Peformance Analysis (1) Flashcards
What is variance analysis used for?
To analyse and evaluate past performance
What may significant variances indicate?
That an aspect of performance is out of control and that measures should be taken to improve performance in the future
What does the appropriate use of control information depend on? (budget targets)
Managers who set the budget or standards are often not managers who are then made responsible for achieving budget targets
What does the appropriate use of control information depend on? (budget targets)
Goal of organisation as a whole may not coincide with personal aspirations of individual managers
What does the appropriate use of control information depend on? (control applied)
Control is applied at different stages by different people
How can budgets motivate and demotivate managers?
To achieve a high level of performance or they can demotivate managers depending on the difficulty level
Where is a demotivating effect likely?
Where an ideal standard of performance is set as all efficiency variances will be adverse
A low standard of effciency as no sense of achievement
Solution to individual aspirations might be much higher or much lower than the organisation’s aspirations?
Solution might have two budgets
Two budgets (reasonable)
A budget for planning and decision-making based on reasonable expectations (expectations budget)
Two budgets (motivational purposes)
A budget for motivational purposes, with more difficult targets of performance (aspirations budget)
What is meant by an ideal standard?
Assumes highest possible level of achievement. Can be demotivating for managers responsible for performance
What is meant by an attainable standard?
Standard cost that sets performance targets at a higher level than is currently being achieved yet is realistic
What is meant by a current standard?
Standard is based on levels of performance that are currently being achieved. Provide no incentive but may prevent deterioration in performance
What is meant by a basic standard?
An original standard unchanged over a long period of time. Used to measure trends and changes in performance standards over time
What should reported variances prompt managers into?
Taking control action to improve performance
Syccess of variance reporting system depends on (manager)
Manager who is considered responsible for variance should agree that variance cause is their responsibility.
Syccess of variance reporting system depends on (fair)
Variance should be seaparated into a fair and realistic measure
Syccess of variance reporting system depends on (incetives)
Manager should want to do something to deal with causes of variance/ Through incentives and motivation
Syccess of variance reporting system depends on (timely)
Variance should be reported in a timely manner. Managers may be reluctant to investigate them “now” as variance will seem out of date
Syccess of variance reporting system depends on (control culture)
Control culture within the organisation may also affect the response of managers to variances
Issues with a blame culture?
Managers will be blamed for adverse variances and be accused of poor performance
Benefits of an improvement culture?
Managers are not blamed for adverse variances, encouraged instead as variances are considered as useful indicators for control action and improving performance
