1. Interpret Causes of Variances using the Reconciliation Format
Principles of Cost Analysis and Management
Show Slide #1: Interpret Causes of Variances using the Reconciliation Format
References: FM 1-06, Slides, Handouts, Excel Spreadsheets
Facilitator Material: Each primary facilitator should possess a lesson plan, slide deck, course handouts, and practical exercise, and FM All required references and technical manuals will be provided by the School House
Learner Material: Learners should possess standard classroom supplies, course handouts, practical exercises, FM All required references and technical manuals will be provided by the School House.
Facilitator Actions:
learner Re-test 2hours 30 minutes
learner Re-train 2 hours
Classroom Setup 30 minutes
Testing Requirements/Assessment: Learners will take the Principles of Cost Analysis and Management 3 Exam at the end of Week Three. learners must score 80% or higher and International officers must score 70% or higher.

2. Could the Battle of the Bulge Have Been Won if All Battle Maps of Ardennes Forest Looked Like This?
Show Slide #2: Concrete Experience (What does it mean)
Facilitator’s Note: (Concrete Experience) Present learners the slide questions Ask learners what their thoughts are on “Maps of Ardennes Forest”
Facilitator’s Note: (Publish and Process) The critical portion of this part of the ELM process is to force the learners to reflect. Ask a series of thought influencing questions, for example: Could the Battle of the Bulge Have Been Won if All Battle Maps of Ardennes Forest Looked Like This?

3. Terminal Learning Objective
Action: Interpret Causes of Variances using the Reconciliation Format
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners) you must:
Describe an After Action Reconciliation
Prepare After Action Reconciliation
Prepare Enhanced After Action Reconciliation
Show Slide #3: TLO
Action: Interpret Causes of Variances using the Reconciliation Format
Conditions: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners) you must:
Describe an After Action Reconciliation
Prepare After Action Reconciliation
Prepare Enhanced After Action Reconciliation
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 DELIBERATE RISK ASSESSMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Environmental Considerations: Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to FM Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
Instructional Lead-in. The example on the previous slide is intentionally a ridiculous example. But if every tree in the forest was documented on a map, the map would be useless for understanding the big picture. While it is important for someone to have knowledge of the trees, it is not useful when briefing the Senior Leader. The Senior Leader needs the big picture, the type of information that is useful for making decisions that affect an entire organization.

4. Show Slide #4: Deployables Review
Facilitator’s Note: Introduction: This report was briefed to a Senior Leader in the 3d ACR on 2/7/ The report goes on for 21 pages and contains over 400 names of non-deployables. Not surprisingly, little was accomplished in addressing the problem of non-deployable soldiers. The reason is that the large quantity of data was not compiled or arranged in a way that was useful or meaningful to the Senior Leader. This is the cost equivalent of a map of each tree in the forest.
© Dale R. Geiger 2011

5. How Can the Cost War Be Won if All Cost Reports Look Like This?
It can’t –
Of course, someone needs to know where the trees are, but
Effective command and control needs intelligence formatted in more useful ways
Formatting cost information for effective command and control is critically important
Show Slide #5: How Can the Cost War Be Won if All Cost Reports Look Like This?
Facilitator’s Note:(Facilitate discussion using the slide)
How Can the Cost War Be Won if All Cost Reports Look Like This?
It can’t –
Of course, someone needs to know where the trees are, but
Effective command and control needs intelligence formatted in more useful ways
Formatting cost information for effective command and control is critically important
An effective cost report should facilitate accountability. The goal of this lesson is to present a format and methodology for preparing such a report.

6. After Action Reconciliation
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
Show Slide #6: After Action Reconciliation
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
The After Action Reconciliation format starts with a report on spending. This part of the report should compare what was expected (forecast) to what was achieved (current period results). These should be divided into areas of responsibility or other relevant divisions such as type of service provided. These are represented by Case A and Case B on this template. Cases A and B can be any breakdown of cost that is useful to the senior leader, but there should be someone accountable for these costs in the brief. It doesn’t make sense to present aggregations of costs where the accountability cannot be determined.
The second part of the report should show the reconciliation that explains the differences between what was expected and what was achieved.

