Planning & reporting
Variance analysis
Variance analysis explains the gap between actual results and what was expected, by measuring it and breaking it into the causes behind it.
Variance = Actual − Budget; for revenue, Volume variance = (Actual units − Budget units) × Budget price and Price variance = (Actual price − Budget price) × Actual units
Worked example
| Budget | 1,000 units at $50 = $50,000 |
| Actual | 1,100 units at $48 = $52,800 |
| Volume variance | (1,100 − 1,000) × $50 = +$5,000 |
| Price variance | ($48 − $50) × 1,100 = −$2,200 |
+$5,000 − $2,200 = +$2,800 total variance: more units sold, at a lower price than planned.
Why it matters
A single variance number says you are off plan but not why. Splitting it shows whether the business sold more, charged less, or spent differently, and each of those calls for a different response.
Common mistakes
Where it misleads
Stopping at the total variance, so a price cut hidden by higher volume goes unnoticed.
Chasing every small variance instead of setting a threshold and explaining only the ones that matter.
Reading a favorable revenue variance as good news without checking whether the extra volume came at a lower margin.
Related terms
Keep reading
- Budget vs actualBudget vs actual compares what happened in a period with what was planned, line by line, to show where the business is ahead of or behind its plan.
- Rolling forecastA rolling forecast is a forecast that always looks the same number of months ahead, extended by one period each time a period closes.
- Gross marginGross margin is the share of revenue left after paying the direct costs of delivering what you sold.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.