{"id":13406,"date":"2025-03-27T12:00:00","date_gmt":"2025-03-27T11:00:00","guid":{"rendered":"https:\/\/beebole.com\/blog\/?p=13406"},"modified":"2025-12-05T15:46:17","modified_gmt":"2025-12-05T14:46:17","slug":"how-to-communicate-budget-variance","status":"publish","type":"post","link":"https:\/\/beebole.com\/blog\/how-to-communicate-budget-variance","title":{"rendered":"Communicate budget variance: The path to strategic action [best practices from FP&A professionals]"},"content":{"rendered":"\n

Project budget variance reports are invaluable tools, but how to communicate budget variance and turn the information into strategic actions? Budget variance reports’ true worth lies in how the insights they provide are used across the organization. If such insights can\u2019t influence strategic changes, variance reports are limited to control and accountability functions.<\/p>\n\n\n\n

To ensure a more meaningful impact, it\u2019s essential to have a management system in place that facilitates proper reporting, allowing FP&A professionals to identify, communicate, and implement strategic changes based on project budget variance analysis<\/a>. In this article, we\u2019ll explore how to do this effectively, supported by expert insights. We hope these ideas will add value to your process.<\/p>\n\n\n\n

How to communicate budget variance into strategic decision making<\/h2>\n\n\n\n

When we asked professor Robert Kaplan<\/strong>, senior fellow and Marvin Bower<\/strong> professor of leadership development, Emeritus at Harvard Business School, about implementing strategic changes from project budget variance reports, he reminded us of an important fact: There\u2019s a difference between \u201cusing budget variances solely for control and accountability versus using variances for learning and improvement<\/strong>.\u201d<\/p>\n\n\n\n

While highlighting this difference, Kaplan brought to our attention the study that his colleague Robert Simons carried out with Johnson & Johnson explaining how the managers of that company \u201cuse the budget system to force inquiry into the underlying causes of budget variances, looking externally to competitive threats and opportunities both for explanations of budgetary adjustments, and opportunities to reach or exceed budgeted targets for sales and profit growth.\u201d<\/p>\n\n\n\n

The Johnson & Johnson case is a good example of how management uses budget variance reports to adjust overall planning. According to Simon\u2019s book \u201cLevers of Control,\u201d Johnsons & Johnson uses an interactive control system to leverage their budget variance reports.<\/p>\n\n\n\n

\u201cPeriodically, during the year, Johnson & Johnson managers reestimate the predicted effects of competitive tactics and new product roll-outs on their profit plans for the current and following year. They also adjust five and ten year plans. The recurring questions posed by managers are: What has changed since our last forecast, Why? What are we going to do about it?,\u201d explains Simons.<\/p>\n\n\n\n

Not all companies use budget variance reports in the same way as Johnson & Johnson does, of course. However, this is a good example to see how to integrate project budget variance reports into strategic decision-making.<\/p>\n\n\n\n

Optimize your reporting system<\/h3>\n\n\n\n

Generally speaking, variances are initially analyzed in operational review meetings. For instance, finance professionals might hold such meetings to address short-term cash flow issues like late payments or treasury operations.<\/p>\n\n\n\n

\"Classifying
A look at management meetings and their various objectives<\/figcaption><\/figure>\n\n\n\n

According to Kaplan and Norton\u2019s book \u201cThe Premium Execution,\u201d companies hold operational review meetings to monitor and manage short-term financial and operational performance. While these meetings are essential, many companies remain focused solely on addressing immediate issues, without questioning how to adjust their overall strategy. As a result, variance reports often serve merely as control and accountability tools, rather than contributing to strategic decision-making.<\/p>\n\n\n\n

To avoid this trap, it is crucial to optimize your reporting system by clearly separating the agendas and participants of different meetings. This allows finance professionals to move from simply discussing numbers at the operational level to communicating insights and driving actions at the strategic one.<\/p>\n\n\n\n

\"Tips
Different ways to optimize your management meetings<\/figcaption><\/figure>\n\n\n\n

To further enhance this aspect, it is crucial to promote collaboration<\/strong>. \u201cBy involving the right stakeholders\u2014whether they be finance, operations, or leadership\u2014and fostering collaboration, the organization can make informed decisions that address variances and prevent future issues,\u201d argues Rizwan Khan<\/strong>, Managing Director at RMK Associates.<\/p>\n\n\n\n

Before we explore some of the best practices that finance professionals use to identify, communicate, and implement key issues from these reports, it is important to mention that not every single variance requires a strategy-related response.<\/p>\n\n\n\n

\u201cPermissible variances exist for all levels of the organization. If the variance is within these permitted deviations, then there will be no response, and the variance may be ignored,\u201d explains Harold Kerzner<\/strong>, Senior Executive Director at International Institute for Learning, in his book \u201cProject Management.\u201d<\/p>\n\n\n\n

Similarly, Bonnie Biafore<\/strong>, project management consultant at Montevista Solutions, argues in favor of pushing back on unacceptable variances. \u201cOrganizations with a fixed set of green\/yellow\/red status conditions could be ignoring the project\u2019s business case benefits. The unacceptable variances may be totally acceptable if you compare them to project benefits!<\/a>,\u201d explains Biafore.<\/p>\n\n\n\n

How to identify project budget variances<\/h2>\n\n\n\n

In order to have meaningful discussions with key stakeholders about budget variances, FP&A professionals need to accurately identify such variances. The following are some of the things you need to do.<\/p>\n\n\n\n

Make sure you have the right technology<\/h3>\n\n\n\n

Having the right software is essential for effectively managing project budget variances. A good project time tracking software<\/svg><\/span><\/a> solution streamlines the process, offering numerous benefits that can significantly enhance financial oversight and project performance. Here are some key advantages:<\/p>\n\n\n\n