Redundancy of Variances in the Business Environment

2021-05-13 22:04:25
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Modern companies have employed the use of Just-in-time (JIT) system of management that entail planning and controlling of the work done throughout the production process in response to the demands of the customers and production requirements relative to timing of the supplies. Goods will only have to be produced when they are only needed or raw material supplied when required in the production process. The method reduces work flow times, wastage and fosters efficiency .The adoption of JIT at Tesco employs delivery of goods to customers on order placement basis thereby reducing staff overhead costs rather than rather drawing estimates of customer consumption as a tool for sales management (Zhao 2014, p.184-187) These approaches do not require estimates of distribution costs as the process depends on order requests and not sales projections. The focus is put on the customer unlike in variance analysis where focus is put on distribution, resulting in erosion of the competitive advantage of the firms.

The modern business environment has resulted in the use of modern portfolio theory (MTP). MPT reduce risk of portfolios by having a balanced combination of investments. Statistical techniques are used to quantify the level of diversification based on the expected returns. AMERCO is an example of companies that have employed this system of management in establishing the costs of investments rather than budget considerations. Standard deviations are explored to assess the risks associated with the individual portfolios. The technique has rendered sales mix approaches that were previously redundant because it factors in risks factors that are absent in variance analysis (Francis & Kim 2013, P.37). This is as a result of the recognition that modern business environment is riskier and thus management should be based analyzed through risk assessments rather than the mechanical processes

Participative management is the practice of involving the stakeholders in the analysis of the problems facing the organization, coming up with new strategies as well as the implementation of the proposed solutions. Brunswick Company uses this approach to encourage its workers to exploit their full potential in the field of production. The employees are not regarded as cost centers and participate in the companys strategy formulations. It has rendered labor variances redundant as every member is involved in decision-making process (Schermerhorn 2013, p. 97-99)

Most modern business organizations have embraced the idea of business networking. It helps the business to forge relationships with the professionals with skills and expertise that have mutual benefits. Brown Shoe Company (Careles) is an example of a company that has embraced this system of management whereby it engages in skills partnerships to improve its business development objectives. The practice has rendering of material variance less important as the strategies do not require analysis of labor and raw material costs due to specialized production and collaborative practices with it business associates(Jarvis 2011,p.57-59)

Modern human resource management (HRM) techniques have also used to foster efficiency through reduction of amount of idle time and continuous training of the workforce. It deals with the behavior of the staff as a function of a companys profits and losses. Here, financial and non-financial contributions of employees are analyzed. Variance analysis does not factor the behavioral aspect employees yet they are essential to business sustenance in the modern business world, making its use in most companies unhelpful ((Wilkinson 2009, P.43-44). Alphine Group of Companies has employed this strategy to emphasize on good image and quality customer service.

Moreover, companies have had more focus on total quality management (TQM) which emphasizes on customer-centeredness and continuous improvement. The adoption of this practice is aimed at serving their customers with quality products and services rather than focusing on the quantity of sales, which are sometimes returned by customers and require reworking(Dale and Plunkett 2010, p.9-11; 14-18). Cabot Corp Company has ensured its chemicals are of top quality through continuous improvement on safety and effectiveness. This system has rendered marketing mix variance irrelevant because it is based on the assumption that once products are established products will always endear themselves to the customers.

The usage of standard costing for accounting has spread throughout the world. Studies have shown that at least 73% of companies in Europe, as well as 86% Companies in Japan, are using the technique. Standard costing and variance analysis can co-exist by devising the best mix that recognizes the demands of the modern business as well application of variance analysis to as a tool of measurement of the deviations of budgetary estimates.

Bibliography

Dale, B., & Plunkett, J. (1995). Quality Costing. London: Chapman & Hall.

Jarvis, J. (2011). Public parts: how sharing in the digital age improves the way we work and live. New York, NY, Simon & Schuster.

Schermerhorn, J. R. (2013). Management. Hoboken, NJ, John Wiley & Sons.

 

Wilkinson, A. (2009). The SAGE handbook of human resource management. Los Angeles, SAGE.

Zhao, S. (2014). Analyzing and Evaluating Critically Tescos Current Operations Management. Journal of Management and Sustainability, 4(4).

 

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