Continuous Improvement
Managers can also use variance analysis to create a virtuous cycle of continuous improvement.
How? By repeatedly identifying causes of variances, initiating corrective actions,
and evaluating results of actions. Improvement opportunities are often easier to identify
when products are first produced. Once the easy opportunities have been identified (“the
low-hanging fruit picked”), much more ingenuity may be required to identify successive
improvement opportunities. Some companies use kaizen budgeting (Chapter 6, p. 203) to
specifically target reductions in budgeted costs over successive periods. The advantage of
kaizen budgeting is that it makes continuous improvement goals explicit.