ACCA PM Syllabus D. Budgeting And Control - Advantages and limitations of Planning and Operational Variances - Notes ^{3 / 4}

Advantages of a system of planning and operational variances

1. The analysis highlights those variances which are controllable and those which are non-controllable.

2. Managers' acceptance of the use of variances for performance measurement, and their motivation, is likely to increase if they know they will not be held responsible for poor planning and faulty standard setting.

3. The planning and standard-setting processes should improve; standards should be more accurate, relevant and appropriate.

4. Operational variances will provide a 'fairer' reflection of actual performance.

Limitations of planning and operational variances

The limitations of planning and operational variances, which must be overcome if they are to be applied in practice.

1. What should a realistic / achievable standard be? This may be difficult to decide.

2. It may become too easy to justify all the variances as being due to bad planning, so no operational variances will be highlighted.

3. Revising and analysing variances into planning and operational will take time and can be costly.

4. Do managers use correctly this meaningful info? How can it improve their performance? Does it lead to better decision-making?