Variance analysis is the practice of evaluating the difference between budgeted costs and actual costs within your business. Whether you’re 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 target budget is one thing, but you need to see more than the bottom line. You need a quantitative investigation into why your target budget wasn’t met so that you can make evidence-based decisions for the financial future of your business. That’s 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.