Probabilistic Cost Controls: A Behavioral Dimension.

Abstract Several writers in the recent accounting literature have recommended that probabilities be utilized in the formulation of a variance investigation decision rule. The objective of probabilistic control is to distinguish between significant and insignificant variances. Only those variances resulting from assignable causes are considered significant and therefore in need of investigation. The opposite applies to chance or random variances. The significance determination is made by considering the probability that a given variance is the result of chance factors, hence, the term probabilistic control. In a recent study the writer explored the feasibility of utilizing probabilities for cost control in a Milwaukee, Wisconsin-based manufacturing firm. The results of the study indicate the pivotal role of the behavioral dimension in the formulation of a variance investigation decision rule. This report will indicate the behavioral problems encountered in connection with the probabilistic model originally utilized, as well as the modified approach used to overcome these problems.