Variance Analysis

Understanding the difference between what was planned and what actually happened is the basis for variance analysis in process manufacturing. In variance analysis, standard costs, the expected cost to produce an item, are compared to the actual costs of producing that item. The difference, or variance, is an important metric for business leaders focused on maximizing revenues.

More complex manufacturing environments make calculating variances especially challenging. For example, when the same product is manufactured in more than one location, or with a substitute raw material, or during a different shift, more than one standard and/or actual cost can exist. Even if the difference was just one penny, multiplied across thousands of finished goods this variance can amount to a significant amount of lost revenues.

The only way to calculate true variance results requires access to the exact product cost for each item. With traditional ERP systems, there is usually one blended cost available for each product instead of individual costs based on time, location, or production method. With ImpactECS, models are built to account for differences wherever they occur – machine efficiencies, labor rates, raw material prices, or any other production variable.