Variance

tl;drThe difference between planned or budgeted amounts and actual results, used to analyze performance and identify areas needing attention.

Variances can be favorable or unfavorable, providing insights into operational efficiency and control effectiveness.

Consider a manufacturing company analyzing production costs: they budgeted $100,000 for raw materials but spent $110,000, creating an unfavorable variance of $10,000. Further analysis reveals whether this resulted from price increases, usage inefficiencies, or other factors.

Managing variances requires understanding root causes and implementing corrective actions. Organizations must distinguish between controllable and uncontrollable factors while maintaining accountability.

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