclusion
scenario-modelling gives you information about developments within your organization when you change your policy, the policy of your competitors changes or the behaviour of consumers in the outside world changes.