May 09
15
Determining Reporting Periods
One point you must address in setting budget variances report¬ing policy is frequency. Should you report monthly variances only, or year to date? The argument in favor of month variance reporting is that you won’t need to repeat explanation from previous periods. This is true. But year-to-date reporting still makes more sense. Under the monthly variance reporting method, only each month’s budget and actual are compared. The system is clean, as previous year-to-date variances will not be included. However, it is common for timing differences to pop up from one month to another, and year-to-date reporting takes care of this problem in many in¬stances.
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.
