Variance analysis

Comparing what happened with what you budgeted, and asking why.

What it means

A variance is the difference between a budgeted figure and the actual one, favourable or adverse.

Why it matters

Budgets are only useful if somebody looks at the differences. The variance is the question; the explanation is the value.

What it looks like in practice

Review the largest variances monthly, not all of them. Ask whether it is price, volume or timing — the three explanations behind almost every variance.

What to watch out for

Explaining away every adverse variance as timing. Sometimes it is; a variance that is timing three months running is not timing.

Where to get proper advice

Your accountant. This is exactly the kind of question they answer in ten minutes and most owners never ask.