7. After Action Reconciliation (Cont.)
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
The coster provides this part: the credible intelligence
Show Slide #7: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
The coster provides this part: the credible intelligence
It is the coster, or ACE’s responsibility to provide the credible cost information to his or her immediate superior.
For Case A, the forecast was for total spending of $X. The actual spending was $X-$20 or $20 less than the forecast.
For Case B, the forecast was for total spending of $X. The actual spending was $X+$20 or $20 MORE than the forecast.
The rest of the report depends upon the credibility of this information. The cost information must be reasonably correct and reliable, rather than “precisely wrong.”

8. After Action Reconciliation (Cont.)
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
The accountable, operational manager prepares and presents this part: the story
Show Slide #8: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
The accountable, operational manager prepares and presents this part: the story
It is up to the operational manager responsible for the costs reported in Cases A and B to tell the story and explain the differences between forecast and actual. The ACE or coster can be a useful resource in finding the root causes behind the variances, but the operational manager must take responsibility for the results. We’ll go into more detail as to what constitutes a good news or a bad new story in the next few slides.

9. After Action Reconciliation (Cont.)
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
or variance
This is a favorable variance since actual cost is lower than expected cost
The technical accounting term for this is a “goodie” 
Show Slide #9: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
The key figure on the page is called the Delta or variance. The goal of the AAR (After Action Review) is to explain the variance to the senior leader. The variance for Case A is favorable, since actual cost is lower than expected cost. The technical accounting term for this is a “goodie” (tongue in cheek – this is a lighthearted take on this.) When costs are lower than expected, we call this a good news story in the reconciliation.
Favorable variances are formatted without brackets.

10. After Action Reconciliation (Cont.)
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
or variance
This is an unfavorable variance since actual cost exceeds expected cost
The technical accounting term for this is a “baddie” 
Show Slide #10: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide
Case B’s variance is unfavorable because the actual cost exceeds expected cost. The technical accounting term for this is a “baddie”. Again, this is a lighthearted way of looking at it. We should recognize by now that if costs are more than expected this is unfavorable. We call this a bad news story in the reconciliation. (MORE COST IS BAD.)
Unfavorable variances are formatted with brackets. While “bad” and “unfavorable” are sometimes thought of as “negative”, the brackets DO NOT mean a negative number (less than zero.) Negative numbers (less than zero) are formatted with minus signs.

11. After Action Reconciliation (Cont.)
Case A Case B
Spending
What was Expected $X $X
What was Achieved $X - $20 $X+$20
Delta $ ($20)
Reconciliation Format
Good News Story $ $
Bad News Story ($) ($)
Total Explained $ ($20)
“The story” is usually a composite of a number of good news and bad news stories.
Each story has a favorable or unfavorable aspect that should net to the total delta.
Show Slide #11: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide
As we have said, it is up to the accountable manager to tell the story or take responsibility for the results.
“The story” is usually a composite of a number of good news and bad news stories. Each story has a favorable or unfavorable aspect that should net to the total delta. Favorable aspects (cost less than expected) are displayed without brackets, and unfavorable aspects or “bad news stories” are displayed with brackets.
In Case A, the good news outweighed the bad by $20. Or, the sum of all of the favorable aspects was greater than the sum of the unfavorable aspects. In total they explain the “good news” of an overall favorable delta of $20.
In Case B, the bad news outweighed the good by $20. The sum of the unfavorable items is greater than the sum of the favorable or good news items. Therefore the overall delta is unfavorable ($20).

12. LSA #1 Check on Learning
Q1. Who prepares the first part of the After Action Reconciliation report? A1. The coster or ACE is responsible for preparing the first part of the report, the comparison of forecast to actual and the delta Q2. What is the goal of the second part of the report? A2. The goal of the second part of the report is to tell the story…to explain the differences, both good and bad, that make up the delta.
Show Slide #12: LSA #1 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. Who prepares the first part of the After Action Reconciliation report?
A1. The coster or ACE is responsible for preparing the first part of the report, the comparison of forecast to actual and the delta
Q2. What is the goal of the second part of the report?
A2. The goal of the second part of the report is to tell the story…to explain the differences, both good and bad, that make up the delta.

