Variance analysis is not simply a budgetary tool, although it is effective in assisting the administrator to better explain how operational expenses affect financial performance. Variance analysis allows a tool to question how the various aspects of an organization are performing. Cleverley, Song, and Cleverly (2011) states there are essentially three …show more content…
To be used effectively, administrators must utilize a number of reports, as well as have a basic understanding of financial theories and practice. Cleverly, Song and Cleverly (2011) states that this process is preventative in nature, thus it is an attempt to correct issues before they escalate monetarily. To examine why staffing salaries are higher than budgeted, the administrator should be prepared to examine the budgets for prior years and statements of operations. These reports will give the administrator a better idea of why these items are not matching their budgeted amounts. When the administrator receive explanations of variances from managers, Lee (n.d.) states that explanations for variances should be a brief few