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The following statements have been made about Planning and Operational Variance:
1. Planning and Operational Variances are calculated when it is necessary to assess a manager on results that are within his/her control.
2. Revised standards are required because variances may arise partly due to an unrealistic budget, and not solely due to operational factors.
Which of the above statement (s) is / are true?
In the Kaplan Kit, both are true. But to my knowledge I can see the first one is not good as planning variances are outside the manager’s control. Can you please shed some light on that?
Planning variances are outside of the manager’s control, but that is why we need to split the variances between planning and operational variances – so that we can asses the manager on the operational variances. If we just looked at the total variances, without splitting between planning and operational, then we would not be able to properly assess the manager on just the operational variances.
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