Session 1a- Management control: an overview

Key messages
1. Management control is a dynamic performance management process. Here, the term "control"
has a broad meaning.
2. Management control is the responsibility of managers. It therefore goes beyond the sole remit of
the management controller whose role is to support managers in the design and implementation
of the management system (business partner role).
3. The management control process is carried out primarily within each of the responsibility centres
that make up the organisation (a department, a division, or even the organisation itself). It is an
autonomous control process, designed to monitor the entity's performance.
4. Management control is not just for large organisations. SMEs are also concerned, even if the
management system is sometimes in a more simplified form.
5. The performance management process comprises two main phases: a phase upstream of the
action, the planning phase, and a phase downstream of the action, the monitoring (and analysis)
phase of the results. Analysis of the results can lead to feedback on planning, which is why it is
referred to as a regulation "cycle".
6. The control cycle is based on measurement systems, i.e., sets of indicators, which structure each
of the two phases, the planning phase and the monitoring and analysis phase.
7. Measurement systems are constructs. The fundamental qualities expected of measurement
systems are validity, reliability, relevance, and effectiveness. The search for relevance implies that
measurement systems are diverse, with their mode of construction varying according to their
intended use.
8. Building a measurement system implies defining the relevant performance dimensions in a more
qualitative way beforehand, i.e., to make relevant performance dimensions explicit. They can be
financial and/or non-financial. Measurement systems are therefore tailor-made for each
organisation.
9. Management control is not just for profit-seeking companies. It is useful in organisations that
have a wide range of performance objectives.
10. At the level of an entity, the control cycle fulfils two functions: regulation and learning.
11. Within an entity, performance management can be carried out at different levels of granularity: we
can be interested in the entity's overall performance (global or overall view) or in that of more
detailed sub-groups of the entity (analytical view). Management accounting is a useful
measurement system for analysing the entity's performance by business segment, and financial
accounting for breaking it down by legal entity.

Definitions

● Autonomous control: a performance management process carried out locally by “local”

managers in charge of responsibility centres. It differs from the management control carried
out by managers at higher hierarchical levels.
● Business segment: a subdivision of an organisation's or a responsibility centre's overall
activity (product, type of market, etc.) which can be evaluated with regard to management
decisions (development of a business, withdrawal from a business, resource allocation, etc.).
● Control cycle: the dynamics of managing an organisation’s performance, consisting of two
main phases: i) planning, and ii) monitoring and analysis of results.
● Effectiveness: a measurement system's ability to facilitate managerial analysis and decision-
making (simplicity, timely delivery, ease of reading).
 ● Financial reporting: a measurement system on which financial accounting is mostly based on.
It enables to produce the consolidated financial statements of a group, by aggregating each
legal entity's individual financial statements. Consolidated financial statement answers third-
party reporting purposes. Because of this, it is often equated with external reporting.
However, financial accounting also enables executives of organisational entities to manage
the accounting and tax issues of the legal entities under their responsibility, and therefore
contributes to management reporting, albeit in a more marginal way.
● Indicator: a measure chosen to monitor achievement of an objective. It allows the objective to
be set and the result to be evaluated.
● Legal entity: a legal subdivision within a group which is required to publish statutory financial
statements (company accounts).
● Learning loop: process of updating the qualitative dimensions of performance underlying the
measurement system.

● Management by exception: principle according to which only unfavourable gaps between

objectives and the results achieved lead to special monitoring by managers. By extension:
the principle that management should only intervene in an entity's operational decisions if the
entity's performance objectives are at risk.
● Management control: a process involving devices and practices that enable an organisation
to set performance objectives and to effectively oversee their progressive achievement. In
other words, it is a performance steering process.
● Management reporting: a measurement system used to inform managers about the
performance of parts of the organisation for management control purposes. It differs from
external reporting, which is intended for users outside the organisation.
● Measurement system: a set of indicators to assess performance for a given purpose.
● Objective: operational translation of a performance dimension in the form of a type of result
to be achieved.
● Regulation loop: a process in which the downstream phase of monitoring results allows the
upstream planning phase to be updated, either by reactivating the current action plans or by
adjusting targets.
● Relevance: the appropriateness of the construction of a measure or measurement system for
its intended use.
● Reliability: the ability to quantify a phenomenon with a limited margin of error
● Responsibility centre: an entity of the organisational structure that the group's leaders have
placed under the authority of a manager to whom they have delegated more or less decision-
making power and to whom they have set the performance targets to be achieved
● Validity: the ability of a measure to accurately reflect the phenomenon being measured.

