How can departments and projects use budget variance analysis to improve performance?

Think of budget variance analysis like a financial Fitbit for your department or project. It tells you if you're sprinting towards goals or doing the budget belly flop. Spotting 'overspend' feels like finding a hole in your pocket where all those tasty expense dollars used to live, but the good news? You can use those insights to tighten your belt, renegotiate with vendors, or even discover hidden efficiencies tucked away like spare change in the couch cushions. Remember, laughter is the best (and cheapest) medicine, so use those budget variances to fuel some good ol' fashioned financial humor and get back on track, one chuckle at a time!

Variance analysis is a quantitative method used in financial and managerial accounting to understand the differences between planned financial outcomes and actual financial outcomes.

Observar as varia??es entre real x or?ado serve para se entender como estamos navegando, se estamos na rota que tra?amos ou n?o. O descolamento do or?amento, positivamente ou negativamente, precisará ser entendido e explicado por cada um dos responsáveis pelos centros de custos ou resultados. Nessas explica??es podemos entender se estamos errando/acertando na realiza??o ou se foi na proje??o.

When analyzing variances, keep in mind that it’s not the Actual is at fault; but rather the Planning is not perfect. This comment is from my years of experience, where the reactions from people were focus on “something is wrong with Actuals”, when revenue is short or expenses are over. Of course, this excludes the extraordinary cases of systems errors, fat fingers etc….

Budget variances are meant to report internally for management to monitor and take appropriate actions. It is not meant for external stakeholders as it may reveal the organization’s business strategy to competitors.

Typically the best way to report on variances is with some kind of scorecard. You will be able to report variances down to whatever level of detail the budget was constructed at, but often that level of minutia is too much for executives. Variances should be grouped into categories and highlighted in order of impact. The biggest drivers of total variance will likely be the biggest candidates for targeted action going forward. As one final point, executives are often looking to be told what is the most important variance to care about. Don't expect your audience will automatically understand what is being presented to them.

"What's measured gets managed" By setting a budget or forecast, an organization is giving itself performance goals and also a framework for analyzing why those targets were or were not achieved. If you aren't doing a budget it becomes difficult to know what to prioritize in terms of problem solving for the overall organization.

Factors I would take into consideration when analysing variance analysis; Identifying Deviations: By pinpointing where actual spending or revenues differ from the budget, departments can identify over- or under-performing areas. Understanding Causes: Analysis helps understand the reasons behind these variances, whether due to external factors, operational inefficiencies, or inaccurate budgeting. Adjusting Strategies and Operations: Based on the insights, departments can adjust their strategies, operational methods, or resource allocation to better align with financial expectations.

It can also be used as a tool to allocate resources more efficiently, thereby achieving the tactical or strategically objectives

O realizado acima e abaixo do projetado precisa ser observado, há uma falha no processo? Há um consumo maior/menor de insumos? Por quê? Porém geralmente, diante de uma varia??o or?amentária, olhamos do ponto de vista do realizado acima ou abaixo do previsto, mas chamo a aten??o para o ponto de que o previsto deve ter sido bem elaborado e deve-se ter convic??o de que a rotina atual da fábrica/indústria é a mesma de quando foi elaborado o or?amento. E se houve altera??o nos processos, deve ser levado em conta.