Corrective action on variance analysis, Financial Management

Assignment Help:

Corrective Action:

Once budget figures are compared with those actually achieved, and a variance analysis carried out, management can then take steps to correct any problems identified.  An organisation may put a procedure in place which stipulates that corrective action will only be initiated where a particular result falls outside a predetermined variation amount.

An example would be the situation where revenue does not meet budgeted figures. If an organisation's processes state that a variation of 5% on budgeted revenue is acceptable, and the variation is calculated to be -3%, then an organisation would not be required to review the revenue streams.  Of course, should the deficit fall outside these predetermined limits then an organisation would be compelled to take corrective action.

By predetermining ranges of variation where action will or won't be necessary, management will be freed to engage in more productive activities rather than worrying about every 1% variance from budgeted figures.

The predetermined ranges would have to be tailored to the specific needs of the organisation however, as a 5% variance in revenue may be totally acceptable to one organisation, while to another it could result in insolvency.

It is particular important that in project budgeting tolerances of variations be established and properly costed, as any increase in expenditure associated with the project not only has an impact on the viability of the project itself (when assessing return), but given expenditure usually comes from other areas of the business the increase cost will have an impact on those areas as well.


Related Discussions:- Corrective action on variance analysis

Bootstrapping, In bootstrapping method, on-the-run treasury issues ar...

In bootstrapping method, on-the-run treasury issues are used as they are fairly priced, and there is no credit risk or liquidity risk involved. In practice observed yie

Leverages, Evaluate the importance of leverages in financial management of ...

Evaluate the importance of leverages in financial management of small scale companies

Advantages to the investors, Advantages to the Investors: The warran...

Advantages to the Investors: The warrant acts as a sweetener and ensures a better subscription to the NCDs, especially for companies with good track record. NCDs with warran

Explain about the financial risk, Explain about the Financial risk fina...

Explain about the Financial risk financial risk are presumed to be constant, changing cost of each type of capital, j, over time must be affected only by changes in the supply

Weighted average cost of capital , I need report on Weighted Average Cost o...

I need report on Weighted Average Cost of Capital. Do you provide help in topic Weighted Average Cost of Capital? I need expert's assistance to solve my college assignment. Please

Describe the general pattern of cash flows, Describe the general pattern of...

Describe the general pattern of cash flows from a bond with a positive coupon rate. Cash flows from a bond along with a positive coupon rate contain periodic interest payments an

Testing the hypothesis - chi square test, Testing the Hypothesis To tes...

Testing the Hypothesis To test the null hypothesis, we compare the observed and the expected frequencies. If the actual and the expected values are nearly equal to each other w

Terms of maturity date very short term, 1. (a) A barbell is a approach of...

1. (a) A barbell is a approach of maintaining a portfolio of securities concentrated at two extremes in terms of maturity date very short term and very long term. A positive

Deficit financing, It is the most useful method of promoting economic devel...

It is the most useful method of promoting economic development. It may be used for the development of economic and social overheads such as construction of roads, railways, power p

Calculate total amount of dividends in arrears, QTL Tech has an issue of pr...

QTL Tech has an issue of preferred shares outstanding with a $50 stated value that pays a dividend of 7.5%. There are 325,000 shares outstanding. QTL has not paid preferred share d

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd