Actual vs. Target Comparison
An actual vs. target comparison is an important part of business management control in companies and serves to align current performances and results with planned objectives. In this glossary entry, you will learn everything you need to know about the actual vs. target comparison and how it is applied in practice.
Table of Contents
- Definition and Purpose of the Actual vs. Target Comparison
- Areas of Application and Benefits
- Methods of the Actual vs. Target Comparison
- Problems and Challenges
1. Definition and Purpose of the Actual vs. Target Comparison
The actual vs. target comparison is a business management analysis method that is used to compare the actual performances and results of a company with the previously defined target specifications. The goal of the comparison is to uncover deviations and potential for improvement, in order to optimize operational control and planning.
The actual vs. target comparison consists of two parts:
- Target values: The target values are the planned objectives and specifications that a company sets within the framework of strategic and operational planning. These may include sales, costs, production, or distribution values, for example.
- Actual values: The actual values are the performances and results actually achieved in the comparison period. They are determined from the operational success control and the internal accounting.
In the context of the actual vs. target comparison, the actual values are compared with the target values to identify deviations and possible needs for action.
2. Areas of Application and Benefits
The actual vs. target comparison can be used in various areas of a company to optimize planning and control. These include, for example:
- Finance and accounting
- Controlling and cost accounting
- Production and logistics
- Sales and marketing
- Human resources
The benefits of the actual vs. target comparison include:
- Transparency: By comparing target and actual values, deviations and potentials for improvement become visible.
- Control: The actual vs. target comparison enables targeted measures to optimize operational processes and achieve company objectives.
- Monitoring: The comparison serves as a monitoring tool to review the success of the measures taken and to make adjustments if necessary.
3. Methods of the Actual vs. Target Comparison
There are various methods for conducting the actual vs. target comparison. The choice of the appropriate method depends on the individual requirements and circumstances of the company. Common methods include:
- Absolute actual vs. target comparison: Here the absolute target and actual values are directly compared. This method is particularly simple and clear, but can lead to distorted results if the values' magnitudes differ significantly.
- Relative actual vs. target comparison: This method calculates the percentage deviations of the actual values from the target values. This allows for a better comparison when magnitudes differ and highlights the relative significance of the deviations.
- Index-based actual vs. target comparison: In this method, the target and actual values are compared based on indices. This allows for better comparability of values from different areas and over different periods.
4. Problems and Challenges
Different problems and challenges can arise when conducting the actual vs. target comparison:
- Inaccuracy in planning: If the underlying target values are not realistically and precisely planned, the actual vs. target comparison can lead to incorrect conclusions and recommendations for action.
- Distortions due to external factors: External influences such as market changes or unforeseen events can affect the actual values and thus distort the comparison.
- Timing delays: The collection and analysis of the actual values can be associated with timing delays, which affects the timeliness of the comparison.
- Organizational and technical challenges: Setting up and maintaining an effective system for collecting and evaluating target and actual values can bring organizational and technical challenges.
The actual vs. target comparison is an important tool for business management control and enables the alignment of the performances and results of a company with the planned objectives. By identifying deviations and potential for improvement, the comparison contributes to the optimization of operational processes and the achievement of company goals. It is crucial to select suitable methods for conducting the comparison and consider potential problems and challenges.