There are three levels of business analysis. Which level are you at?

In business management, business analysis is a key tool for gaining insight into business conditions and guiding decision-making. However, there are huge differences between different levels of business analysis. This article will systematically introduce the three levels of business analysis to help readers evaluate their current business analysis level and provide directions and methods for improvement.

Many students are frustrated: when it comes to business analysis, it feels like just calculating the year-on-year and month-on-month growth of revenue, profit, and expense data, and then writing "to make it higher". What does advanced business analysis look like? Today, I will systematically explain it to you.

1. Negative grading operation analysis

The basic task of business analysis is to present business results and monitor business processes. Therefore, the most basic business analysis is to bring out data such as income, profit, and expenses, which usually includes three parts:

1. Target achievement: revenue, cost, and profit achievement rate
2. Risk warning: accounts receivable, inventory, and cash flow
3. Department performance: achievement of goals for major business lines

However, these are just simple lists of results without any data interpretation. To understand the data in depth, you must at least understand the business process.

Primary business analysis mainly explains: how the income is generated and how the cost is generated. It is necessary to dissect the income source and cost structure. At this time, you cannot just stop at financial data, you need to introduce business data.

for example:

• Retail revenue depends on the stores. Revenue = Number of stores * Average output per store
• The revenue of the game comes from users. Revenue = Number of active users * Payment rate * Payment amount
• Manufacturing revenue comes from commodities. Revenue = downstream demand for commodities * order winning rate

If you have more process data, you can further break down the revenue model and understand the revenue source in more detail. (As shown below)

The cost depends on the cost structure. The manufacturing production line is huge and the cost is heavy, usually including: raw material cost, storage cost, logistics cost, R&D design cost, production cost, factory water and electricity, etc. The cost of the consumer goods industry is relatively light, and its products can be directly outsourced to manufacturing factories for production. You are responsible for brand building, marketing, etc.

Note that in addition to looking at the structure, the cost part also looks at the benchmark quantity to facilitate cost control. For example, in the production process of manufacturing, the technical department can set standard production costs based on product design/material requirements, and standardize the standard materials and labor for each product. In this way, by comparison, it is possible to find which link has problems.

The above are all adding analysis indicators. Analysis dimensions can also be added. For example, the revenue/cost situation of different regions, channels, and products is different. Regions, channels, and product lines can be used as analysis dimensions for comparative analysis.

However, even if we achieve this step, it is only a primary analysis, because through indicators + dimensions, we can only locate the problem, but not answer why the problem occurs.

For example, I see that raw material costs have gone up, so what?

• Is it because the entire market is rising?
• Is our procurement plan unreasonable?
• Or is it our supplier that is not good enough?

These complex problems require the construction of reasonable analytical logic to answer them.

2. Intermediate Business Analysis

The core of intermediate business analysis is to answer the following questions: How much influence do internal and external factors of the enterprise have on the business results? This is the only way to answer the questions raised in the previous article.

What’s interesting is that the business department always attributes good performance to their own diligence, and bad performance to “bad environment”. Therefore, if you want to do a good job in intermediate analysis, you must clearly list the problem situation, logic of occurrence, and data arguments of each problem. Only in this way can you achieve the effect of “convincing people with numbers” and avoid arguments.

External factors are relatively easy to observe and should be eliminated first. Only by eliminating external factors can we focus on internal actions without distraction (as shown below)

In most cases, external factors are not that exaggerated, and we should focus on internal actions. Internal actions need to be clearly understood: what impact does each action have on revenue/cost, and how does it change the revenue/cost indicators. Some actions can directly increase revenue, some are indirect auxiliary effects, and some have no effect at all (as shown in the figure below).

Note! When evaluating internal actions, you need to pay attention to completeness and comprehensiveness. For example, a promotional activity may have a pull effect, or it may overdraw the user's future consumption, so you need to continue tracking for a period of time and pay attention to the real results (as shown in the figure below).

For example, launching a new product may increase total sales, or it may simply replace the sales of an old product, with no change in total sales (as shown in the figure below).

For example, the previous mid-tier management system was expected to improve the efficiency of the production line, but it turned out that the process became more complicated and the capacity/output rate did not change much. These are all very common problems. When doing mid-level business analysis, a key topic is assessment: increment. After excluding the normal trend of the business, pay attention to the effect of the addition.

However, it is very likely that there are more than one or two business activities, and there may be many activities carried out together. At this time, the activities overlap and influence each other. The situation is very complicated and requires in-depth analysis to understand it.

3. Advanced Business Analysis

Advanced business analysis mainly solves the problem of overlapping due to too many business activities. In the intermediate analysis, we already know that there may be overlaps between activities, new and old products may be substituted, new and old channels may conflict, and R&D upgrades may not be effective... In short, everything will incur costs, but not everything can make money.

At this point you need to consider:

1. What is the proportion of profitable and unprofitable projects?

2. How to balance the progress of short-term and long-term projects

3. How to deploy troops and enable various businesses to develop in a coordinated manner

4. How to highlight key points and enable key businesses to grow smoothly

This is not a simple 1+1=2 approach, but requires overall thinking and the business insight of decision makers to a great extent. If there is no business insight, relying solely on data, there are only two ways:

1. Benchmark analysis: find excellent benchmarks and let everyone copy their homework

2. Problem diagnosis method: find out the problem link and then eliminate it

These two methods have been introduced before, and students can review the previous content.

IV. Summary

Overall, if you want to go deeper, you need

1) Financial data is closely linked to business

2) Have clear assumptions about business problems/macro environment

3) Have rigorous analytical logic and prove the problem