Advantages & Disadvantages to find Variance

Advantages And Disadvantages Of Variance Analysis. INTRODUCTION This report will enhance and illustrate the way and uses of variance analysis. It will aims to separate and juxtapose the budgeted and actual…

Consequently, the report will further elaborate on the approach behind variance analysis and to achieve a good result, an instance study on London Plc stand costing and actual expenses will be cited. Furthermore, it will demonstrate the drawbacks of using this approach and the reasons why it is almost impractical for several companies.


Video advice: Advantages & disadvantages of Range, Q D, A D, S.D & Variance.

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Conceptually, the word “Standard” means a Measure. The term “Standard Costs” refers to Pre-determined costs. Brown and Howard define Standard Cost as a Pre-determined Cost which determines what each product or service should cost under given circumstances. This definition states that standard costs represent planned cost of a product. However, Standard Cost as defined by the Institute of Cost and Management Accountant, London is the Pre-determined Cost based on technical estimate for materials, labour and overhead for a selected period of time and for a prescribed set of working conditions. Standard Costing is a concept of accounting for determination of standard for each element of costs.

Clinical Trials – In statistics, variance is a measure of the spread of a set of data with respect to the average value, or mean. Mathematically speaking, variance is the sum of the squared difference between each data point and the mean — all divided by the number of data points. More simply, variance means getting some results or data points that deviate from the average or expected result and representing that difference numerically. This can be an advantage, a disadvantage or both. Statistical Surveys Finding variance in a survey data set is typically considered a good thing. It can be a sign that a survey was set up to correctly take a range of information from respondents. For example, a survey of yes-or-no questions may not provide much detail about the subject of the questionnaire. However, a survey on the same subject with respondents choosing from a range of answers offers more information — and a greater chance of variance. Variance could be seen as a disadvantage only if the surveyor saw results that deviated from a desired outcome.

Advantages and disadvantages of finding variance

Advantage: reuse – Variance is a statistical measure of how closely or widely the individual points in a set of data are dispersed. In simple terms, it measures the average difference between an individual results and the overall average result. It can help put data into context and identify possible errors, but in its raw form can be difficult to comprehend in a meaningful way. 1Calculation To calculate variance, add up the individual figures (data points), then find the mean average. For each individual data point, you then find the difference between the data point and the mean average, then square this difference. Repeat this process for each data point, then calculate the mean average of all the squared differences. 2Advantage: context Finding the variance in a data set can give a useful insight into the group covered by the data set. For example, if the data covers ages of television viewers in a particular region, a low variance means station controllers can safely concentrate on airing shows aimed at a particular age group.

Statistical Surveys – In statistics, variance is a measure of the spread of a set of data with respect to the average value, or mean. Mathematically speaking, variance is the sum of the squared difference between each data point and the mean — all divided by the number of data points. More simply, variance means getting some results or data points that deviate from the average or expected result and representing that difference numerically. This can be an advantage, a disadvantage or both. Statistical Surveys Finding variance in a survey data set is typically considered a good thing. It can be a sign that a survey was set up to correctly take a range of information from respondents. For example, a survey of yes-or-no questions may not provide much detail about the subject of the questionnaire. However, a survey on the same subject with respondents choosing from a range of answers offers more information — and a greater chance of variance. Variance could be seen as a disadvantage only if the surveyor saw results that deviated from a desired outcome.

Using the Variance Equation

Variance is a measurement of the spread between numbers in a data set. Investors use the variance equation to evaluate a portfolio’s asset allocation.


Video advice: What is standard costing? What is Variance? Advantages, Disadvantages.

Standard cost accounting can be a highly useful tool for managers, who are attempting to plan a more accurate budget. Accurate budgets could lead to a profitable and efficient business at the end of the day.


Here’s a hypothetical example to demonstrate how variance works. Let’s say returns for stock in Company ABC are 10% in Year 1, 20% in Year 2, and −15% in Year 3. The average of these three returns is 5%. The differences between each return and the average are 5%, 15%, and −20% for each consecutive year.

  • Key Takeaways
  • Watch Now: What Is Variance?

Variance is an important metric in the investment world. Variability is volatility, and volatility is a measure of risk. It helps assess the risk that investors assume when they buy a specific asset and helps them determine whether the investment will be profitable. But how is this done? Investors can analyze the variance of the returns among assets in a portfolio to achieve the best asset allocation. In financial terms, the variance equation is a formula for comparing the performance of the elements of a portfolio against each other and against the mean.