13. LSA #1 Summary
In this lesson, we discussed the After Action Reconciliation and how it is used to explain the favorable / un-favorable Delta (variance) outcomes to our senior leaders.
Show Slide #13: LSA #1 Summary
Facilitator’s Note: In this lesson, we discussed the After Action Reconciliation and how it is used to explain the favorable / un-favorable Delta (variance) outcomes to our senior leaders.

14. Exercise: Construct the AAR Reconciliation Slide
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
Show Slide #14: Exercise: Construct the AAR Reconciliation Slide
2. Learning Step/Activity #2 Prepare After Action Reconciliation
Method of Instruction: Demonstrate
Facilitator to learner Ratio: 2:25
Time of Instruction: 1 hour
Media: Slides, Printed Reference Materials
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
Here is the cost data from operations of a unit. The first table tells us about the plan:
The plan was to have three civilian staff at a cost of $10,000 each and 3 military at a cost of $12,000 each.
Contracts were expected to total $20,000
Five trips were planned at a cost of 1500 each.
Total planned cost was $93,500
The second table tells us about the actual results.
Actual results had 2 civilian staff for a total of 26,000 and 3 military for a total of 39,000. Questions to think about: How does this compare to plan? Did we use more or less than planned of the resource “civilian staff”? Did we use more or less than planned of the resource “military”? You should begin to think of this in terms of spending and efficiency variances.
Total cost of contracts was 25,000.
Two trips were made for a total cost of Question to think about: How does the actual cost per trip compare to plan? [plan $750/trip – actual $1000/trip = ($250/trip) unfavorable] However, we made fewer trips than planned. Again, the spending and efficiency variances will come into play.
However, first we will look at total cost. Actual total cost was $92,000.

15. Exercise: Construct the AAR Reconciliation Slide
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
Is this a “goodie” or a “baddie”?
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
Show Slide #15: Exercise: Construct the AAR Reconciliation Slide (CONT)
Facilitator’s Note:(Facilitate discussion using the slide)
The total planned cost was $93,500. Actual cost was $92,000. Is this a ”goodie” or a “baddie”?
Since actual cost is less than planned cost, it’s a goodie, or favorable overall delta. In the next slide we will prepare the reconciliation to explain this variance between plan and actual. Remember that the story will be a combination of some good news and some bad news. The sum of all of the good and bad news stories, or favorable and unfavorable deltas, will add up to a favorable $1500.

16. After Action Reconciliation
Spending
What was expected
What was achieved
Delta
Reconciliation
Total Explained
Show Slide #16: After Action Reconciliation
Facilitator’s Note: learners will have the blank slide to prepare the reconciliation.

17. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
Total Explained
Show Slide #17: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide Step by Step process)
The first step is to enter the spending report comparing plan (what was expected) to actual (what was achieved). In this case we expected to spend $93,500 and we actually spent $92,000. This results in a $1500 delta that is favorable.

18. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
One less civilian staff but higher rate
4000
Total Explained
This is a “good news” story...sort of
Show Slide #18: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide Step by Step process)
Next we will go line by line through the plan and actual to see what was different and explain why. We will address the good news first. Cost for civilian pay was $4000 less than expected because we had one less civilian staff person than planned. This is a good news story, sort of. We would have expected to save $10,000 by this decision, but we didn’t because our rate increased. We will address this later.

19. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
One less civilian staff but higher rate
4000
Three fewer, less expensive trips
5500
Total Explained
Show Slide #19: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
Here is some more good news: We took three fewer trips than planned, and each was less expensive. That accounted for $5,500 favorable. $4,500 of this is due to taking fewer trips (efficiency) and $1000 is due to the fact that each trip that we did take was less expensive (spending)
More good news!

20. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
One less civilian staff but higher rate
4000
Three fewer, less expensive trips
5500
Higher military pay
(3000)
Total Explained
Show Slide #20: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
Higher military pay caused an increase in cost of $ We used the same number of soldiers as we planned, (zero efficiency variance) but each soldier used cost $1000 more than planned ($3000 spending variance). This is unfavorable, and is reported with brackets.
This is a “bad news” story

21. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
One less civilian staff but higher rate
4000
Three fewer, less expensive trips
5500
Higher military pay
(3000)
Higher contract cost
(5000)
Total Explained
Show Slide #21: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
Higher contract cost of $5,000 is also unfavorable. There is no usage given here to explain what may have caused this. All we can say is that we spent more than expected and that is unfavorable (reported in brackets.)
More bad news

22. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
One less civilian staff but higher rate
4000
Three fewer, less expensive trips
5500
Higher military pay
(3000)
Higher contract cost
(5000)
Total Explained
Show Slide #22: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
The total has been explained. A total of 9500 favorable from civilian pay and travel savings is reduced by a total of 8000 unfavorable from higher military pay and higher contract cost. This nets to the overall delta of (9500 – 8000 = 1500)
Remember the goal of the reconciliation is to tell the story. We have explained all of the causes of our $1500 savings.
Why is this so valuable? If we only looked at the $1500 favorable, we might think, “Gee, we did a great job!” and leave it at that. However, by breaking the story down into its various favorable and unfavorable components, we are able to learn something from the process:
How did we manage to get by with only two civilian staff? Why did they cost more than planned? We don’t have the information here to answer these questions, but preparing the reconciliation helps us to begin to think about it. We can learn from both the favorable and unfavorable aspects of this story.
Why did we only take two trips instead of five? How did we manage to do this so at 2/3 of the expected cost per trip? Again, we don’t have all the information, but a good leader will begin to research these things and find out how to continue this type of savings.

23. LSA #2 Check on Learning
Q1. If actual cost is greater than planned cost, how will it be displayed in the After Action Reconciliation? A1. An unfavorable variance will be displayed in brackets.
Show Slide #23: LSA #2 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. If actual cost is greater than planned cost, how will it be displayed in the After Action Reconciliation?
A1. An unfavorable variance will be displayed in brackets.

24. LSA #2 Summary
In this lesson, we conducted a Reconciliation practical exercise comparing what was spent vs. what was reconciled
Show Slide #24: LSA #2 Summary
Facilitator’s Note: In this lesson, we conducted a Reconciliation practical exercise comparing what was spent vs. what was reconciled

25. Prepare Enhanced After Action Reconciliation
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
output units
variable cost
variable cost
fixed cost
variable cost
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
output units
8000
variable cost
Show Slide #25: Prepare Enhanced After Action Reconciliation
3. Learning Step/Activity #3 Prepare Enhanced After Action Reconciliation
Method of Instruction: DSL (large or small group discussion)
Facilitator to learner Ratio: 2:25
Time of Instruction: 2 hour
Media: Slides, Printed Reference Materials
Facilitator’s Note: Exercise: Redo the Previous AAR by Considering Volume Variance Effects
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
One of the things we have not yet considered is volume effect. Notice there that some cost elements are fixed and some are variable. Our plan was to have a level of output of 10000, but we actually had output of Given that information, what should we EXPECT to happen to our total variable cost? [It should decrease. Perhaps this is the reason we were able to get by with one less civilian staff.]
variable cost
fixed cost
variable cost

26. Prepare Enhanced After Action Reconciliation
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
output units
Planned VC/unit=
10000
variable cost
variable cost
fixed cost
variable cost
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
output units
8000
variable cost
Show Slide #26: Prepare Enhanced After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide) Begin formula breakdown.
Our plan for variable cost was as shown. We sum up all of the variable cost elements and divide by the number of planned units of output:
Planned VC/unit=
10000
The planned unit cost was $7.35/unit
variable cost
fixed cost
variable cost

27. Prepare Enhanced After Action Reconciliation
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
output units
variable cost
variable cost
fixed cost
variable cost
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
output units
8000
variable cost
Actual VC/unit=
8000
Show Slide #27: Prepare Enhanced After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
Our actual variable cost is shown here. Again, we sum up the total variable cost elements and divide by the actual number of units of output:
Actual VC/unit=
8000
The actual unit cost was 8.38/unit
variable cost
fixed cost
variable cost

