When preparing a budget, managers must remember that organizational departments interact with each other, and the budget for one department may form the basis of or have an effect on the budgets in other departments.
Actual operating results can be compared to budget figures to measure how effectively and efficiently organizational goals were met. Significant unfavorable variances dictate that managers should either attempt to alter the behavior of personnel or alter the budget if it appears to be unrealistic; significant favorable variances most likely will not cause the budget to be adjusted, but rather will cause affected departments to be advised of on possible consequences (such as increased production needs indicated by a favorable difference in sales demand).
Regardless of whether variances are unfavorable or favorable, feedback to operating personnel is an important part of the budgeting process.
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