Variance analysis of budget, Financial Management

Variance Analysis:

In its commonest form variance analysis is the process of comparing budgeted financial performance (or financial goals) against actual financial performance.

During the budget process the organisation would have set financial targets for each particular area of revenue or expense.  In the context of project budgeting, the targets are the expenditure limits that were identified during the budget development process.

Against these targets, actual performance is compared and the variance between the two recorded.

By analysing the variance, organisations can quickly see which areas are exceeding expectations, meeting expectations, or failing to meet expectations. Armed with such information, management can take corrective action. In the context of total business performance, variance analysis is generally scheduled to occur at the same time the preparation and communication of profit and loss statement, or cash flow statements, are scheduled. In the context of project budgeting, it is likely that separate variance analysis scheduling will occur and shorter intervals (and depending on the project) to ensure performance against expectations is maintain and avoid the potential for a budget blow out.

An example of a budget variance analysis could be as follows:

Variance Analysis - Relocation Project Sep 200X

J & J Real Estate 

Item Description

Budget ($)

Actual

Variance ($)

Variance (%)

Purchase Price

550,000

700,000

150,000

27.3%

Purchase Costs

30,000

45,000

15,000

50%

Repairs/Fit Out

150,000

80,000

-70,000

-46.6%

Relocation Costs

20,000

10,000

-10,000

-50%

Business Interruption

10,000

0

-10,000

-100%

Marketing Campaign

5,000

1,000

-4,000

-80%

Stationery

5,000

5,000

0

0%

Total

770,000

841,000

71,000

9.2%

The previous example is deliberatly designed as an end of project analysis where all expenditure is compared and variations against budget recorded. In reality, there would be a number of scheduled comparisons throughout the project. The project team would be required to breack total budget down into monthly (or even weekly) levels to enable continuous tracking to take place. In doing so, the organisation can anticipate problems as they arise and take measures to alleviate the impact or reallocate funding accordingly.

Posted Date: 10/1/2012 4:23:13 AM | Location : United States







Related Discussions:- Variance analysis of budget, Assignment Help, Ask Question on Variance analysis of budget, Get Answer, Expert's Help, Variance analysis of budget Discussions

Write discussion on Variance analysis of budget
Your posts are moderated
Related Questions
Coverage ratios give the relationship between the financial charges of a firm and its ability to service them. The four most commonly used coverage ratios are:

What are the options available for growth Joint venture   A joint venture is when a separate company is formed, in which every member holds an equity st

A U.S. company holds an asset in France and faces the subsequent scenario:     State 1 State 2  State 3  State 4

Consider a mortgage example to nance the purchase of a house or flat. You may use a real example or create a ctitious one. Search for di erent types of mortgages currently on o e

How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit.

Church Inc. is currently enjoying relatively high growth because of a surge in the demand for its latest product.  Management expects earnings and dividends to grow at a rate of 25

Accounting Period - Accounting Principle Accounting period refers to span of time at the end of that and for which the financial statement are prepared to throw light on the r

Following details are related to three companies which are identical except in terms of ''r''. Company ABC Ltd. MNC Ltd. XYZ Ltd. Cost of capital 10% 10% 10% Earn per

Primary Market In an economy, at a given point of time, there will be people/entities called savers the surplus units, whose current income exceeds their current expenditure whi

ARROW as an FSA's risk based approach to regulation ARROW stands for Advanced, Risk-Responsive Operating Framework. In January 2000, FSA set out a proposed approach to regulati