Arithmetic Average Advantages and Disadvantages

Arithmetic average, or arithmetic mean, or just mean, is probably the simplest tool in statistics, designed to measure central tendency in a data set (which can be a group of stocks or returns of a stock in particular years). Using arithmetic average has advantages and disadvantages, and in some cases you may find other measures (like geometric average or median) more suitable.

Because its calculation is easy and it is meaning recognized to everyone, arithmetic average can also be much more comfortable for input to help analyses and calculations. Whenever you operate in a group more people, others will more likely know about arithmetic average than geometric average or mode.

Disadvantage 2: Not suitable for time series type of data

However, in finance you often work with percentage returns over a series of multiple time periods. For calculating average percentage return over multiple periods of time, arithmetic average is useless, as it fails to take the different basis in every year into consideration (100% equals a different price or portfolio value at the beginning of each year). The more volatile the returns are, the more significant this weakness of arithmetic average is. Here you can see the example and reason why arithmetic average fails when measuring average percentage returns over time.

An Introduction to Variance, Covariance & Correlation – Variance, covariance, and correlation are all used in statistics to measure and communicate the relationships between multiple variables. Learn what each term means and the differences between them so you can leverage them correctly in your research.

Covariance is used to measure variables that have different units of measurement. By leveraging covariance, researchers are able to determine whether units are increasing or decreasing, but they are unable to solidify the degree to which the variables are moving together due to the fact that covariance does not use one standardized unit of measurement.

  1. How to Calculate Variance
  2. An Advantage of Variance
  3. A Disadvantage of Variance
  4. How to Calculate Covariance
  5. Correlation Coefficient

Analysis of Variance

  • Analysis of Variance
  • Description
  • Interpretation
  • Precautions
  • Abstract
  • ANOVA F-Test
  • Analysis of variance (ANOVA)
  • Analysis of Variance, Analysis of Covariance, and Multivariate Analysis of Variance

Analyzing relationships between multiple variables

Analysis of variance (ANOVA) is a conceptually simple, powerful, and popular way to perform statistical testing on experiments that involve two or more groups. From: Data Literacy, 2017Interpreting Medical DataPaul W. Flint MD, FACS, in Cummings Otolaryngology: Head and Neck Surgery, 2021Analysis of VarianceDescriptionANOVA tests whether the means of three or more independent groups of continuous data differ significantly with regard to a single factor (one-way ANOVA) or two factors (two-way ANOVA). ANOVA also tests whether the effect of one factor on the response variable depends on the level of a second factor (interaction). InterpretationA significantP value implies a low probability that the mean values for all groups are equal. From a statistical standpoint, we say that the variance among groups is larger than the variance within each group. Note that ANOVA provides no information on whether individual pairs of groups differ significantly; it only tests for an overall global difference.


Video advice: Variance, Standard Deviation, Coefficient of Variation

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[FAQ]

What is an advantage and a disadvantage of using the range as a measure of variation?

The range is the difference between the largest and the smallest observation in the data. The prime advantage of this measure of dispersion is that it is easy to calculate. On the other hand, it has lot of disadvantages. It is very sensitive to outliers and does not use all the observations in a data set.

Why variance is important in statistics?

In statistics, the variance is used to determine how well the mean represents an entire set of data. For instance, the higher the variance, the more range exists within the set. ... Researchers might look for variance between test groups to determine if they are similar enough to test a hypothesis successfully.

What is the advantage of variance over standard deviation?

Which is better standard deviation or variance? Variance helps to find the distribution of data in a population from a mean, and standard deviation also helps to know the distribution of data in population, but standard deviation gives more clarity about the deviation of data from a mean.

What is the variance used for?

The simple definition of the term variance is the spread between numbers in a data set. Variance is a statistical measurement used to determine how far each number is from the mean and from every other number in the set.

What is disadvantage of using the range as a measure of variation?

What is a disadvantage of using the range as a measure of variation? The units of variance are squared. Its units are meaningless. ... When calculating the population standard deviation, the sum of the squared deviation is divided by N, then the square root of the result is taken.

Erwin van den Burg

Stress and anxiety researcher at CHUV2014–present
Ph.D. from Radboud University NijmegenGraduated 2002
Lives in Lausanne, Switzerland2013–present

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