Your next step when you encounter Budget Variance

Posted on May 10, 2013 | 0 comments

When reviewing your company’s financial reports, you noticed that there is a slight budget variance. What do you usually do next? Some disregard it (especially when they indicated a growth in the business) while some inquire and investigate as to why this happened. The budget influences the profit heavily. When the variance boosts and increases profit, this only means that your business is growing and you are great in managing it but if the variance poses a huge loss in profit then there is something wrong and you need to find out what that is.

When analysing why such variance exist, the first thing that you have to determine is where the variance is. The truth is, there is no perfect budgeting, and you will most likely have variances all the time. Although small variances are always a part of operating a business they would still need thorough investigation if it continues to exist. We don’t need to tell you about how large variances definitely requires in depth investigation. You have to know what the normal pattern of variances that your business have and what would be odd or weird.
You also better be cautious about this normal pattern. A little increase or decrease would seem unnoticeable but looking at them as a whole would make you realize that it is already a huge number.
When did it occur? Variances can come regularly or seasonal. It is also important to take note that some variances may occur because of a delay in updating the system that you use.

The significance of the why in the existence of the variance is equal to the solution that you will take. You might be overreacting over a simple data delay or you might too relax with a major budget variance.

What do you need to do?
Once all the elements as to the existence of the variance then you’ll have everything that you need to draft a plan that will solve this issue. Consult your colleagues and partners about it and make profitable decisions.

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