What is the baseline reason for analyzing variances?

Analyzing variances plays a crucial role in monitoring performance within an organization. Variance analysis involves comparing actual performance metrics to budgeted or expected figures, which helps identify discrepancies in results. This process is essential for understanding why certain performance targets were not met or exceeded, enabling stakeholders to assess the effectiveness of operations, decision-making, and resource allocation.

When variances are analyzed, the organization gains insights into areas where improvements are necessary, whether that means addressing inefficiencies, adjusting strategies, or reinforcing successful practices. This continuous monitoring helps ensure that the organization remains aligned with its goals and can adapt as needed, ultimately fostering better performance outcomes.

In contrast, while adjusting the business plan, developing budgets, and making forecasts are related financial management activities, they are not the primary reason for analyzing variances. These actions are often outcomes or secondary steps that may arise as a result of insights gained from performance monitoring through variance analysis.