28. Variance Template Plan 10000 units Volume Variance Flex 8000 units
Perf.
Variance
Actual
Var. Cost
Fixed Cost
Total Cost
Show Slide #28: Variance Template
Facilitator’s Note: Begin with the template

29. Variance Template
Plan
10000 units
Volume Variance
Flex
8000 units
Perf.
Variance
Actual
Var. Cost
10000*7.35
73,500
14,700
8000*7.35
58,800
(8,200)
8000*8.38
67,000
Fixed Cost
20,000 --
(5,000)
25,000
Total Cost
93,500
78,800
(13,200)
92,000
Show Slide #29: Variance Template
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
Solution. Facilitator should walk through each number with the learners to make sure they understand how to calculate it.
First complete the plan: 10,000 units at $7.35/unit + fixed cost of 20,000 = total cost of $93,500.
Next complete the actual: units at $8.38/unit + actual fixed cost of $25,000 = $92,000
Now complete the flex forecast. Remember, this consists of what our plan or forecast would have been IF we had known our output was going to be 8000 units units at planned VC of $ planned fixed cost of $20,000 = $78.800
What is the volume variance? [$14,700 favorable]
What does this mean? This means that we should have realized savings of $14,700 due to the fact that our output was less than planned.
What is the performance variance? [($13,200) unfavorable]
What does this mean? This means that our savings were reduced by $13,200 due to performance issues such as increased pay rates.
Now that we have this information, we can give a more detailed reconciliation.
1,500
Total Cost Variance

30. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
Total Explained
Show Slide #30: After Action Reconciliation
Facilitator’s Note: learners will have the blank slide to prepare their analysis

31. After Action Reconciliation
Spending
What was expected
93500
What was achieved
92000
Delta
1500
Reconciliation
Produced fewer units
14700
Higher variable cost/unit
(8200)
Higher fixed cost
(5000)
Total Explained
Show Slide #31: After Action Reconciliation (Cont.)
Facilitator’s Note: (Give Solution and facilitate discussion)
Focus on the explanations. How did change in volume affect the total cost? [It should have decreased cost by $14,700]
What else affected the total? [Higher variable cost per unit increased the total by($8200) unfavorable; Higher fixed cost increased the total by ($5000) unfavorable]

32. Prepare Enhanced After Action Reconciliation
PLAN
number
cost per
total
civilian staff 3
10000
30000
military
12000
36000
contract cost
20000
trips 5
1500
7500
total cost
93500
output units
variable cost
variable cost
fixed cost
variable cost
planned a $10 per unit price
ACTUAL
number
cost per
total
civilian staff 2
13000
26000
military 3
39000
contract cost
25000
trips
1000
2000
total cost
92000
output units
8000
variable cost
Show Slide #32: Prepare Enhanced After Action Reconciliation (Cont.)
(Facilitator Read and facilitate discussion) Exercise: Redo the Previous AAR by Considering Volume Variance, Sales, and Profit Effects
Now let’s add another twist. Let’s assume that our unit operates as a revolving fund and charges a price for each unit of output. Our plan was to output units at a price of $10. We actually output 8000 units at a price of $13.
What was planned revenue? (10000 * $10 = $100,000
What was actual revenue? (8000 * $13 =$104,000) Is this a “goodie” or a “baddie”? [More revenue is good, this is a “goodie” or an overall favorable delta for revenue.]
variable cost
fixed cost
variable cost
got a $13 per unit price

33. Variance Template Plan 10000 units Volume Variance Flex 8000 units
Perf.
Variance
Actual
Revenue
Var. Cost
Fixed Cost
Profit
Show Slide #33: Variance Template
Facilitator’s Note: Display Variance template

