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

Common size financial statement, Common Size Financial Statement Common...

Common Size Financial Statement Common Size Financial Statement is a company financial statement that shows all items as percentages of a common base figure. This kind of finan

Explain about the market-based and bank-based systems, Explain about the ma...

Explain about the market-based and bank-based systems. A clear distinction between market-based in USA and UK and bank-based systems as in Germany, Japan and France define by s

Explain the methods used to treat the obsolete stock, Explain the methods u...

Explain the methods used to treat the obsolete stock Review Inventory for obsolete items Make materials review board Include an obsolescence review in the closing p

Determine the scope of financial management, Scope of Financial Management ...

Scope of Financial Management The approach to scope and functions of financial management is divided, forpurposes of exposition, into two broad categories: (a) Traditional A

Zero-volatility spread, The zero-volatility spread is a measure of th...

The zero-volatility spread is a measure of the spread that the investor would realize over the entire Treasury spot rate curve if a mortgage-backed or asset-backe

Revenues, Revenues Revenues are the gross income received before any de...

Revenues Revenues are the gross income received before any deductions for discounts, expenses, returns, and so on. It is also called sales in most organization. A much less c

Investor’s considerations -financial market, Investor's Considerations ...

Investor's Considerations As mentioned above, every investor before taking an investment decision, must consider the following aspects: Risk: The primary consideration for t

Functional areas of financial management, FUNCTIONAL AREAS OF FINANCIAL MAN...

FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT The scope of financial management is all pervasive and covers approximately all the functional areas of an organization. A number of t

Rights of investors, Rights of Investors CERTIFICATES An investor ...

Rights of Investors CERTIFICATES An investor is entitled to receive shares/unit certificates allotted to him within a period of 6 weeks from the date of closure of the sub

Alternative dividend policies, The managing directors of three profitable l...

The managing directors of three profitable listed companies discussed their companies' dividend policies at a business lunch. Company A ; has deliberately paid no dividends for

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