By Eric van Heeswijk and Marc Wilson
Eric is an analyst and Marc is a partner at Global Advisors. Both are based in Johannesburg, South Africa.
Almost every person who has studied financial or management accounting at school or university is probably familiar with cost-volume-profit (CVP) analysis. It should be the basis of financial planning in most companies. However, in our experience, most managers do not apply the analysis and get it wrong in its most basic form (e.g. planning for similar / increased volumes together with price increases). The outcome? At best: results that fail to meet budgets. At worst: firms trigger the “margin-price-volume death spiral”. Whether you are a production manager or a CEO, you should understand how CVP analysis applies to your firm. Your business’s survival may be at stake.