Question

You are the manager of a tyre manufacturing company. If it is reported to you that postal expenses have increased by 20% and the cost of raw materials by 2%, which of the two deviations is more critical to you. Give reason.

Answer 1

A 2% increase in the cost of raw material is more critical, as the deviation which is occurring in Key Result Areas (KRAs) should be corrected first. A 2% increase in cost of raw material will have an impact on the profitability, thus it is a KRA. Whereas, 20% increase in postal cost will not have much of the impact on profitability of the company.