To go further…

- In large groups, how can we articulate the operational control process at the level of units
with a more strategic and global performance management process? Which additional
functions does management control fulfill? This is the issue of vertical coordination and
strategic alignment.
- In large groups, how can horizontal coordination between responsibility centres be organized?
How are internal transactions and transfer pricing monitored? This is one of the most difficult
issues in management control.
- In large groups, human stakes are high behind measurement systems, due to their important
role in managers’ motivation and evaluation. What are the various approaches to orienting
behavior (results control, cultural control, etc.) and how are they implemented in concrete
terms?
 Session 1b- Responsibility centres: basic typology

Key messages
1. Responsibility Accounting is a measurement system devoted to the performance of responsibility
centres. The measures constructed for this system are financial in nature.
2. Responsibility Accounting is a medium through which managers clarify the expected contribution
of responsibility centres to the overall objectives of the organisation (span of accountability), and
then assess their performance. As such, it is one of the components of management reporting,
which also allows managers to analyse the overall performance by a responsibility centre.
3. Responsibility Accounting is also useful at local level, enabling managers in charge of
responsibility centres to identify the boundaries of their responsibility and to guide the operational
actions accordingly.
4. Responsibility Accounting subdivides the components of the entity’s overall return on investment
performance into responsibility centres. It distinguishes between cost, revenue, profit, and
investment centres.
5. This typology was designed to emphasise the contribution of local managers to the
organisation’s financial objectives.
6. The four types of responsibility centre are distinguished by the degree of controllability that each
centre has on expenses, income, and assets. In accordance with the principle of controllability, a
different type of performance measurement shall be retained for each of them: cost indicator for
a cost centre, revenue indicator for a revenue centre, profitability indicator for a profit centre, and
return on investment indicator for an investment centre.
7. The principle of controllability is one of the principles for delimiting the boundaries of a
responsibility centre. It prescribes that the performance measure used to set its objectives and
evaluate its results (span of accountability) should be adjusted to its degree of controllability
(span of control).
8. The typology of responsibility centres is generally too coarse to reflect the actual decision-
making power within organisations. The span of controllability of costs, revenues, and assets
may be partial, so the "typical" indicator for each responsibility centre needs to be adjusted in a
more nuanced way to align with factors that are controlled by the centre. A tailor-made approach
is thus essential.
9. In addition, in practice, responsibility centres are sometimes hybrid versions of the four basic
types. Again, the measurement system should be adjusted accordingly.

Definitions

● Controllability principle: principle whereby a responsibility centre’s span of accountability should

be adjusted to its span of control.
● Responsibility centre: an entity of the organisational structure that the group's leaders have
placed under the authority of a manager to whom they have delegated more or less decision-
making power and to whom they have set the performance targets to be achieved.
● Cost centre: a responsibility centre that can act on costs, but not on revenues or assets.
● Investment centre: a responsibility centre that can act on costs, revenues, and assets.
● Profit centre: a responsibility centre that can act on costs and revenues, but not on assets.
● Revenue centre: A responsibility centre that can act on revenues, but not on the cost of
products & services sold, nor on assets.
● Span of accountability: Performance indicators used to set objectives and evaluate the results of
a responsibility centre.
● Span of control: extent to which a responsibility centre can control the performance dimensions
of its activity (costs, revenues, assets, etc.)
● Responsibility Accounting: A system for measuring the performance of an organisation's
responsibility centres from a financial perspective.

To go further…

● What are the other Responsibility Accounting principles?

● In real life, identifying responsibilities can be complex (matrix organizations, shared
respons i bilities, etc.). How would you design a relevant measurement system in such
contexts?
● How does Responsibility Accounting articulate with other « accounting-type » measurement
systems (Cost accounting, Financial accounting)?
● How can Responsibility Accounting principles be extended to non-financial measurement
systems?
● Beyond its role for B usiness U nit managers, Responsibility Accounting is one of the main tools
of managerial reporting: what are its roles in this perspective and what are the corresponding
issues?
 Session 1c- Financial performance and related indicators

Key messages
1. Financial indicators are designed to quantify the overall financial performance of an
organisation/responsibility centre.
2. The terms "quantitative indicator" and "financial indicator" should not be confused, as is
sometimes the case. A quantitative indicator refers to a representation of performance in the
form of numbers, as opposed to "qualitative indicators" of performance that represent
performance in other forms (smiley faces, arrows, etc.). Financial indicators are by definition
quantitative, but there are also quantitative indicators of non-financial performance (number
of defective products, customer satisfaction rate, absenteeism rate, etc.).
3. Financial indicators are of interest to users outside the organisation/entity (financial analysts,
existing or potential shareholders, bankers, works council, etc.), but are also used by
managers for internal management purposes.
4. There are several categories of financial indicators which reflect different types of financial
performance:
- Activity indicators: turnover, growth rate. These indicators focus on the ability to generate
revenue.
- Profitability indicators: net income, operating income, NOPAT, EBIT, operating profit
margin, EBITDA, etc.. These indicators measure an organisation's capacity to generate
revenues that exceed the costs entailed;
- Return on investment indicators: ROE, ROCE, etc. These present a level of profitability
relative to the capital invested to obtain the income;
- Value creation indicators: MVA, TSR, EVA. These compare financial performance with the
return on risk associated with an investment in the organisation;
- Cash flow indicators: EBITDA, operating cash flow, NCF. These provide information on
the financing needs of activities, or their capacity to generate cash.
5. The breakdown of net income into interim results provides a better understanding of how this
income is obtained.
6. Profitability ratios are more comparable than profitability expressed in numerical value (as it
takes the size of the company into account).
7. Return-on-investment indicators provide a more comprehensive view of financial
performance than profitability indicators as they combine turnover, profit, and capital.
8. The DuPont de Nemours formula shows the two levers of return on investment: operating
profit margin on the one hand, and assets turnover ratio (sales divided by capital employed)
on the other.
9. Return on investment indicators have limitations and can be difficult to use: the ratio
formalism and the way capital is valued in the denominator can generate decision biases.
10. Value creation indicators offer a more complete view of financial performance than
profitability and return on investment indicators as they take into account the risk borne by
investors who have provided the company with capital.
11. More complex in their construction, value creation indicators pose further problems of
implementation, comparison, and interpretation. In particular, the market values of a
company's assets not only depend on the evolution of the company's specific performance
variables, but also reflect investors' expectations at macro-sectoral and macro-economic
levels.
12. When they incorporate non-accounting references and information, such as the cost of
capital employed and/or the company’s market value or equity, they give a more complete
measurement of the company’s performance for its shareholders.
 13. More comprehensive indicators have greater validity, but often pose reliability problems.
Consequently, a compromise between reliability and the validity of financial indicators often
needs to be found.

Definitions
 Financial indicator: a measure of the organisation's financial performance primarily based on
data taken from the organisation's financial reporting system.
● Profitability: the ability of a company to generate income in excess of the cost of the
resources consumed, thus generating a positive income (i.e., profit).
● Return on investment: the ability of a company to generate sufficient profit in relation to the
capital used to generate this profit. A distinction is made between return on equity, which is
assessed from the point of view of shareholders, and operating return on investment, which
is assessed from the point of view of the company's managers. The former is generally
measured by ROE, the latter by ROCE.
Value creation for the shareholders: the ability of a company to offer investors a return on investment
above the opportunity cost of the amount of their investment in the company.

To go further….

● The way each financial indicator is calculated raises technical difficulties that should be taken
into account when guiding managers’ decisions.
● What are the pros and cons of using non-accounting data to calculate financial indicators?
 Session 2a- Evaluating financial-type indicators for management
control

Key messages

The many advantages of financial indicators make them essential measures of company performance:
1. They provide a very concise measure of performance.
2. When based on accounting figures, financial indicators are relatively reliable
3. They can easily be aggregated and/or compared
4. They are inexpensive and are simple to compute.
However, Measurement systems that include only financial indicators have a number of limitations:
5. By definition, they measure performance on financial aspects alone, which may give a very
partial, or even an inappropriate view of performance in some organisations.
6. As they measure performance in a concise way, they do not provide an understanding of the
causes of any discrepancies and therefore provide little guidance on the corrective actions
needed when goals are not achieved.
7. They run the risk of focusing managers' attention on short-term results to the detriment of
medium and long-term performance.
8. Measuring the financial consequences of actions taken, financial indicators are poor at
predicting future performance.
 Session 2b- Defining and modelling performance

