Advantages of Variance Analyses

Advantages of Variance Analyses

Advantages of Variance can be expressed in term of controlling expenditure, budget estimate adjustment, evaluate performance, setting roles & responsibility and setting a system of accountability.

1.    Indicate Departure

First advantage of variance or variance analyses is indication of departure from the standard or expected. This departure gets management attention for investigation. Management is get the relevant fact for this departure, especially for adverse departure or variance (cost is more than expected).

2.    Controlling Expenditure

Second advantage of variance is its role in controlling expenditure. Management takes appropriate controlling action in case of adverse variance result.  In first place explanation of adverse variance is studied, in case there is no appropriate explanation offered, and then appropriate controlling action is taken.

3.    Adjust Budget Estimates

Third advantage of variance or variance analyses is future adjustment of budget estimates .When there is no appropriate reason for variance other than wrong budget estimate, budgeted estimate for future are adjusted or corrected.

4.    Evaluate Performance

Fourth advantage of variance or variance analyses to evaluate performance of individual and especially the controlling manager. Favorable variance indicates good performance of a department or manger, while adverse variance is indication of poor performance.

5.    Roles & Responsibility

 Fifth Advantage of Variance or variance analysis is setting of a system of roles and responsibility within the organization. Due to the setting of roles and responsibility, efficiency and controls within organization improves.

6.    Accountability

Variance calculation or variance analyses set a system of accountability within organization. Everyone is accountable for adverse variances results, (material or labour cost is more than expected).