Every organization, regardless of its profitability or growth, has to maintain control over its expenses

And when customers are cautious with their spending, the need for managers to use budgeting and variance analysis tools for cost control becomes especially critical. By studying variances, managers can focus on where specific performances have fallen short and make corrective adjustments to achieve significant savings for their companies. The drive to achieve cost reductions might seem at odds with the growing push for organizations to pursue environmentally sound business practices. To the contrary, managers looking to be more efficient in their operations have found that cornerstones of the sustainability movement, such as reducing waste and power usage, offer fresh ways to help them manage risk and control costs, as the following article shows.

Walmart’s Fleet Goes Green to Reduce Standard Costs ^*

Shipping goods is both costly and one of the biggest sources of carbon emissions in the United States and globally. Walmart, the world’s largest retailer, found a way to deliver more goods to its stores while driving fewer miles, reducing greenhouse gas emissions and the company’s standard (budgeted) costs of transporting products.

In 2005, Walmart established a goal to double the efficiency of its fleet of 6,000 trucks by 2015. This encouraged the company to add more cargo to its trailers and change its driving routes to eliminate unproductive miles. It also began collaborating with tractor and trailer manufacturers on new green technologies for its trucks, such as hybrid powertrains and carbon fiber trailers. Walmart achieved its efficiency goal 6 months ahead of schedule, and today the company delivers one billion more cases of goods than it did in 2005 while driving 460 million fewer miles. This has reduced the company’s carbon dioxide emissions by 650,000 metric tons annually.

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Higher fleet efficiency also significantly reduced Walmart’s standard transportation costs. Each year, Walmart saves more than $1 billion annually compared to its 2005 baseline, showing that a cleaner environment and lower costs can go hand in hand.

In Chapter 6, you saw how budgets help managers with their planning function. We now explain how budgets, specifically flexible budgets, are used to compute variances, which assist managers in their control function. Variance analysis supports the critical final function in the five-step decision-making process by enabling managers to evaluate performance and learn after decisions are implemented. In this chapter and the next, we explain how.