Key messages
1. A management control system cannot be built without first explaining the performance
dimensions for the organisation concerned, which are always specific to the organisation.
2. Building a management control system means that the system must first have explicit goals.
To this end, we need to identify the stakeholders that matter to the organisational entity, and
then the expectations of these stakeholders.
3. The diversity of stakeholder expectations reminds us that goals cannot be reduced to profit
or shareholder value. The performance management process can thus be applied to different
types of goals and entities/organisations.
4. Identifying an entity's stakeholders is not easy: there are generally various stakeholders, their
expectations are sometimes ambiguous or contradictory, and their relative importance is
difficult to assess precisely. The relative importance of stakeholders depends on the type of
organisation (private company, public institution, association, etc.) or entity (functional or
operational department), the institutional context, and the sector(s) in which the entity
operates. The balance between stakeholders is also dynamic: the relative importance of each
stakeholder may change.
5. Clarifying the goals leads to arbitration, and hence to management decisions.
6. The definition of performance implies taking the consumption of resources induced by the
activity into account (i.e., its cost) in addition to clarifying the entity's goals.
7. More broadly, setting performance goals involves defining the main lines of action to achieve
them, with actions on cost being only one of these potential areas. This is the aim of
performance modelling.
8. A performance model is a manager's subjective representation of the cause-and-effect links
between the goals and the lines of action. As these representations may vary from one
manager to the next, the aim is to encourage the convergence of representations, both
vertically and horizontally. It also involves being able to change this representation if
necessary (learning function).
9. A performance model is a simplification of reality. While this is sometimes seen as an
impoverishment, it makes it much easier for managers to understand the cause-and-effect
relation between the goals and the lines of action.
10. Performance modelling has an impact not only on the actors' representations, but also on
their behaviour; it is performative. Vigilance is needed in view of the risks of performative bias.
11. To be relevant, the lines of action (and therefore the performance model) need to be
consistent with the strategic lines of the organisation. These include the key success factors
of the sector of activity and the strategic positioning chosen by the leaders who organise and
prioritise the directions of organisational action in a relatively stable manner. The lines of
action must also be consistent with more cyclical priorities.
12. The literature notes that in practice, aligning management control indicators with a strategy is
not as simple as it seems, and it stresses the importance of a prior performance modelling
approach to achieve this.

Definitions
 Goals: The areas that the entity's management seeks to achieve, defined in qualitative terms.
 Lines of action: Potential ways of achieving a goal.
 Model: A schematic representation of the cause-and-effect relationships between different
aggregates, usually based on a mathematical formalism.
 Objective : Operational translation of a goal or a line of action into a result to be achieved. This
definition refines the definition seen in the introduction (see Session 1a). It indicates that an
objective can be determined with regard to a goal (where we want to go), but also a line of action
(how we want to get there).
 Performance: the goals pursued by an entity and the lines of action chosen to achieve them.
 Performance model: A schematic representation of the goals that make sense at a given time for
the entity, the lines of action chosen to achieve them, and the cause-and-effect relationships
between the lines of action and the goals.
 Stakeholder: a group or individual liable to affect, or be affected by the achievement of the
entity's objectives (Freeman, 1984)
● Strategy: priority action guidelines established by the leaders to achieve the goals, resulting
from the choice of positioning, key success factors imposed by the sector of activity, and the
organisation's more cyclical priorities.

To go further…

● What are the different kinds of models in management control ?

● What is not easily modelled is often considered as not very legitimate. To what extent can
modelling distort performance?
● A model cannot encompass all dimensions of an organisation's performance. It necessarily
results from a simplification of reality. How to balance the pros of such a simplification
(clarifying the priorities) with the cons (reduced vision)?
● What roles does modeling play in large corporate corporate groups?
● Does performance modeling reflect managerial representations or does it orient them? To
what extent is such modelling « performative »?
 Sessions 3&4- Dashboards and KPIs for performance management

