登录查看更多内容

What are the most effective strategies for identifying and correcting cost variances?

由人工智能和领英社区提供技术支持

Cost variances are the differences between the actual and planned costs of a project, activity, or process. They can indicate how well a business is managing its budget, resources, and performance. However, identifying and correcting cost variances can be challenging, especially when there are multiple factors involved. In this article, you will learn some of the most effective strategies for finding and fixing cost variances in your accounting practice.

此文章中的业界达人

由社区从 3 条内容中精选。了解更多

Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
Ross Doussan

CMA | Strategic Financial Analysis

1 Understand the types of cost variances

There are two main types of cost variances: favorable and unfavorable. A favorable cost variance means that the actual cost is lower than the planned cost, which implies a saving or a higher profit. An unfavorable cost variance means that the actual cost is higher than the planned cost, which implies a loss or a lower profit. Depending on the nature and scope of your project, activity, or process, you may need to analyze different types of cost variances, such as material, labor, overhead, or sales variances.

添加您的观点

Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
举报内容
Cost variances are a significant issue in organizations, causing actual costs to deviate from budgeted or expected amounts. To identify and correct these variances, organizations should regularly monitor budget vs. actuals, use key performance indicators, conduct periodic cost audits, and use variance analysis. Comparing historical performance with industry standards, involving cross-functional teams, utilizing technology and analytics, and implementing real-time reporting are also essential. Correcting variances involves root cause analysis, adjusting budget assumptions, renegotiating contracts, implementing cost controls, identifying and eliminating waste, improving operational efficiency, providing employee training.

已翻译

赞

2 Use a standard costing system

A standard costing system is a method of estimating the expected costs of a project, activity, or process based on predetermined standards or benchmarks. It allows you to compare the actual costs with the standard costs and calculate the variances. A standard costing system can help you identify the sources and causes of cost variances, as well as measure the efficiency and effectiveness of your operations. However, you need to ensure that your standard costs are realistic, updated, and aligned with your goals.

添加您的观点

Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
举报内容
Implementing continuous improvement, updating forecasting models, aligning with strategic goals, transparently communicating changes, and monitoring and evaluating their effectiveness are helpful

已翻译

赞

3 Apply variance analysis techniques

Variance analysis is the process of investigating and explaining the reasons for cost variances, which can help you determine the impact on financial performance and take corrective actions if needed. Common techniques include variance decomposition, which breaks down total cost variance into smaller components, such as price, quantity, mix, or yield variances. Variance reconciliation adjusts for the effects of cost variances to understand how they affect income statement and balance sheet. Variance trend analysis tracks and compares cost variances over time or across different periods, projects, activities, or processes to identify patterns and evaluate corrective actions.

添加您的观点

4 Implement corrective actions

Once you have identified and analyzed the cost variances, you need to implement corrective actions to address them. Depending on the nature and magnitude of the cost variances, you may need to revise your budget, optimize your resources, improve your processes, negotiate with your suppliers or customers, or change your pricing strategy. You should also monitor and evaluate the outcomes of your corrective actions and make adjustments as needed.

添加您的观点

5 Communicate and report the cost variances

The final strategy for identifying and correcting cost variances is to communicate and report them to the relevant stakeholders, such as managers, employees, clients, or investors. You should provide clear and accurate information about the cost variances, their causes, their impacts, and your corrective actions. You should also use appropriate formats and tools, such as charts, graphs, tables, or dashboards, to present the cost variances in a visual and understandable way. Communicating and reporting the cost variances can help you gain feedback, support, and accountability for your cost management efforts.

添加您的观点

Ross Doussan

CMA | Strategic Financial Analysis
举报内容
In my experience, costs are reviewed monthly by relevant stakeholders. In a concise meeting, the variances are reviewed and discussed. In the meeting, past variance is shown, current variance is shown, and projected variances are shown. Variances are easily identified and, based on the data presented, management can make informed decisions by viewing past trends with current actual data. Using this method, unfavorable trends are identified and mitigated.

已翻译

赞

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Accounting

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

What are the most effective strategies for identifying and correcting cost variances?

1

2

3

4

5

6

1 Understand the types of cost variances

2 Use a standard costing system

3 Apply variance analysis techniques

4 Implement corrective actions

5 Communicate and report the cost variances

6 Here’s what else to consider

Accounting

给文章评分

感谢您的反馈

更多Accounting相关文章

更多相关阅读内容