How to Manage a Budget Variance

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The budget is the primary tool financial analysts use to manage expenses and variances from the budget. By comparing the budget to actual numbers, analysts are able to identify any variances between budgeted and true costs. The higher the variance, the more help is needed in terms of management. The best way to manage variances is to have monthly reports and regular meetings to discuss these discrepancies with management and department heads. This also allows you to hold specific managers accountable for minimizing budget variance.

Request a copy of the most recent budget. It is not uncommon for budgets to be continuously revised so make sure you have the most recent budget report.

Obtain the most recent expense report. This report will have actual numbers written off by the organization. Writing an asset off means deducting it from revenues to obtain net income.

Compare the actual numbers reported by the budget report. Research the reason for the variance and identify the department or group that is primarily responsible for the variance. Provide a budget report to upper level management.

Request recommendations for how to close the variance and follow up with the department head to make sure the recommendations are carried out. Cutting expenses, avoiding new expenditures and reallocating assets or manpower are some methods to closing the variance.

Continue to compare the budget to actual numbers until the budget variance is minimal.

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About the Author

James Collins has worked as a freelance writer since 2005. His work appears online, focusing on business and financial topics. He holds a Bachelor of Science in horticulture science from Pennsylvania State University.

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