Cost Volume Profit analysis (CVP) helps monitor an organization’s activity levels, assisting managers in making decisions that lead to profits or avoid losses. The CVP has numerous uses and influences on most organizations’ cultural dimensions and best practices. Geert Hofstede proposed the cultural dimension theory, and the six key dimensions are power distance, individualism-collectivism, masculinity-femininity, uncertainty-avoidance, and short to long-term orientation (Gallego-Álvarez & Pucheta-Martínez, 2020). Managers and other decision-makers must conduct the CVP analysis with the knowledge that culture plays a significant role in the overall performance of the company’s projects.
CVP seeks to answer questions like when an organization aims to achieve its break-even point. If the company wants this to happen as soon as possible, the organization may cut costs, affecting its culture and best practices. On the flip side, if the firm has a long-term orientation culture, the CVP mechanisms will differ from those of shorter-term oriented companies (Vollero et al., 2019). This analysis of costs, volume, and profits also helps organizations by giving them feedback on how expenses will be and assisting managers in knowing when to adjust the variable costs. It also prevents uncertainty about the expected performance of the companies’ various projects, ensuring that best practices such as giving back to society are assured.
Contemporary organizations also use the CVP analysis to gauge which cultures are likely to help minimize operations costs. To avoid biased decision-making, organizations must conduct studies that ensure that the culture increases costs while not boosting sales or profits (Omar et al., 2019). Since CVP can be explained to be the ratio between revenue and total profits, the decision makers use it to decide which best practices will likely boost the revenues while minimizing the costs. Managers should always be cautious of the CVP’s short- and long-term benefits.
References
Gallego-Álvarez, I., & Pucheta-Martínez, M. C. (2020). Hofstede’s cultural dimensions and R&D intensity as an innovation strategy: A view from different institutional contexts. Eurasian Business Review, 11(2). Web.
Omar, Y. M., Minoufekr, M., & Plapper, P. (2019). Business analytics in manufacturing: Current trends, challenges, and pathway to market leadership. Operations Research Perspectives, 6, 100127. Web.
Vollero, A., Siano, A., Palazzo, M., & Amabile, S. (2019). Hofstede’s cultural dimensions and corporate social responsibility in online communication: Are they independent constructs? Corporate Social Responsibility and Environmental Management, 27(1), 53–64. Web.