How to calculate the deviation?
Many economists are puzzled over how to calculate the standard deviation and what it is. In addition, they still need to know what is absolute deviation and relative. This article describes the methods for calculating these deviations.
Standard deviation, how to calculate it? First you need to understand what is standard deviation. This is a very significant scattering indicator in the descriptive statistics section. Standard deviation can be calculated by the following algorithm:
- First, the calculation of the arithmetic average of the data sample.
- Then you need to subtract the arithmetic average of each element of the sample.
- Each difference obtained should be squared.
- Add all the squares of differences obtained in paragraph 3.
- Divide the sum of squares by the number of elements in the sample.
- Now from this quotient you need to extract the square root.
The result you get will be the standard deviation.
How to calculate the absolute deviation? Absolute deviation can be called the difference obtained by subtracting one value from another, this method is an expression of the existing state of affairs between the planned and actual parameters.
It is known that a certain problem is usually caused by such an indicator as an absolute deviation sign. It is usually considered that the deviation, which has a positive effect on the profits of the enterprise, is considered positive, and in calculations it is put with a “+” sign. As for the banal mathematics, this approach is considered to be not quite correct, and this, in turn, causes conflicts and disagreements among specialists. On this basis, in practice, the calculation of absolute deviations often use not a basic economic, but a mathematical model. The mathematical model is that the increase in actual turnover in comparison with the planned one is indicated by a “+” sign, and the decrease in actual costs in comparison with the planned one is indicated by the sign “-”.
How to calculate the relative deviation? The deviation can be calculated based on the ratio to other values, which means that this indicator is expressed as a percentage.Often, relative deviations are calculated with respect to a relatively basic value or parameter. For example, it is possible to express the relative deviation, say, of the same material costs, as a ratio to the total cost or as a percentage to the turnover.
In the application of relative deviations, it should be noted that their presence contributes to an increase in the level of informativeness of the analysis that we are conducting, and therefore allows us to more clearly assess the change that has occurred in the system. So, you can consider everything in this example, take the absolute deviation of turnover, which will be 1000 - 800 = 200. This figure is perceived in calculating the relative deviation is not as clear as, for example, the deviation value, the indicators in which are displayed in percent: (1000 - 800) / 800 * 100% = 25%. Agree, it still hurts the eyes.
How to calculate the deviation of this kind? This method of calculating the deviation involves the comparison of controlled values over a certain period of time, it can be such a measure of time as a quarter or a month, sometimes even it happens a day.Comparing the quantities of interest to us over a certain period of time (for example, a month, let's take May) of the current year with the same May of the previous year can give us a more informative comparison with the previous month, which is considered in the planning period.
Selective deviation relevant to firms that are engaged in the supply of seasonal services. Below will be described several more types of deviations, the knowledge of which can greatly facilitate your life.
A cumulative deviation can be called an amount calculated on a cumulative total (cumulative amount), and its deviation allows us to estimate the level of achievement for certain periods (months) or the possible difference by the end of a certain period. Occurring in a separate period, the random fluctuation of the parameter of the enterprise’s activity can lead to a significant deviation over a short period of time. The very same cumulation compensates for random deviations and allows you to more accurately determine the trend.
How to calculate the deviation in time section? For this deviation, a typical fact-plan comparison is typical.Deviation is determined based on a comparison of the budget and the actual realized value of the monitored parameter.
This approach to calculating deviations is very important in the case of a negative deviation of the planned value from the actual.