What is Variance Analysis?
When discussing variance analysis in the business realm, it refers to the examination of a specific KPI (Key Performance Indicator) to uncover and evaluate deviations between different time periods. This type of analysis is crucial for precisely determining which aspects are most influencing the performance of the reference indicator.
Before proceeding, a clarification is due regarding the terminology in Italian and English for this type of projects. In English, these analyses are usually referred to as “Variance Analysis,” where the word “variance” emphasizes a difference/variation between the two periods in which the KPI is evaluated. In Italian, the literal translation “analisi della varianza” is misleading, and some might even say incorrect. The analysis, in fact, does not involve the use of statistical concepts such as standard deviation and variance. For this reason, when referring to the analysis in Italian, we will use the term “Analisi degli Scostamenti”.
With this necessary clarification made, let’s delve into the characteristics of Variance Analysis.
In the world of data analysis and business intelligence, one of the primary objectives is to support business decisions with valuable insights derived from a deep study of available data. Variance analysis is one of the solutions that we propose at Blue BI to achieve this goal and consequently generate value for our clients.
The business value of Variance Analysis:
Identifying Market Trends:
Analyzing sales data allows companies to identify market trends, such as changes in consumer preferences, seasonal patterns, or the impacts of external events. This information enables the company to adapt its sales and marketing strategies to maximize growth opportunities and better meet customer needs.
Optimizing Pricing and Promotion Strategies:
Examining sales data can help the company evaluate the effectiveness of its pricing and promotion strategies. Understanding which products or services are price-sensitive, which promotions are most effective, and how price changes affect sales can lead to data-driven decisions to maximize profits and maintain competitiveness in the market.
Detecting Operational Issues and Improvement Opportunities:
Analyzing sales data can reveal any operational issues within the company that may affect business performance. Additionally, it can highlight improvement opportunities, such as introducing new products or services, expanding into new markets, or optimizing internal processes to increase overall efficiency.
Case Study
In recent months, we completed a deviation analysis project for a client in the fashion industry. The client needed a better understanding of what was influencing their sales.
The client had noticed significant fluctuations in product sales over different time periods, with periods of growth and/or decline. To understand the causes of these oscillations and develop targeted sales strategies, the client turned to Blue BI to conduct a thorough analysis of sales variations.
Client's Needs
In particular, the client’s goal was to determine a breakdown of the effects explaining these variations. In addition to identifying the causes of these fluctuations, the client wanted to quantify their impact to discover which factors deserved particular attention in business management. Finally, the client wanted to optimize their sales performance through KPIs expressed within a Power BI Dashboard.
Blue BI's Role
To address the client’s challenges, we initiated a detailed analysis considering various effects:
- Exchange rate
- Price
- Volume
- Product Mix
- New and Discontinued Items
The Dashboard was developed by comparing two consecutive years, focusing on three time periods:
- Year to date
- Month to date
- Week to date
Why Blue BI
The value generated by BlueBI was initially linked to the development and revision of the methodology to be applied. In Variance Analysis projects, it is crucial to discuss the methodology that will define all the effects composing the variation of the analyzed KPI. Therefore, we leveraged our expertise in statistical and economic fields to suggest changes and improvements to the methodology proposed by the client, making it more effective and scalable.
Subsequently, we created a Power BI Dashboard that allows both a correct visualization of the data and an engaging representation and layout that maximizes user involvement in navigation.
The results were decisive for the client because it made them understand that the exchange rate variation was the factor that most significantly impacted sales. Additionally, Variance Analysis allowed the client to improve sales strategies. For example, the ability to identify how new items performed better or worse compared to discontinued items allowed the client to review their product strategies.
We realize Business Intelligence & Advanced Analytics solutions to transform simple data into information of freat strategic value.