Too often, the variance itself becomes the bad news. So instead of fixing what the budget reveals, we find ourselves covering up, writing acceptable explanations, or blaming outside influences. The only real consequences of this is to neutralize the budget and bypass its intended control features.

What Variances Are Significant?
In deciding to track down both positive and negative variances and analyze their causes, you must address another question: Will you explain every variance,  or only those that are significant? It doesn’t make sense to explain every account, when some will show variances of only a few dollars. Only the “significant” variance needs explanation. Too much unimportant detail is time consuming in preparation and review, and distracts from the value of a variance report.

How do you make the distinction? You need to set a policy (or, more precisely, ask top management to decide upon a policy and then impose it on each department) concerning the definition of a significant variance. This definition should apply to positive and negative variances, and should involve both the amount and the percentage of variance. For example, you could decide that a “signifi¬cant” variance is one that varies 10 percent or more from the budget, when the amount is $1,000 or more.

The amount and percentage should be modified up or down based on the volume of income, costs, and expenses, and on the outcome of the variance report. You should be able to spot a truly significant variance by simply looking at the amounts and percent¬ages as they fall.

All it takes for the price to jump up by a lot is a little hiccup in the world wide market, note the price of gasoline as it relates to world affairs.

There is a way that we can keep these price increases from impacting our personal finances so much and that is by buying in quantity and finding the best possible prices for the things we use and will continue to use everyday… things that will keep just as well on the shelves in our homes as it does on the shelves at the grocery store or hardware store.

For instance, dog food and cat food costs about 10% less when bought by the case than it does when bought at the single can price and if you wait for close out prices you save a lot more than that.

Set aside some space in your home and make a list of things that you use regularly which will not spoil. Any grain or grain products will need to be stored in airtight containers that rats can’t get into so keep that in mind.

Then set out to find the best prices you can get on quantity purchases of such things as bathroom items and dry and canned food.

You will be surprised at how much you can save by buying a twenty pound bag of rice as opposed to a one pound bag but don’t forget that it must be kept in a rat proof container.

You can buy some clothing items such as men’s socks and underwear because those styles don’t change, avoid buying children’s and women’s clothing, those styles change and sizes change too drastically.

Try to acquire and keep a two year supply of these items and you can save hundreds of dollars.

The idea of “control” in this context should be examined carefully. To some, the corporate version of control translates to procedures and approval; to others, it’s a political influence issue. We mean neither of these when discussing control of the future. The profit-centered manager understands that the future is uncertain; but that with proper budgeting, a range of outcomes can be made to happen. That range is desirable because it leads to corporate profits, healthy cash flow, and realization of goals-not only for the company, but for the staff of the department and the manager personally. Budgeting, when combined with informed leadership and fair treatment of employees, is a valuable tool for creating, maintaining, and even determining levels of profit.

In those companies where budgets and variances are taken very seriously, how do people react differently than in other companies? Some of the major differences are listed below:
•    Variances are acted upon when found.
•    Negatives are reversed and positives are protected.
•    The process is reviewed month to month.
•    Budgeting itself is a lean and efficient process.
•    Revisions are not undertaken to hide errors, but to improve controls.
•    Everyone keeps sight of planning goals.

A big problem with monthly reporting is that previous, unresolved variances fall between the cracks-unless there is some fol¬low-up procedure to investigate and correct a problem. Anyone who has been involved with budgets already knows how difficult it is to add this amount of bureaucracy to an already paper-intensive procedure. The important thing is to know why a variance exists and to take corrective action, if possible.

By the time you come to the end of a budget period, having to summarize a large number of variances belonging to past months may be quite irritating. But remember that the purpose of the budget is to set a measurable standard, and not to guess the future precisely. The problem of outstanding and uncorrected variances only emphasizes the point that no one can really predict the future. A best guess is acceptable; an informed best guess is extraordinary.