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
Question 1 Describe the functions of merchant banking and functions of financial intermediaries Question 2 What do you understand by book building and Green shoe option

I am looking for assignment help on the topic Structure and Organization of Treasury. It would be great if anyone help me.

Policy Conflicts in Debt and Monetary Management: Co-ordination of operations is important so as to avoid differences in the policies of cash and debt management of the governm

Calculate the firm’s WACC. Prepare and analyze each planned capital expenditure. Evaluate, rank, and recommend the capital expenditures according to beneficial value to the organiz

Q. Describe about Profitability Index? Profitability Index OR (PI):- Second method of estimate a project through discounted cash flows is profitability index method. This metho

Net Present Value (NPV) : In this technique, future cash flows are discounted to the present and then compared with the investment outlay. The basic discount rate is generally

I nvitation of bids and bid publicity In previous sub section we learnt how the bid capacity for works and goods are calculated. We discussed how to prepare the bid documents,

The actual risk-free rate is 4%. Inflation is likely to be 3% this year and 4% during the next 2 years. We suppose that the maturity risk premium is zero. What is the yield on 2

Honey Well company is contemplating to liberalize its collection effort. It''s present sales are 1000000 and it''s average collection period is 30 days, it''s expected variable c

It is a policy feature of permanent life insurance that permits policyholders to left any dividends obtained with the insurer, where the dividends can gain interest. Accumulation o