The Need for Variance Analysis Term Paper Example | Topics and Well Written Essays - 500 words

The Need for Variance Analysis - Term Paper Example Baker and Baker (2014) define variance as "The difference between standard and actual prices and quantities" (p. 201), and variance analysis as "Analysis of these differences" (p. 201). Variance analysis underscores or brings attention to deviations from what was initially intended. It is only after deviations have been identified that adequate and effective decisions can be made by the individuals in management positions (Baker and Baker, 2014). According to Berger (2011), lack of conducting a variance analysis may prompt leaders to overlook areas causing these deviations and hence fail to make relevant decisions. For variance analysis to be performed, a prior formulation of standards ought to be conducted, for instance, budgetary targets (Baker and Baker, 2014). This shows that variance analysis drives managers and other leaders to set targets or standards in advance. Decision making goes hand-in-hand with accountability in that individuals overseeing areas proved by the variance a nalysis to be causing the variations are answerable. Therefore, departmental heads are forced to make effective decisions and implement relevant strategies that forces them to operate within the budget (Berger, 2011). In the case study, new procedures for discharging patients have been implemented. A variance analysis conducted after six months showed that costs were running 25 percent higher than was expected. After conducting the variance and proving that there is actually a deviation from the budget by 25 percent, the next step would be to identify the causes of the deviation (Berger, 2011). There are many areas that may cause the deviation, for instance, extended working hours that increase the cost of labor. After identifying the cause of the deviation, then my next step would be to evaluate action plans under implementation to determine their effectiveness and investigate how they can be improved (Berger, 2011). If the action plans