Imagine you are a division manager responsible for multiple product lines, departments and employees. You, along with corporate executives, have established performance expectations in the form of budgets, standards and goals. Plans are put into action, employees work toward goals and decisions are made. But now what? Ultimately, success comes down to planning, performing and evaluating—and variance analysis is a crucial management tool that helps organizations on all of these dimensions.
Waunakee Metals, a building supply manufacturer, is concerned about overhead cost spending because actual overhead spending is greater than budgeted overhead. Given that overhead is a substantial proportion of Waunakee Metals’ cost structure, this cost overrun needs to be investigated. Managers recognize that the behavior of variable and fixed overhead is different, and thus, variance analysis for each of these cost types is different. Further, managers distinguish between manufacturing overhead costs and general and administrative overhead costs. Without these cost-specific analyses, managers would not be able to understand the source of cost overruns and would fail to detect and address problems before they get out of hand.
The same issue happens with strengths. Without variance analysis, strengths and efficiencies in core and supporting processes go unnoticed. Not realizing strengths in one area of the organization means they cannot be leveraged in other parts of the organization.
Variance analysis helps avoid these outcomes. Once implemented, variance analysis helps Waunakee Metals managers identify weaknesses and strengths and also helps them become better planners in future periods.
Do you know how your organization can enhance performance by controlling overhead costs? The Accenture Academy course Using Overhead Cost Variances in Decision Making uses a real-world, case-based scenario to introduce the fundamentals of variance analysis, as well as to illustrate how to calculate, interpret and use these variances in decisions related to the management and control of overhead costs. From these applications, you should be able to recognize how variance analysis can improve decision making in your firm and measure, evaluate and ultimately improve performance.
Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.