- Variance analysis - a tool used to compare a business’ budgeted (planned) expenditure with the actual expenditure over a period of time.
Three different outcomes of variance analysis:
- Favourable variance - things were better than expected.
- Adverse variance - things turned out worse than expected.
- No variance - things turned out as planned.
Variances can occur in three different areas of a budget:
- Revenue variances
- Cost variances
- Profit variances
Example projects with budget overspend