34. Variance Template
Plan
10000 units
Volume Variance
Flex
8000 units
Perf.
Variance
Actual
Revenue
10000*$10
100,000
(20,000)
8000*$10
80,000
24,000
8000*$13
104,000
Var. Cost
10000*7.35
73,500
14,700
8000*7.35
58,800
(8,200)
8000*8.38
67,000
Fixed Cost
20,000 --
(5,000)
25,000
Profit
6,500
(5,300)
1,200
10,800
12,000
Show Slide #34: Variance Template (Cont.)
Facilitator’s Note: (Facilitator Read and facilitate discussion on the solution)
Make sure that learners understand how to calculate each number. They should begin to identify the root causes of the variances.
Start with the plan: Revenue is units *$10/unit. Subtract Variable cost of 10,000 units*$7.35/unit and fixed cost of 20,000 to arrive at profit of $6,500
Next calculate the actual: Revenue is 8000 units *$13/unit. Subtract Variable cost of 8000 units*$8.38/unit and fixed cost of 25,000 to arrive at profit of $12,000
Then calculate the flex forecast: Revenue is 8000 actual units *planned price $10/unit. Subtract Variable cost of 8000 actual units* planned VC $7.35/unit and planned fixed cost of 20,000 to arrive at profit of $1200
What is the volume variance for profit? [(5,300) unfavorable. The decrease in revenue was partially offset by the decrease in variable cost, which is to be expected when volume decreases.] Notice that the sum of the unfavorable revenue variance (20000) and the favorable variable cost variance net to the unfavorable total volume variance (5300).
What is the performance variance for profit? [$10,800 favorable. The increase in cost per unit results in a favorable variance for revenue, but that is partially offset by the increase in variable cost per unit and the increase in fixed costs.] Notice that the favorable revenue variance and the unfavorable variable cost (8200) and fixed cost (5000) variances net to the favorable total performance variance of
Finally, notice that the unfavorable volume variance (5300) and the favorable performance variance net to the total profit variance of 5500 favorable.
5,500
Total Profit Variance

35. After Action Reconciliation
Revenue and Cost
Plan
Actual
Delta
Revenue
Variable Cost
Fixed Cost
Profit
Reconciliation
Total Explained
Show Slide #35: After Action Reconciliation (Cont.)
Facilitator’s Note:(Facilitate discussion using the slide)
In this template we will break out the revenue and various cost elements in the cost report at the top of the page. Then make explanations at the bottom.

36. After Action Reconciliation
Revenue and Cost
Plan
Actual
Delta
Revenue
100000
104000
4000
Variable Cost
73500
67000
6500
Fixed Cost
20000
25000
(5000)
Profit
12000
5500
Reconciliation
Increase in selling price
24000
Decrease in units (variable cost)
14700
Decrease in units (revenue)
(20000)
Increased fixed cost
Increase in unit variable cost
(8200)
Total Explained
Show Slide #36: After Action Reconciliation (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
Make sure that learners know where each number comes from. The upper section of the report gives the plan and the actual. These are the same numbers we just calculated on our variance template. However, we do NOT use the flex forecast on this template. We only look at the overall delta in each category. That is, the and the delta between plan and actual for revenue, variable cost, and fixed cost.
In the lower section of the report, all of the items are explained.
Which of these items are due to volume? Which are due to performance?
The increase in selling price corresponds to the performance variance for revenue from our template
The decrease in units, variable cost, corresponds to the volume variance for variable cost
The decrease in units, revenue, corresponds to the volume variance for revenue.
The increase in fixed cost corresponds to the performance variance for fixed cost.
The increase in unit variable cost corresponds to the performance variance for variable cost.

37. Conclusions
The AAR format is critically important to facilitating command and control
It varies to suit the issues at hand and can evolve as the issues change
It pinpoints variances to expectation and demands a story from the accountable manager
Some additional, possible formats and typical explanatory elements follow
Show Slide #37: Conclusions
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
The AAR format is critically important to facilitating command and control. The key is in forming expectations and then holding decision makers responsible for meeting those expectations.
It varies to suit the issues at hand and can evolve and the issues change.
It pinpoints variances to expectation and demands a story from the accountable manager
Some additional, possible formats and typical explanatory elements follow.

