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Striking a Balance in Dealing With Cost Variances

12 Sep

Work in management or around management and at some point in time or another you are sure to hear the term or terms concerning “Analyzing Cost Variances”.  Just what do these terms mean and what are their great potential implications overall to management, their management and leadership decisions and to the long term health of the company or enterprise?

The term ‘Analyzing ( or analysis) of Cost Variances”  refer to the strategies and analytic workups and conclusions  accountants and accounting bean counter types derive when they  encounter a deferring tally or differences  between what might be called the “real” ( on paper or computer spreadsheet) budgeted costs and actual spent costs. The phrase may well be heard from the mouths of, memos and emails of management and upper management to accounting – I (we / the team) wants and answers to the discrepancies and disappearances between the two values. Further management may demand that they want an answer promptly or at the least within a reasonable enough time period to take good corrective action and actions.  Significant differences of this figure or value (accountants have a habit in their “lingo” of referring to these tallied differences as “variances” in either real dollars terms or more innocuous “figures” as if they are simply chits on the table. Yet to a legitimate and astutely run operation all deferring figures and variances should be identified and targeted promptly for full, complete and comprehensive corrective action. Yet its often more than difficult if not impossible to change a direction or even heading of a ship either putting out good speed , or even direction if a ship of great weight of inertia.

In many companies , firms and organizations themselves , it can be said and clearly noted that accountants , and their associated “accounting departments” , with all the plethora today of computers , great and cheap computer power “in the cloud” along with a host of complex and even cryptic algorithms spend so much time identifying variances  and ensuring that they are allocated to the right , specific and correct accounting time period  that for the most part that they never  really get around to telling and explaining to management – both upper and middle management levels – what these variances really mean or indeed what might of caused them.

It can be said that it can be best and the wisest choice not  to assume that the experts in the accounting dept or the specific accountants involved actually know , have a good fix or perhaps even have the smallest inkling and inklings  of the cause of every variance on their books.

It can be said that a wise and experienced strategy by management is to ask , or even insist , on a plain-language explanation or what caused the variances – or at the least some optional and potential reasons or even suspicions of what did cause these discrepancies or variances.  If the “bean counters” can back it up with actual hard data, at least you will have hard to base your decisions on, rather than flying blind.  Other times it may be an amalgam of potential answers without full supporting data.  Its then up to you and the “management team” or teams to come up with a plan of action and a host of decisions with which to implement these policies , plans and procedures fully.

Kirk B. Stephens

Senior principal Ace Employment Services – Winnipeg’s Manitoba  temp service employment service

 

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