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What are the most effective ways to report project variance in accounting?

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Project variance is the difference between the actual and planned performance of a project in terms of cost, schedule, scope, and quality. It is a key indicator of how well a project is managed and controlled, and how it aligns with the stakeholders' expectations and objectives. Reporting project variance in accounting is essential for measuring the project's progress, identifying and resolving issues, communicating with stakeholders, and making informed decisions. In this article, you will learn about the most effective ways to report project variance in accounting, including the following topics:

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Svetlana Pogrebny, CPA, CGA

Cloud FinOps & Governance | CPA| ITIL4
Asha Kanta Sharma

Assistant Manager - Finance & Accounts Decimal Technologies | Fintech | Financial Accounting

1 Define the project baseline

The project baseline is the approved plan that serves as the reference point for measuring and reporting project variance. It includes the project scope, schedule, cost, and quality objectives, as well as the assumptions and constraints that affect them. The project baseline should be clearly documented and communicated to all project stakeholders, and any changes to it should be formally approved and recorded. The project baseline is the basis for calculating the project variance in terms of cost and schedule performance.

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Asha Kanta Sharma

Assistant Manager - Finance & Accounts Decimal Technologies | Fintech | Financial Accounting
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Project variance in accounting is essential for comparing actual project performance to budgeted or planned figures. It provides insights into project efficiency and effectiveness. Effective ways to report variance include using a variance report, segmenting variances, expressing variances in absolute and percentage terms, distinguishing between favorable and unfavorable variances, providing explanations, highlighting key drivers, using graphical representations, conducting trend analysis, comparing variances to benchmarks, integrating variance reporting with KPIs, reporting at regular intervals, providing comparative analysis, including mitigation strategies, engaging stakeholders, and continuously improving.

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Suniladri Sarkar

Sr. Manager Food & Beverage Controls at Semolina Kitchen a Adani Enterprises
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Effectively reporting project variance in accounting requires a strategic and multifaceted approach. By establishing clear baselines, utilizing Earned Value Management, implementing variance analysis, providing clear visual representations, utilizing Key Performance Indicators, establishing thresholds, fostering transparent communication, including narrative explanations, segmenting variance analysis.

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2 Use the earned value method

The earned value method is a widely used technique for measuring and reporting project variance in accounting. It compares the actual work performed (earned value) with the planned work (planned value) and the actual cost incurred (actual cost) to determine the project's cost and schedule variance and performance indexes. The earned value method helps to evaluate the project's efficiency, effectiveness, and value, and to forecast the project's completion time and budget. The earned value method requires a detailed breakdown of the project's work packages, activities, and deliverables, as well as regular updates of the project's progress and expenditures.

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3 Create a variance report

A variance report is a document that summarizes and explains the project's variance in accounting, based on the earned value method or other metrics. It highlights the significant deviations from the project baseline, the root causes of the variance, the impacts on the project's objectives and outcomes, and the corrective actions taken or planned to address the variance. A variance report should be concise, clear, and consistent, and it should follow a standard format and frequency that suits the project's size, complexity, and stakeholder needs. A variance report is a valuable tool for communicating the project's status, risks, and issues to the project team, sponsor, client, and other stakeholders.

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4 Use graphs and charts

Graphs and charts are visual aids that can enhance the presentation and comprehension of the project's variance in accounting. They can help to illustrate the trends, patterns, and relationships among the project's cost, schedule, scope, and quality data, and to compare the project's performance with the baseline or the benchmarks. Graphs and charts can also help to highlight the key points, issues, and recommendations of the variance report, and to attract the attention and interest of the audience. Some common types of graphs and charts used for reporting project variance in accounting are: bar charts, line graphs, pie charts, histograms, scatter plots, and S-curves.

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5 Apply the SMART criteria

The SMART criteria are a set of guidelines that can help to improve the quality and effectiveness of the project's variance reporting in accounting. They stand for Specific, Measurable, Achievable, Relevant, and Time-bound. Adhering to these five criteria means that the project's variance reporting should be specific about objectives, measurable with quantifiable data and indicators, achievable by setting realistic goals, relevant by focusing on important aspects, and time-bound with a specified time frame and frequency. By following these effective ways to report project variance in accounting, you can ensure that your project's performance is monitored, measured, and communicated accurately and meaningfully to stakeholders who will be informed and satisfied with the results.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Svetlana Pogrebny, CPA, CGA

Cloud FinOps & Governance | CPA| ITIL4
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I would say that the biggest mistake we make as finance professionals is to overload the business stakeholders with complex reports containing too much data, rather than focussing on the business value and highlighting the key points that will drive action from the business. Instead, tell your business and project owners, a story. Focus on what is important, avoid noise in your data and include actionable items. Make information easily accessible and timely. Lastly, don’t be afraid to ask your key stakeholders what they perceive to be valuable for their business unit.

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What are the most effective ways to report project variance in accounting?

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1 Define the project baseline

2 Use the earned value method

3 Create a variance report

4 Use graphs and charts

5 Apply the SMART criteria

6 Here’s what else to consider

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