26 Figure 2 State Transition Diagram 1999 Systems Engineering Capstone

26 figure 2 state transition diagram 1999 systems

This preview shows page 4 - 6 out of 8 pages.

26 Figure 2: State Transition Diagram
Image of page 4
1999 Systems Engineering Capstone Conference • University of Virginia BREAKEVEN ANALYSIS Breakeven analysis is a technique used to examine the relationship between a business’s fixed costs, variable costs, and revenues at various levels of output to determine the combination of elements that achieve the breakeven point. At the breakeven point, revenue equals total costs; revenues generated just cover operating costs and the business is realizing neither financial gain nor loss. Breakeven Analysis compares a business venture’s operating revenues to its operating expenses both directly and indirectly in the form of fixed and variable costs. Breakeven analysis determines the efficiency of current business operations as well as profitability and risk associated with pursuing new business ventures, all in terms of the existing cost structure and expected revenue generation. Subsequently, it outlines the conditions necessary for a new program to realize a profit. Breakeven analysis indicates the following: The unit volume level that must be achieved in order to breakeven How much profit will be made at any given level of unit volume How price and revenue generation changes affect profitability How reducing expenses in different areas of the company’s cost structure will impact profits, improving financial performance Identification of the breakeven point determines what, if any changes to make in the cost structure to improve financial performance (Newkirk, 2). Breakeven Model This method is used to measure the performance of the current collections process, and establish a control to measure future processes against. An Excel model provides both computational and graphical means of performing the analysis. Providian’s fixed and variable costs were identified and used as model inputs. The infrastructure used to contact customers and encourage them to pay their debts is operationally very expensive. Receiving payment, as well as assessing fees and interest on delinquent accounts, generates revenues. Modeling Results Providian currently is operating well above its calculated breakeven point as can be seen in Figure 3 , the graph produced based on the results of the breakeven analysis. Providian is not only able to cover its operating expenses; it makes considerable profit. The shear size difference in the profit and loss regions illustrates how successful Providian’s operations and cost structures are currently functioning. While Providian’s performance is impressive, it is by no means the limit to what it can achieve. A large number of calls results in a higher amount of dollars collected, and Providian operates above its breakeven point and therefore makes profit. A much lower amount of calls however can result in Providian collecting a much fewer dollars. The call volume can be so low that Providian is not able to collect enough money to remain profitable. At this level the company operates below their breakeven point, and therefore suffers losses.
Image of page 5
Image of page 6

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture