You just closed Q3 for a mid-sized commercial insurer and your CFO asks why underwriting support costs came in above budget. Management wants a concise variance analysis that separates volume-driven changes from rate and efficiency issues, using the quarter's actual activity and spend. You have budget and actual figures for policy volume, staffing, compensation, and third-party processing costs. Assume all figures are on an accrual basis in USD.
| Metric | Budget Q3 | Actual Q3 |
|---|---|---|
| Policies processed | 120,000 | 132,000 |
| Underwriting support FTEs | 48 | 52 |
| Cost per FTE per quarter | $22,000 | $23,500 |
| Third-party processing cost per policy | $4.20 | $4.60 |
| Fixed department overhead | $180,000 | $195,000 |
How would you perform the variance analysis on this cost center, and what would you conclude are the biggest drivers of the Q3 miss? Explain how you would separate volume variance from price and efficiency variance and what actions you would recommend next quarter.