Data Analysis Flashcards
Assessing the reliability of data
Sample size - representative?
% of uptake of responses
Duration or time conducted - how long for? Day? Week?
Nature of questions - Yes / No or expansive?
Geographic location - comparable or representative?
Bias of respondents - target groups
People may not respond in same way as in real world
Advantages / Disadvantages of ROI
+ Relative measure - allows comparison between divisions of different sizes
- Dysfunctional decision making
- ROI can be manipulated by management e.g. manipulating profit or capital employed (i.e under investing in assets to reduce capital employed). Not good for long term success of business
- e.g.innapropriate leasing/outsourcing to keep assets of SOFP
Advantages / Disadvantages of RI
+ Widely used divisional performance measure
- Absolute measure (Can’t compare between division s of different sizes
- Dysfunctional decision making - divisions may be inclined to pursue project that raises divisional RI but is not goal congruent for business as a whole (e.g. reduces business RI)
- Short term/ narrow scope and focused on financial factors
ROI
Profit / Cost of capital (%)
RI (Residual Income)
Controllable Profit - (Capital employed * % cost of capital)
Measures the increase in wealth after costs of providing capital
Breakeven point (BEP)
Total fixed costs / Contribution pu
Margin of safety (%)
(Total units sold - BEP) / BEP
Expected value
Expected value = (Sum of (Outcome 1 * probability) + Outcome 2 * Probability))
Sensitivity
Sensitivity = Profit / Cash flow
Any logical - ‘What if’ analysis
Key is to STATE an assumption e.g. 50% less customers and provide calculations to support this
Or perform break-even analysis - determine how many less people would eradicate profit
Key things to consider on P&L performance breakdown
Contribution
GPM / OPM
Sales mix
Revenue / costs per head/unit
Fixed costs / overheads
Consider AVERAGE / RANK
ALWAYS add total column
ALWAYS consider where more information is needed
Discussion technique
1) - Say WHAT happened
2) - Say HOW IT happened
3) - Add any additional support
Limitations in data visualisation
Consider number of data points (discrete
Weighing to responses based on how many there are
Price Elasticity of Demand
PED = %Change QD/ %Change P
Negative PED = Inelastic (Proportionally smaller reduction in QD from increase in price - PRICE INSENSITIVE = Revenues increase)
Positive PED = Elastic (Proportionally large reduction in QD from increase in price - Price SENSITIVE = Lower revenue
Other factors to consider with PED
Specific PED will not be the same for further increases
Measures short-term response - price gives signal of quality and may impact longer-term reactions to future price changes
Competitors may change price in response
Alternatives to profit-based measures (ROI / RI)
Profit-based measures only look at short-term, historic performance.
Alternative approaches would be to use balanced scorecard to develop specific KPIs for each division of business.
