Investigating Variance
1. Variance Reporting Process
- The IT department typically generates and circulates variance reports.
- Reports are shared with departmental managers for review.
- Managers analyze variances relevant to their departments and identify causes.
2. Budget Committee Review
- The Budget Committee holds a meeting with all managers.
- Purpose:
- Discuss variance reports.
- Understand causes.
- Plan corrective actions.
3. Managerial Discussions
- These meetings are often intense and critical.
- Managers may blame other departments for variances.
Examples of Inter-department Blame:
| Department | Blamed For | Example |
|---|---|---|
| Purchase | Poor material quality | Production manager claims quality issues caused usage variance. |
| Production | Inefficiency | Due to untrained workers. |
| HR | Reduced training | HR wants to control training costs, affecting worker efficiency. |
💬 These meetings involve arguments and counterarguments, but result in:
- Mutual agreement on action points.
- Strategies to bring costs back within budget.
4. Budget Revisions
- If variances arise from unexpected new developments, the budget may need revision for the remaining period.
5. Understanding Favourable Variances
-
Excessively favourable variances may indicate:
- Loose or unrealistic standards
- Need for standard revision
✅ A variance that is too favourable can be as concerning as an adverse variance.
6. Variance Analysis for Performance Evaluation
- Variance reports are also used for rewarding performance.
- Departments showing consistent favourable variances may:
- Receive performance incentives
- Gain recognition