Key messages
1. Dashboards are expected to measure performance in a "balanced" way, to integrate
a long-term perspective, to present performance in line with the strategy, and to
facilitate managers’ decision-making.
2. The indicators chosen for the dashboard must be preceded by the construction of a
performance model, as most expectations regarding dashboards are based on the
development of a quality model. A dashboard cannot be built by simply listing
indicators and choosing from among them.
3. A good dashboard for steering an entity includes a list of indicators that accurately
reflects the dimensions of the entity's performance model: it includes both indicators
linked to the goals and indicators related to the main lines of action. This allows
managers to have a balanced, longer-term, more operational representation of
performance.
4. Dashboards should, above all, be adapted to their intended use (principle of
relevance): this can include management or reporting use. In the case of
management use, a choice has to be made between boosting or monitoring use
because dashboards have different characteristics depending on the use.
5. Performance boosting use involves focusing managers’ attention on a few priorities.
The dimensions of the performance model are thus selective, and choices are made
from the general strategic areas and the cyclical priorities. The indicators used for
boosting are therefore limited in number and are monitored directly and
systematically by managers. These indicators are subject to frequent change, as the
priorities they reflect evolve.
6. Monitoring is used to ensure that the organisation is under control. The indicators
are more varied and balanced with regard to the entity’s different goals and lines of
action. This does not exclude certain choices from being made as a model cannot
claim to be exhaustive and as the indicators must remain consistent with the
strategy. Consequently, the number of indicators is higher than for performance
boosting use, and aim to cover the key dimensions of the performance model. They
are more recurrent in nature and can be assessed against pre-established values,
which means that only abnormal deviations are brought to the attention of managers.
Management controllers are heavily involved in monitoring them.
7. Any indicator can be potentially used for any type of use.
8. In practice, it is unusual to have separate dashboards for each type of use. Therefore,
an entity's dashboard usually contains indicators that serve several functions:
performance boosting and reporting use, or monitoring and reporting use.
9. It is important to have a tool that can build the performance model in a structured
way. Two modelling approach tools - the strategy map and the O/CPV framework -
are based on common principles that aim to promote a balanced representation of
performance: the way objectives are formulated, causal links, the possibility to link
objectives to several other objectives, and the identification of two levels of concepts
(expected results and action levers).
10. The O/CPV framework organises the performance dimensions into two categories:
objectives and action variables. The OVAR method framework does not use a
predefined framework method to create the content of each of these categories
(contrary to other types of performance models, like the strategy map in the
Balanced Scorecard method).
 11. In the OVAR method, indicators should be selected for each objective and for each
action variable.
12. For each objective and each CPV, it is useful to distinguish between lag indicators,
which focus on the expected result, and lead indicators, which focus on the levers
for achieving these results.
13. To facilitate management decision-making, a scoreboard must also be effective, i.e.
it must deliver the indicators within a short timeframe and present them in an easily
readable form (graphs, colour codes, etc.).

Definitions
 Action indicator (lead indicator): measure chosen to quantify a performance objective
(linked to a goal or a line of action) by focusing on the means adopted to achieve the
objective. It is distinct from a result indicator.
 Critical Performance Variable: denomination of the main lines of action in the OVAR
method.
 Dashboard: a structured set of financial and non-financial performance indicators
that are useful to managers, and the values these indicators assume over a defined
period.
 Monitoring use: indicators are used to monitor all key parameters of the entity's
performance.
 O/CPV framework: A form of performance model representing the priority objectives
in the form of a double entry table - objectives and critical performance variable -
and indicating with crosses the causal links between the critical performance
variables and objectives.
 Objective: Operational translation of a performance dimension in the form of a type
of result to be achieved (def. session 1). An objective can be determined in terms of
a goal (where we want to go), but also in terms of a line of action (how we want to
get there) (see Session 2). That said, in the OVAR method, the term objective (which
corresponds to the O in the OVAR acronym) has a more restricted meaning because
only the first dimension (operational translation of a goal) is retained.
 OVAR: method for constructing a dashboard, initiated by M. Fiol and H. Jordan, that
offers a visualisation of the performance model in the form of a framework linking
objectives (O), Critical Performance Variables (Variable d'Action in French) and
Responsibilities (R).
 Performance boosting use: within an entity, indicators aim to focus attention on a
few priorities.
 Result indicator (lag indicator): a measure chosen to quantify a performance
objective (linked to a goal or a line of action) by directly discerning the result
expected for this objective. It is distinct from an action indicator.

To go further…

● At a given responsibility level, should there be one or more dashboards?

● In large groups, how can we combine the different dashboards?
● In the dashboard at level n, which indicators should be deployed from level n-1?
● In the dashboard at level n, which indicators should be reported to level n+1?

