Join Rudolph Rosenberg for an in-depth discussion in this video Controllable and noncontrollable factors, part of Financial Analysis: Introduction to Business Performance Analysis.
In every business, as in everything else, some things are controllable and some others are not. In the world of business performance analysis, this is quite and important concept. The point here, is to focus your efforts on what you can control. For example, let's say that a big part of your business is in delivering products. Then you must have a significant budget allocated to gas. Let's say that gas prices go up, and due to that you're now making less money.
As you have no control over the price of gas, you cannot push it back down. It would therefore not make sense for you to spend time thinking about it. The problem though, is still there. You still need to make more money to compensate for the loss related to the gas prices. But while we have identified the source of the problem, the resolution will have to come from a different place. A place that you can control. That could mean finding more business to make more money, or cutting down on other expenses to compensate.
Focusing on what you can control is a very important concept, as it focuses your efforts on the important things. In the same way, it does not make sense to spend endless hours analyzing what you cannot control. Merely knowing that a non-controllable factor is impacting you is enough. Your analysis needs to be focused on the actions that you can take, and therefore, on what you can control.
This course, the first in our Financial Analysis series, introduces you to key concepts of business performance analysis. Author Rudolph Rosenberg focuses on the analysis of the profit and loss (the P&L) statement and on the key dynamics you need to understand in order to interpret the performance of your business. Understanding this data will help you make informed decisions that benefit your company in the long run.
Get started now with this quick primer. When you're ready for the next steps, check out Financial Analysis: Analyzing the Top Line with Excel and Financial Analysis: Analyzing the Bottom Line with Excel.