Performance Reports

Learning Outcomes

  • Describe what a performance report is

You are the manager at Simply Yoga. The owner just walked in and asked you “How are we doing? How are we performing?” What reports can you offer her that can help her see the big company picture? Well, the financial statements are a start. Are you showing a net profit? Is there cash in the checking? Are all of your payments going out on time and are customers paying on time? In addition, the non-financial stuff is important. Are customers coming back time after time? Are they bringing friends with them? How are complaints handled?

A performance report will help you, as a manager, compare “apples to apples,” by expanding the budget documents to include revenue, spending and activity variances to clarify why differences happened, and whether they are truly unfavorable, or if the variances make sense! In addition, customer and employee surveys will help you to know if you are meeting all of those non-financial benchmarks that will keep you growing!

So let’s take a look at their budget, flexible budget and variances to show how changes in quantities or breakdowns can affect the budget:

Planning Budget Flexible Budget Activity Variance Favorable/Unfavorable
Classes taken 500 600
Revenue ($14/class) $7,000 $8,400 $1,400 F
Expenses
Wages and Salaries $3,500 $4,200 $700 U
Yoga Supplies $250 $300 $50 U
Utilities $500 $600 $100 U
Rent $500 $500
Insurance $100 $100
Other Expenses $250 $300 $50 U
Total Expense $5,100 $6,000 $900 U
Net Operating Income $1,900 $2,400 $500 F
F= Favorable
U= Unfavorable

See the difference in revenue and number of classes? The increase in classes taken creates additional revenue, which shows as a favorable variance. But when we get down into the expense area, the increased wages, supplies and other expenses, show as unfavorable. Is that really true? Well, the answer to that is, it depends!

If the case of Simply Yoga’s planning and flexible budgets, the increase in revenue would lead you, as the manager, to think additional wages make sense!  Let’s take a closer look comparing the budgets to actual.

So expanding Simply Yoga’s budgets and actual to include variance information gives a better picture of the variances so we can determine performance.

Actual Results Revenue and Spending Variances Flexible Budget Activity Variance Planning Budget
Classes Taken 650 600 500
Revenue ($14/class) 8190 −210 U 8400 1400 F 7000
Expenses
Wages and Salaries 4550 350 U 4200 700 U 3500
Yoga Supplies 355 55 U 300 50 U 250
Utilities 500 −100 F 600 100 F 500
Rent 500 0 500 0 500
Insurance 100 0 100 0 100
Other Expense 325 25 U 300 50 U 5100
Total Expense 6330 330 U 6000 900 U 5100
Net Operating Income 1860 −540 U 2400 500 F 1900

Now, with this additional information, how do you view the actual results of the month of classes, compared to the flexible and planning budgets?

Well, the first thing to note is there were more classes taken, but the revenue was lower (unfavorable variance) compared to the flexible budget. After chatting with the studio manager, you find out that she offered a 10% discount on the $14 per class charge this month in an effort to bring in new students! But, also of note, the teachers were still compensated at their $7 per student rate, so we show an unfavorable spending variance in wages too.

How does this more detailed information help you to better understand what happened at the yoga studio? We now know that a lowered cost will bring in more students, but it will also lower our net income. This might be good, if all of these students continue to come. So the next month’s performance report will be important to review. We also noted, that utilities don’t necessarily go up if class participation goes up! This is also an important budgeting note!

This illustration can help you to get a clearer picture of performance, than a simple budget to actual comparison!

So, income didn’t go up but the number of people attending classes did. Why? An explanation can help to clarify the reasons for variances. In our example, a conversation with the studio manager helped us to understand why the student count went to 650, but our income was lower, by $210 than if we had 600 students. What the heck happened?

She let us know that a promotion had been run, offering a 10% discount on classes for the month to encourage more students to try out classes. This offer was extended to current and new students, and it did it’s job, by bringing in additional students this month! But, will this be a good plan long term? We will take a look at the variance report in following months to see if those additional students continue to attend, when the price goes back to full price.

Another piece of information that may be important to ask our studio manager, would be how many of those additional classes attended were by new students, and how many were current students adding a class? This will further help to determine the efficacy of this promotion. It will also help to determine additional promotions and how to structure them. Perhaps we want to extend a discount to new students only? Or maybe try a discount if you bring a friend promotion?

Building business and understanding the variances in performance reports is a crucial component to effective management! What other ideas can you think of that may be useful for Simply Yoga?

Practice Questions

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