For the most part, traditional budgeting has focused on the financial performance of an organization. However, many of these financial performance measures, designed to indicate the success of budget plans in contributing to increasing profits, were developed for an industrial world. Times have changed, and new ways of approaching planning and performance evaluation have changed as well. With information technology and global markets becoming the model for the modern business environment and as nonprofit organizations grow in size and sophistication, organizations have to recognize and value their intangible and intellectual assets as well as the tangible assets represented in numbers on the balance sheet. The balanced scorecard is a way for managers to view the organization from four interrelated perspectives of operational drivers for future performance: Financial perspective: How are we doing using traditional financial performance measures? How do shareholders view...
Comparisons of actual to budgeted results allows you to consider whether corrective action is needed. The difference between the actual results and budgeted results is called the variance . The variance can be favorable, when the actual results are better than expected—or unfavorable, when the actual results are worse than expected. Unfavorable variances require corrective action so that future results will be closer to budget. If you cannot affect a particular expense or revenue item, you may be able to compensate by taking action that will cause an offsetting variance in other budget line items. Sometimes variances are artificially created—for example, if the company's accounting software automatically spreads line item expenses over a 12-month period and the actual expenditure only occurs once a year, you will have a favorable variance in some months and an unfavorable variance in others.