Part Two
TOOLBOX
UNDERSTANDING VARIANCE
Variance just means difference. It might be the difference between budget and actual for the month or year, between actual this month and actual last month, and so on. It can be presented in dollars or percentages, or both. Percentages are usually more useful because they provide a quick and easy basis of comparison between the two numbers.
The only difficulty with variance comes with determining whether a variance is favorable or unfavorable. More revenue than expected, for instance, is favorable, but more expense than expected is unfavorable. Sometimes your accountant or financial staff are helpful and let you know in a note that a variance enclosed in parentheses or a variance preceded by a minus sign ...
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