Variance analysis is the practice of evaluating the difference between budgeted costs and actual costs within your business. Whether youβre assessing sales, employee efficiency or overhead costs, understanding discrepancies between expectations and outcomes is essential to maintain a steady cash flow.
Knowing that you missed your targetΒ budgetΒ is one thing, but you need to see more than the bottom line. You need a quantitative investigation intoΒ whyΒ your target budget wasnβt met so that you can make evidence-based decisions for the financial future of your business. Thatβs where variance analysis comes in.
In this article, we will explore the different types of variances and how analysing them can help you take control of your budget.