What is it?
The quantitative investigation of the difference between actual and planned behavior.
How does it work?
Variance Analysis refers to the systematic approach to the comparison of the actual and budgeted costs of the raw materials and labour used during a production period. In simple terms, variance analysis is the quantitative investigation of the difference between actual and planned behavior.
When is it useful?
In a business context, variance analysis is used to maintain control over a business’s operations. Regular variance analysis can help a business spot trends, challenges, opportunities and threats as they emerge. It can also provide valuable information about the financial health of a company, allowing for more informed decision-making.
Real-World Impact
For instance, a manufacturing company may create a budget for the cost of raw materials for a certain period. If the actual cost of raw materials is higher than the budgeted cost, a variance analysis could help identify this difference. The company could then investigate the cause of the variance, such as a rise in supplier prices, and make necessary adjustments to their budget or operations.
How to Get Started
Understanding the concept of variance analysis can be beneficial when using Empress’s suite of tools and services. Empress provides tools that help businesses monitor their financial status effectively, which can be enhanced with regular variance analysis. This enables businesses to identify and act upon any discrepancies between actual and budgeted costs, thereby enhancing their financial management and decision-making processes.
Get the Empress Edge
Interestingly, variance analysis is not only applicable to financial management. It can also be used in other areas such as project management, where it can help identify any discrepancies between actual and planned project timelines. This makes variance analysis a versatile and valuable tool for businesses.