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Glossary

Variance Analysis

Variance analysis is a controlling instrument that is used to compare the actual results of a company or project with the planned goals and budgets. Deviations are identified, analyzed, and appropriate measures are initiated to improve performance. The main goal of variance analysis is to increase the efficiency and profitability of a company and to enable optimal resource allocation.

Variance Analysis: Detailed Information

Within the scope of variance analysis, the following steps are taken:

       
  1. Determining the deviations between actual values and target values
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  3. Identification of the causes of the deviations
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  5. Evaluation of the deviations based on their significance and impact
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  7. Development of measures to correct the deviations
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  9. Monitoring the implementation of the measures and success control

1. Determining the deviations between actual values and target values

In the first step of variance analysis, the actual results (actual values) are compared with the planned goals and budgets (target values). Various key figures and sizes can be considered, such as sales, costs, profit, productivity, or quality. It is important that the actual and target values are determined and compared on a consistent basis in order to obtain meaningful results.

2. Identification of the causes of the deviations

Once the deviations have been determined, it is necessary to identify the reasons for the differences that have arisen. Internal and external factors may play a role, such as market changes, competition, misjudgments, unforeseen events, or problems in internal organization and processes. A systematic cause analysis is crucial in order to be able to develop targeted measures for improvement.

3. Evaluation of the deviations based on their significance and impact

Not every deviation is equally important and requires immediate action. Therefore, it is important to evaluate and prioritize the identified deviations and their causes. A distinction can be made between positive and negative deviations, where positive deviations (e.g. higher sales than planned) may need to be addressed less urgently than negative ones (e.g. higher costs than planned). Moreover, the impact of the deviations on the overall performance of the company or project should be taken into account.

4. Development of measures to correct the deviations

Based on the evaluation and prioritization of the deviations, targeted measures for improvement can be developed. Depending on the cause and impact of the deviations, these measures can vary, for example:

       
  • Adjustment of planning and budgeting
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  • Optimization of processes and procedures
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  • Adjustment of resource allocation and deployment
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  • Change in marketing or sales strategy
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  • Implementation of quality management or risk management systems

5. Monitoring the implementation of the measures and success control

After measures to correct the deviations have been developed and initiated, continuous monitoring of the implementation and success control is necessary. Variance analysis can be used again to measure the success of the measures based on the reduction of deviations. This can establish a continuous improvement process in the company, contributing to increased efficiency and profitability.

Conclusion

Variance analysis is an important controlling instrument that supports companies in improving their performance and optimally allocating their resources. By identifying, analyzing, and evaluating deviations, as well as developing and implementing corrective measures, companies can increase their efficiency and profitability and successfully respond to changes in the market and competition.