Variance analysis of budget, Financial Management

Variance Analysis:

In its commonest form variance analysis is the process of comparing budgeted financial performance (or financial goals) against actual financial performance.

During the budget process the organisation would have set financial targets for each particular area of revenue or expense.  In the context of project budgeting, the targets are the expenditure limits that were identified during the budget development process.

Against these targets, actual performance is compared and the variance between the two recorded.

By analysing the variance, organisations can quickly see which areas are exceeding expectations, meeting expectations, or failing to meet expectations. Armed with such information, management can take corrective action. In the context of total business performance, variance analysis is generally scheduled to occur at the same time the preparation and communication of profit and loss statement, or cash flow statements, are scheduled. In the context of project budgeting, it is likely that separate variance analysis scheduling will occur and shorter intervals (and depending on the project) to ensure performance against expectations is maintain and avoid the potential for a budget blow out.

An example of a budget variance analysis could be as follows:

Variance Analysis - Relocation Project Sep 200X

J & J Real Estate 

Item Description

Budget ($)


Variance ($)

Variance (%)

Purchase Price





Purchase Costs





Repairs/Fit Out





Relocation Costs





Business Interruption





Marketing Campaign















The previous example is deliberatly designed as an end of project analysis where all expenditure is compared and variations against budget recorded. In reality, there would be a number of scheduled comparisons throughout the project. The project team would be required to breack total budget down into monthly (or even weekly) levels to enable continuous tracking to take place. In doing so, the organisation can anticipate problems as they arise and take measures to alleviate the impact or reallocate funding accordingly.

Posted Date: 10/1/2012 4:23:13 AM | Location : United States

Related Discussions:- Variance analysis of budget, Assignment Help, Ask Question on Variance analysis of budget, Get Answer, Expert's Help, Variance analysis of budget Discussions

Write discussion on Variance analysis of budget
Your posts are moderated
Related Questions
2010 equity balance required: (600-20 - 25 - 15 - 20)= 520 employees eligible Total expected equivalent value = 520 x 500 options x $1.48 = $384,800 $384,800 x 3/4 years = $28

Role of Sponsor In the establishment of mutual fund trust, the main role is played by the sponsors. Both the trustees and the fund managers or the asset management company have

Explain the difference among the discounted free cash flow model as it is applied to the valuation of common equity and as it is applied to the valuation of whole businesses. The

Q. How cash flow problems arise? It is significant first to distinguish between profitability and cash availability. The key scheme relates to insolvency since even profitable

Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchases bonds

Calculate NPV-IRR - MIRR - payback and discounted payback: 1-      Define and explain as well as you can of the following: a-      Goals and objectives of the Corporate Fir

Q. Importance of Capital Budgeting Decision? 1. Such Decision affect the profitability of the Firm: - Capital Budgeting decision influences the long-term profitability of a fir

Determine the example of Rate of return of a Bond A bond is paying 10 % interest per annum and is going to mature in next two years At maturity it would pay its principal amoun

Future V alue The value of an investment is based on the rate of interest paid at set time periods and at some point in the future. Future values incorporate both the i

A mortgage, is sold to the SPV at the discretion of the bank to securitize it into a mortgage backed security, that is, the mortgage is said to