The role of variance analysis in a multinational corporation - case ABC
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School of Business |
Master's thesis
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Authors
Saarimäki, Juha
Date
2017
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
68
Series
Abstract
This thesis studies the use of variance analysis at the highest organizational level in a big multinational corporation. In addition, this thesis analyzes the challenges companies face with variance analysis as well as the role of currencies in the variance analysis context. Because relatively little is known about the subject, an exploratory case study approach was chosen as a research method. A total of 10 interviews were conducted with the accounting experts and business unit managers of the case company in fall 2016. In addition, internal documents of the company and numerous discussions with the employees were used as empirical data. The control framework of Simons (1990) was used to analyze the case findings. In this framework variance analysis is almost exclusive seen as an operational level diagnostic control system. However, the results of this study suggest that at the highest organizational level variance analysis is not used for control. The value-adding role of variance analysis has shifted from operational-level diagnostic control system to information system that is used to help management and external stakeholders to develop knowledge about the organization. The feedback from variances is used to evaluate trends in the business and the outcomes of different strategic decisions and not in operational decision making. Variance analysis has been criticized of being a nonvalue-adding activity in the modern global and highly competitive business environment. Despite the criticism, it is still widely used in practice. This study shows why companies still use variance analysis and how the role of variance analysis has developed to meet the requirements of the changed business environment. The thesis does not deny the truthfulness of the prevalent criticism towards variance analysis. However, when variance analysis is used by senior management to evaluate the performance of a company, the criticism is not as severe as if it would be used in operational decision making. Similar observations as in this study of how companies use accounting information have been made in the accounting literature before but the results are novel in the research concerning variance analysis. However, as a case study approach is used, the results of this thesis cannot be directly generalized to all organizations. In order for the results to be generalizable, a critical mass has to develop to confirm the findings. Therefore, the study goes beyond the setting of the case by building initial hypotheses for future deductive research to test.Description
Thesis advisor
Nyberg, PeterKeywords
variance analysis, management accounting, control systems, case study