Question

Differentiate between planning and operational variances

Briefly explain the following terms

1. Planning Variance:
2. Operational Variance:

Answer 1

a) Planning variances

A planning variance compares an original standard with a revised standard that should or would have been used if planners had known in advance what was going to happen.

Planning variance = Original Budget - Revised Budget

b)Operational variances

An operational variance compares an actual result with the revised standard.

Operational variance = Revised Budget - Actual Result

Planning variances	Operational variances
planning variances are variances which have arisen because of inaccurate planning or faulty standards	operational variances are variances which have been caused by adverse or favourable operational performance, compared with a standard which has been revised in hindsight.
Planning variance is deemed not controllable by management.	Operational variance is deemed controllable by management.
Management may not be held responsible	Management is held responsible for operational variances.