indicate that the organization should invest more in its sales strategy. On the
other hand, if the variance between actual and budgeted expenses is negative, the organization may need to reduce its spending in specific areas.
Variances can also shape decision-making by highlighting areas of risk. For example, if the variance between actual and budgeted revenue is negative, this could indicate that the organization's sales strategy is not working, and the organization may need to consider other strategies to mitigate this risk. Similarly, if the variance between actual and budgeted expenses is positive, the organization may need to consider reducing expenses in certain areas to reduce its risk exposure.
In conclusion, comparing actual and budgeted results is essential for financial management. Variances provide valuable insights into an organization's financial performance and can be used to make informed decisions and improve future budgeting processes. By identifying variances, organizations can adjust their strategies, reduce risk exposure, and improve their financial performance.
"Suppose one of you wants to build a tower. Won't you first sit down and estimate the cost to see if you have enough money to complete it?" (Luke 14:28, New International Version). This verse highlights the importance of planning and budgeting before undertaking a project. By estimating the cost of building the tower, the builder can determine whether they have enough resources to complete the project. Similarly, organizations must plan and budget to ensure they have the resources to achieve their goals. Comparing actual and budgeted results helps organizations to evaluate their financial performance and make informed decisions to achieve their objectives.
1.
New International Version. (Luke 14:28).
2.
Wild, J., Shaw, K., & Chiappetta, B. (2014). Financial accounting: Information for decisions. McGraw-Hill Education.
3.
Horngren, C., Sundem, G., Schatzberg, J., & Burgstahler, D. (2014). Introduction to management accounting. Pearson.