● Is it relevant to evaluate a manager using all the indicators of his or her dashboard?
 Sessions 5&6 - Budgeting within an entity

Key messages

1. The purpose of planning is to project an organisation/entity into the future in a proactive

manner and with a view to progress. It consists of building a coherent system of
targeted objectives, action plans, and resources.
2. The planning tools (strategic plan, operational plan, and budget) correspond to different
time planning horizons which need to be coordinated with each other. In larger groups,
they also often correspond to different levels of responsibility within the organisation.
3. Planning is structured by a performance model (goals and lines of action translated into
objectives) and the indicators chosen to reflect it. The plan sets targets for each
indicator.
4. A first function of planning is anticipation which leads to:
a. Developing forecasting assumptions about general data (economic
environment, trends, etc.) that affect the entity's business
b. Imagining and simulating different action plans, and then deciding which
ones to choose
c. Planning for the necessary resources
d. Quantifying the expected results of the different objectives (targets)
5. By anticipating, the entity gives itself a degree of freedom in its choices and can build a
chosen positioning in a partly constrained framework.
6. The setting of budgetary targets is based on past achievements, the changing
environment, and longer-term ambitions. Planning is also a good time to escape the
"heat of the moment" and set targets that include actions for progress.
7. Planning also contributes to the regulation process (regulation function): the target
objectives defined within the framework of forward planning will serve as a reference for
assessing the results obtained and triggering decisions in the event of divergence
(corrective action plans, reviews).
8. Finally, planning contributes to organizational learning (learning function) as it is often a
privileged moment for building or adjusting the performance model.
9. The quantification of action plans in the budget construction process is an opportunity
to validate the consistency, not only financial but also strategic and operational, of
action plans, objectives and budget targets.
10. The alignment of objectives, action plans, and resources requires an organised process
in which the management controller is heavily involved.
11. It can take some time, which is sometimes difficult for managers. However, the functions
it fulfils make it an essential steering tool.

Definitions

 Budget: this is the detailed one-year expression of the operational plan. It involves a set
of coordinated action plans to achieve an objective set out in the operational plan, and
the evaluation and financial translation of these action plans. Budgets are drawn up at
the level of each of the organisation's responsibility centres
 Operational plan: covers the medium-term horizon (3 years) and implements the
objectives of the strategic plan
 Planning: projecting the entity into the future, including setting targeted performance
objectives for different time horizons and choosing action plans to achieve these
objectives
 Reforecasts: readjustment of end-of-year targets over the course of the year to take
major changes into account.
 Strategic plan: expresses the main long-range strategic orientations of the organization,
generally on a three to five-year timeframe.
 Targeted objective: Type of performance (objective) for which a level of performance
(target) has been set within a given timeframe (short, medium, or long term).

To go further…
 How are budgets negotiated between unit managers and their hierarchy?
 What is « budgetary slack » and how can it be managed?
 In large groups, how to articulate the budgets of the different responsibility centers
(Purchasing, production, sales units)?
 Is budget an outdated management tool? How to evaluate rigorously the strengths and
weaknesses of such a tool, and to what extent is the “beyond budgeting” debate relevant?
 Sessions 7-8- Monitoring and analyzing results

Key messages
1. Performance analysis is mainly based on the computation and analysis of variances between
actual figures and planned figures, or in relation to previous periods.
2. This analysis provides a basis for deciding on corrective action plans (regulation), and for
adjusting or challenging the performance model (learning).
3. The calculation of variances is informed by the indicators chosen to measure performance.
selected to build the performance measurement system. It can be structured by financial
modelling (e.g., cost accounting) or more varied modelling (dashboards).
4. Variances are calculated in relation to the targets set for the indicators in the planning phase.
Variance analysis methods can also be used to analyze the evolution of results between different
periods.
5. The VMYP method is one simplified way of structuring variance analysis, based on cost
accounting. It provides a breakdown of income variance (margin variance) by distinguishing four
causes of variance: overall business volume, product mix, yields and prices.
6. By quantifying the impact of each of these causes on the overall income variance, the VMYP
method enables managers to rank sources of variance and direct their attention to the most
significant ones.
7. The calculation of variances is only one step in a broader diagnosis process, which also includes
a qualitative search for the causes of variances, corrective decision-making, and appropriate
management leadership.
8. Variance analysis using methods based on cost accounting (e.g. the VMYP method) assumes
that the causes of variances are independent, whereas they may be related.
9. Variance analysis using a cost accounting approach may not be very responsive, as it assumes
that accounting results are available.
10. Models shaping variance analysis focus on profit levers, which do not necessarily cover the
structure of responsibilities. Hence, it is inappropriate to use variance analysis for individual
performance assessment purposes.

To go further…
 To conduct a variance analysis, is a simplified method necessarily less relevant than a more
detailed one?