Lessons · Accounting · reading a variance without blaming the wrong person
Reading a variance without blaming the wrong person
A variance is a question, not a verdict. It says a number differed from a standard; it does not say who caused it, whether it was avoidable, or whether the standard was right in the first place.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
This is where variance reporting does actual harm. An adverse material usage variance gets sent to a workshop that received poor material bought cheaply by somebody else, and the workshop learns that the report is unfair and stops reading it. A number that people have learned to distrust is worse than no number.
How to think about it
Before attributing a variance, ask three questions. Could the person receiving this report have affected it. Is the standard still realistic. And does it connect to another variance somewhere else, with the cause at that other end.
Worked example
Adverse usage, favourable price, same materialLook at these together before sending either anywhere.
Cheaper material that breaks more oftenOne decision, two variances, and the cause is at the favourable one.
A standard set when the machine was newThe variance may be measuring the age of the machine.
A variance nobody in the room could have changedReport it as information, not as performance.
Your turn
Name what a variance is, given it is not a verdict.
A variance is a , not a verdict
Solve one, graded on the server
The trap
Treating favourable as good. Favourable means different from standard in one direction, and cheap material, skipped maintenance and unqualified staff all produce favourable variances on their way to producing a much larger problem.