Discussion responses in 24 hours 300 words or more

Respond to  two or more of your colleagues’ posts in one or more of the following ways: (Respond to each Colleague post with 150 words or more)

· Compare the example of variances and/or stakeholders impacted that your colleague described to your own professional experience.

· Based on your colleague’s explanation of how understanding the variances in their situation could have helped them make better decisions as a manager, provide a key takeaway that you could apply to your own managerial decision making in the future.

Return to this Discussion in a few days to read the responses to your initial posting. Note what you have learned or any insights you have gained as a result of the comments your colleagues made.

1st Colleague to respond to:

As a member of the financial services industry, I’ve been exposed to unprecedented variances over the past three years. The pandemic birthed immense economic uncertainty, directly affecting consumer buying power and the metrics used to measure performance. The state of society has had a volatile impact on the economy, how the financial sector conducts business, and consumers’ buying behavior. The Federal Reserve rate hikes are the most recent abrupt change to create significant variances in our budget.

As a relatively small financial institution, along with our product and service offerings, we seek alternative methods of increasing income. Investing in short-term mortgage bonds and certificates typically yields a favorable variance and boosts our cash flow. To our disappointment, in Q2 of this year, two investment bonds were “called” before they reached full maturity. Because we purchased the more aggressive maturing bonds, this unexpected event resulted in an unfavorable variance and income loss of over $70K. Losing $70K in income basically trashed our second-quarter budget because our predictions for costs, revenues, and cash flows were thrown completely off (Franklin et al., 2019). This significant income loss has negatively affected the board of directors' confidence in senior leadership’s ability to make important investment decisions. This negative variance also can affect internal stakeholders, like employees. To recoup the loss, senior leadership will seek avenues to save money which could include reducing supply orders and fewer company-sponsored team celebrations. 

On the contrary, implementing an innovative lending strategy has created a favorable variance in our loan portfolio. The leadership team decided to expand our lending efforts by enhancing our credit card product, creating a promotion, and adding two additional employees to handle the increased loan volume. By taking these steps, we hit our yearly goal four months early and have since employed a stretch goal for the rest of this year. Our external stakeholders are enjoying the benefits of this variance because a healthier loan portfolio trickles down to more dividends being paid monthly. 

As a manager, it's essential to understand how various outcomes affect business. It’s best to be fully aware of what adverse effects can occur and how they can be overpowered. On a positive note, it’s also helpful to recognize when a strategy is working positively and identify ways to maximize those wins. For example, with investment bonds, since our economy is unstable, aggressive investing wasn’t the best decision. We should have maintained a conservative stance to minimize potential loss. 

Reference: Franklin, M., Graybeal, P., & Cooper, D. (2019). Why it matters. In Principles of accounting, volume 2: Managerial accounting. OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-why-it-matters

2nd Pearson to respond to:

There are smaller budgets within my organization that Managers on the second level are in charge of ensuring that we stay balanced and within budget. This particular set of managers is in charge of planning different opportunities out of the year where we can acknowledge our employees and contractors from a monetary standpoint. According to Franklin, Graybeal, & Cooper, “managers can help other managers by noticing issues and sharing knowledge that can help improve variances” (Franklin, Graybeal, & Cooper 2019). This year we noticed that on our contractors end, our Contractor Agencies were up charging and taxing us for more than what we intended to spend on them in form of a gift card. The gift card tax has consumed at least 50% of the budget so far. We currently have 27 contractors and with budget in the amount of $3000 to spend on gift cards yearly. Looking at our statements this year it was determined that we have an unfavorable variance of $375 that puts us over budget in this particular area. We still have one more quarter to go in which we try and give Holiday Gifts in November to show our appreciation. In order to compensate for this variance, our full time employee budget is showing to be in better shape than the contractors for the year. We are allotted $30k overall budget, but only $27k for the full time staff total of 150 employees. We are allowed to spend $45 per employee for the quarter which adds up to $6750 per quarter. We still have a favorable budget of $6750 for the year to ensure that we take care of all employees, plus contractors. According to Franklin, Graybeal, & Cooper, “leadership may manage to the variances in order to ensure that the organization best interests are in place and can meet the variance threshold limit” (Franklin, Graybeal, & Cooper 2019). The goal is to spend $25 per employee and contractor to ensure that everyone receives a gift. Instead of sending the gift card information to the Contractor Agencies in order to cut cost, we’ve decided to send them out ourselves until we can work out the stipulations of the up charge. From a stakeholder standpoint on both ends there’s impact from the unfavorable variance. This shows a lack of attention to detail when it comes to the approval process when the Contractor Agencies send over the gift card response for approval. This can be turned around and show to be favorable on our end because with more eyes on the budget we were able to catch this anomaly. If its deemed that an incorrect process was followed we can eventually gain the money back, due to the accounting error on the Contractor Agencies end.

References:

Franklin, M., Graybeal, P., & Cooper, D. (2019). 8.5 describe how companies use variance analysis. In Principles of accounting, volume 2: Managerial accounting. OpenStax.  https://openstax.org/books/principles-managerial-accounting/pages/8-5-describe-how-companies-use-variance-analysis