38. Simple Cost Results and Reconciliation
Output A
Plan or Prior
Actual
Delta
Direct Cost
Indirect Cost
Total Cost X
Reconciliation Explanation for Delta for Output A
Show Slide #38: Simple Cost Results and Reconciliation
Facilitator’s Note:(Facilitate discussion using the slide)
This format supports the simple total cost. Direct and indirect costs may be reported as separate line items, or perhaps fixed and variable. Potential explanations for variances are change in number of units or change in one or more cost elements.
Reason 1: Change in Number of Units
Reason 2: Change in Direct Cost
Reason 3: Change in Indirect Cost
Total Cost Explained X

39. P&L View Results and Reconciliation
Output A
Plan or Prior
Actual
Delta
Fee Revenue
Cost
Residual X
Reconciliation Explanation for Delta for Residual
Show Slide #39: P&L View Results and Reconciliation
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
This format assumes that a fee is collected for the units of output. In addition to cost elements, change in revenue may be one of the explanations for the change in profit or residual income.
Reason 1: Change in Revenue
Reason 2: Change in Number of Units
Reason 3: Change in Cost
Total Explained X

40. Unit Cost Results and Reconciliation
Output A
Plan or Prior
Actual
Delta
Unit Cost A X
Reconciliation Explanation for Unit Cost Delta
Show Slide #40: Describe variations on the After Action Reconciliation format (Cont.)
Facilitator’s Note: (Facilitator read and facilitate discussion using the slide)
Sometimes the focus is on cost per unit of output. Again, variances may be explained by change in number of units, or change in various cost elements.
Reason 1: Change in Number of Units
Reason 2: Change in Direct Cost
Reason 3: Change in Indirect Cost
Total Explained X

41. Spreadsheet Exercise Redo the previous exercises using the spreadsheet
Which do you prefer?
Show Slide #41: Spreadsheet Exercise
Facilitator’s Note: Now that we have walked through the variance template and after action reconciliation, Begin with the template and redo the previous exercises using the spreadsheet.
Facilitator’s Note: Ask learners which do you prefer? Facilitate discussion on answers given.

42. LSA #3 Check on Learning
Q1. What should we expect to see on any reconciliation? A1. We should expect to see some “good news” stories or favorable deltas, some “bad news stories” or unfavorable deltas, and the sum of the favorable and unfavorable should be equal to the total delta.
Show Slide #42: LSA #3 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. What should we expect to see on any reconciliation?
A1. We should expect to see some “good news” stories or favorable deltas, some “bad news stories” or unfavorable deltas, and the sum of the favorable and unfavorable should be equal to the total delta.

43. LSA #3 Summary
In this final lesson, we conducted Enhanced After Action Reconciliation practical exercises while reviewing the variances, whether favorable or un-favorable.
Show Slide #43: LSA #3 Summary
Facilitator’s Note: In this final lesson, we conducted Enhanced After Action Reconciliation practical exercises while reviewing the variances, whether favorable or un-favorable.

44. Practical Exercise / Review
Show Slide #44: Practical Exercise / Review
Practical Exercise / Review: Interpret Causes of Variances with the Reconciliation Format
Method of Instruction: Practical Exercise
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 40 min.
Media: Handouts
Facilitator’s Note: This is a run self-study exercise. You will use the handouts to complete your practical exercises in this segment. You will enter data to complete PE Interpret Causes of Variances.
Special Instructions: Ensure Learners have access to PE Interpret Causes of Variances, also PE Calculate Vol and Perform Variance and all related material to complete the self-study practical exercise.
Objectives: With at least 80% accuracy (70% for international Learners): Learners as individuals will answer the questions in the PE Interpret Causes of Variances, using PE Calculate Vol and Perform Variance results, and the Excel 13.3 Spending and Efficiency Variances worksheet for discussion and its answers.
Facilitator’s Material: Each primary Facilitator's should possess a lesson plan, slide deck, course handouts, practical exercise IPE Interpret Causes of Variances answer key, summary worksheet containing FM 1-06 (Financial Management Operations), excel template and lesson created notes.
Learner’s Material: Learners should possess course handout HO Interpret Causes of Variances, self-study practical exercise titled PE Interpret Causes of Variances, summary worksheet containing FM 1-06 (Financial Management Operations), Excel 13.3 Spending and Efficiency Variances with access to Bb, and standard classroom supplies. 
Materials Needed:
13.3 Spending and Efficiency Variances Excel worksheet
Practical Exercise titled: PE Interpret Causes of Variances
Practical Exercise results titled: PE Calculate Vol and Perform Variance from Calculate Vol and Perform Variance lesson
Handout HO Interpret Causes of Variances
*Pen Or Pencil
*Blank Paper
Note: (* Learner responsibility)
Procedures/Instructions:
All situations have one correct answer.
You will complete this PE immediately following the class on Interpret Causes of Variances using the Reconciliation Format.
You will have 20 minutes for completion of this practical exercise, and 20 minutes for a review.
Be prepared to go over the entries and individual solutions for each question.
General Information: Direct learners to Readings 13.3 and have them review the material. Have learners go to Black board and get Excel spreadsheet 13.3 “Explain Causes of Variances”. Ask them to complete PE 13.3 and conduct check on learning. When satisfied that learners are demonstrating sufficient awareness of the concepts, have them continue exercises. Learners will need the PE from the Calculate Vol and Perform Variance lesson for this PE. Continue to check solutions and provide feedback. Encourage the learners to do this as individuals, and that they will have time to complete this practical exercise, followed by a review at the completion.
Instructional Lead-in: Given the different situations and scenarios within the PE, you will need to calculate and get answers to each question given.
PE AJHPC102.1 answers to preparing the After Action reconciliation for the following exercise from AJIPC100 Calculate Volume and Performance Variance lesson.
PE AJHPC102.2, answer to preparing the reconciliation for AJIPC The problem is restated along with the original solution.
Feedback: AAR will be conducted after the PE, along with a Learner end of course critique will be conducted at the end of the course.
Facilitator’s Note: If you experience difficulties, ask the Facilitator‘s or assistant Facilitator's for immediate assistance or help.
Requirements:
Learners conduct their own work.
Enter relevant report data to answer questions in the PE by utilizing the excel worksheet.
Practical Exercise Interpret Causes of Variances
Practical Exercise Calculate Vol and Perform Variance (Results)
13.3 Spending and Efficiency Variances worksheet
HO Interpret Causes of Variances
Practical Exercise AJIPC100.1
Practical Exercise AJIPC100.2
Practical Exercise AJHPC102.1
Evaluation: To obtain a "Go" in this PE, you must:
1. Correctly as a individual answer and fill out the answers in the PE utilizing the excel worksheet.
2. Calculate and compute the answers to the situation. 3. Be prepare to present the your answers during the review
Facilitator’s Note: This begins the self-study practical exercise. Learners are on their own at this point.
Commence Practical Exercise:
Practical Exercise Solution/Answer Key: Explain Causes of Variances
Solution 13.3 AJHPC102.1
Prepare the reconciliation:
Revenue Cost Profit
Forecast
Actual (4.5)
Delta Forecast (8) 3.5 (4.5)
Explanation:
Lost Revenue due to bad weather (8) (8)
Decreased variable costs due to lost sales 4 4
Increased variable cost due to inefficiency (1)
Decreased fixed costs .5
Total Explained (4.5)
Solution 13.3 AJHPC102.2
Performance variances:
Forecast
Actual
Delta Forecast (50) (12.5)
More repairs performed
Increased variable costs due to volume (37.5) (37.5)
Increased variable cost due to inefficiency (12.5) (12.5)
Total Explained (50) (12.5)

45. TLO Summary
Action: Interpret Causes of Variances using the Reconciliation Format
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners) you must:
Describe an After Action Reconciliation
Prepare After Action Reconciliation
Prepare Enhanced After Action Reconciliation
Show Slide #46: TLO Summary
Facilitator’s Note: Read TLO
Action: Interpret Causes of Variances using the Reconciliation Format
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners) you must:
Describe an After Action Reconciliation
Prepare After Action Reconciliation
Prepare Enhanced After Action Reconciliation
“Or”
Facilitator's at this time, have one learner from each group to explain the most important take away to them from this lesson. Facilitate a discussion on each answer.