Financial Variance Management

Every business plan sets targets in terms of Key Result Areas (KRA's), Key Performance Indicators (KPI's), Scorecard measures etc.

Financial plans usually set these measures as key financial targets, to be achieved at different times in a firms life, and use processes like 'Financial Variance Management' to measure 'variances' between actuals achieved and the plan.

Key advantages of using variance management processes are:

1. They provide a link between strategy, planning and the performance of the firm;
2. They measure the performance of the firm against strategies and objectives that concentrate on creating wealth for the shareholders;
3. They make major upheavals (good or bad) visible early in the process and permit mid course corrections.

It is recommended that firms also monitor non- financial variances in performance, in terms of its customers, business processes, suppliers and other non financial indicators.

Customising scorecards that capture these performance indicators is a good way of achieving a healthy method of monitoring the performance of the firm. (see Third Generation Scorecards below)