Page 190 - Finance for Non-Financial Managers

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The Annual Budget: Financing Your Plans
Three Magic Questions for Variance Control
A department manager should look at his or her variance
report each month and ask these three questions: 171
1. Why did this variance occur? What happened that caused the
amount we spent to be materially different from what we intend-
ed to spend? “We bought more office supplies.” Wrong.“We
bought more office supplies to avoid a large, just announced price
increase.” Right.
2. What action must I take now, immediately, to keep a negative vari-
ance from continuing or to try to keep a positive variance from
slipping away?
3. What am I learning from the answers to the first two questions
that will make my budget next year a more effective management
tool?
These short questions are very powerful and useful for two impor-
tant reasons:
• They will help the manager to move quickly from analysis to action.
• The manager’s boss is likely to ask the same questions, one way or
another, and it’s useful to have the answers in advance, if the manag-
er is career-minded—or even just interested in surviving.

Manager’s Checklist for Chapter 10
❏ Every budget development cycle should begin with an esti-
mate of the revenues the company can expect to earn.
While this may first be announced as a management goal,
it’s critical for the sales department to accept as its own
whatever sales budget is adopted. That usually occurs
when it is directly involved in the revenue budget develop-
ment process.
❏ There’s always a good reason to spend money. Budget
developers and approvers must always keep in mind the
operating goals of the company for the period under
review and not allow a “good reason” to permit a budgeted
expenditure that’s not in the best interests of meeting the
company’s goals.