ANALYSIS OF VARIANCE

What is variance

“The variance of the distribution is defined as the Arithmetic mean of the squares of the deviations, taken from the mean of the distribution.”

The smaller the value of the variance, the more the cases are concentrated around the value of the mean; the larger the value of the variance, the more spread out away from the mean are the cases.

How To Calculate Variance

Steps in calculating variance

In Step 1, calculate the mean.In Step 2, for each case, subtract the mean from the value of the case and square that resultStep 3, add together the squared results from the previous stepStep 4, take the result from the previous step and divide it to the n-1

ANALYSIS of VARIANCE

‘’A statistical method for making simultaneous comparisons between two or more means; a statistical method that yields values that can be tested to determine whether a significant relation exists between variables’’

Importance of Variance Analysis

Variance analysis is used as a controlling tool. Managers can take suitable actions to achieve the desired objectives if there is a variation of the actual performance.It acts like a barometer for measuring business efficiency.Through regular variance analysis, ‘weak spots’ can be ascertained and remedial actions can be taken.Variance analysis can be used for comparing the departmental performance of the organisation.

The Role of Variance Analysis in Businesses

Effective variance analysis can help a company spot trends, issues, opportunities and threats to short-term or long-term success. The analysis of variance are used for:Budget vs. Actual CostsMaterialityRelationshipsForecasting

TYPES of analysis of variance

1. One Way Analysis of Variance

The one way analysis of variance allows us to compare several groups of observations, all of which are independent but possibly with a different mean for each group. A test of great importance is whether or not all the means are equal.

 

Two Way Analysis of Variance Two Way Analysis of Variance is a way of studying the effects of two factors separately (their main effects) and (sometimes) together (their interaction effect).

Practical study of Pfizer

Introduction of Pfizer

Founded in 1849, Pfizer is the world’s largest research-based pharmacy company taking new approaches to better health.. Pfizer pharmacy company has been working for the health and well-being of people in Pakistan since 1961. They are committed to delivering novel medicines to fulfill medical needs of patients. On 8th of September 1961 Pfizer, established itself as a manufacturing facility in Pakistan

Vision:“Working together for a healthier World”  Mission statement:Our mission is to apply science and our global resources to improve health and well-being at every stage of life.

Variance analysis of PROFITYEARS profit (X-ẍ) ^2

2005 1235.3 433.4724

2006 1280.4 575.0404

2007 1249.7 45.1584

2008 1240.8 243.9844

2009 1275.6 367.8724

6282.1 1665.528total

Variance analysis of 5 years

A.M = ΣX/n = 6281/5

= 1256.42

Variance = Σ(x-ẍ)^2 / n

= 16650528/4

= 416.382

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1 2 3 4 5

Variance analysis of net cost of operations

years Net cost (x-ẍ)^2

2005 801.8 14294.5936

2006 847.2 5499.7056

2007 999 6027.9696

2008 972.8 2646.0736

2009 986 4178.3296

total 4606.8 32646.672

Net cost variance Analysis

A.M = ΣX/n = 4606.8/5

= 921.36

Variance = Σ(x-ẍ)^2 / n

= 32646.672/4

= 6529.3344

SWOT ANALYSIS

conclusion

From the report concluded that variance helps to find out the variance between two values.’A statistical method for making simultaneous comparisons between two or more meansIt is the best dispersion to find out the average of the data.The net cost and profit of five company does not shown a great variation of 5 years. This means they have the good financial position.