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Variance in Growth percentage

Pranit1
Pranit1 asked
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Last Modified: 2008-08-21
Revenue in 2005: $100
Targetted Growth in 2006 over 2005-06: 30%
Therefore, Target Revenue in 2006: $130
Actual Revenue Achieved in 2006: $120
Therefore, Growth Achieved in 2006 as a %age over 2005: 20%

What will be the Growth %age Achieved against Targetted Growth?

Will it be 20%/30% = 66%
or will it be $120/$130 = 92%

or there is some other method to calculate Growth Achieved against Targeted Growth?
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ozo
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Commented:
It depends what you are intending to measure.

Author

Commented:
I am measuring deviation from expected growth
ozo
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Commented:
I would say your deviation from expected growth was -$10

Author

Commented:
Yes, the deviation is $-10 in absolute terms, but what I need is % age deviation from expected growth or conversaly, %age achieved from expected growth.

Commented:
Gain = $year2 - $year1.

Your target gain was $130 - $100 = $30.
You achieved $20.
Therefore you achieved a 20/30 = 66.7% of your target gain.

It's important to talk through the concept you're claiming to measure. In your case, the concept was "percent of target gain." Define your terms and everything falls into place.


ozo
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Commented:
You can compare the deviation relative to something else,
what you compare it to depends on what you want the comparison to mean
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Commented:
You reached 66% of your targeted percentage growth.

You reached 92% of your targeted growth.

Both figures are correct. Which is most meaningful depends on the use to which you wish to put the numbers. In the current deplorable state of business ethics you use the second figure when reporting to your boss because it shows that you almost met the goal. You use the first figure when discussing a possible raise with your subordinate because it shows that you were a long ways from your goal. Context and purpose is everything. There is no universal rule as to the correct use of percentages.

Commented:
The word *growth* is critical. The original question asked for:

"Growth Achieved against Targeted Growth"

Say my son is 3 feet tall, or 36 inches.

Doctor gives him some hormones to make him grow, expects him to grow up to 4 feet tall, or 48 inches.

The targeted GROWTH is 12 inches.

The targeted HEIGHT is 48 inches.

The question asks what percentage of the targeted GROWTH was achieved.

My son grows 4 inches which is obviously a failure of the hormone.

4/12 = 33.33%

Or do you delude yourself and say the hormone caused 39/48 = 81% of his target HEIGHT?

If the questioner sincerely wishes to assess the efficacy of some added sales effort for the year, he'll use the percent GROWTH calculation, 20/30 = 66.6%

One final illustration. Suppose you made no gain in 2006.

2005: $100
2006: $100

Target for 2006 was $130

There is no ambiguity here. If either method was correct, then you could go tell your CEO that your sales force achieved 100/130 = 77% of its target!

Think it over.

Author

Commented:
OK. I understand that 20/30 = 67% is more meaningful in this context. Let us take another example

Revenue in 2005: $100
Targetted Growth in 2006 over 2005-06: 10%
Therefore, Target Revenue in 2006: $110
Actual Revenue Achieved in 2006: $101
Therefore, Growth Achieved in 2006 as a %age over 2005: 1%

Therefore, Growth %age Achieved against Targetted Growth = 1/10 = 10%. (based on same method of calculation).

Now, in original example, deviation is 10% (30%-20%), and %age growth achieved in 67%
In this example, deviation is almost same i.e. 9% (10%-1%), but %age growth achieved in10%.

Isn't there a discrepancy in this method of calculation as well!

Take another example,

Revenue in 2005: $100
Targetted Growth in 2006 over 2005-06: -10%
Therefore, Target Revenue in 2006: $90
Actual Revenue Achieved in 2006: $95
Therefore, Growth Achieved in 2006 as a %age over 2005: -5%

Therefore, Growth %age Achieved against Targetted Growth = -5/-10 = 50%. (based on same method of calculation).
Now, as per this example, he has achieved only 50% of targeted growth, but actually he has exceeded his target by $5 in absolute terms!
ozo
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Commented:
or fallen short by -$5
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Commented:
Initially I did not pay enough attention to the  word "growth"
Consider the original question.

"Will it be 20%/30% = 66%
or will it be $120/$130 = 92%"

The top line is correct.
The bottom line is wrong. Terms have been changed. It no longer considers growth but considers total revenue. It should read
actual growth - $20
Targeted growth - $30
Result 20/30 = 0.66 or 66% as before

Author

Commented:
OK. How about for this example:

Revenue in 2005: $100
Targetted Growth in 2006 over 2005-06: 10%
Therefore, Target Revenue in 2006: $110
Actual Revenue Achieved in 2006: $101
Therefore, Growth Achieved in 2006 as a %age over 2005: 1%

Therefore, Growth %age Achieved against Targetted Growth = 1/10 = 10%. (based on same method of calculation).

Now, in original example, deviation is 10% (30%-20%), and %age growth achieved in 67%
In this example, deviation is almost same i.e. 9% (10%-1%), but %age growth achieved in10%.

Isn't there a discrepancy in this method of calculation as well!
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