FlowProofsGlossary
Variance analysis
Variance analysis compares an actual number with a reference (the budget, last month, last year) and splits the difference into the drivers that caused it.
The variance itself is just a subtraction: actual minus budget. The analysis is the part that says why. Each driver's variance is how much of the gap it accounts for, and together they add up to the whole gap.
A favourable variance helps the result (more revenue, lower cost); an adverse one hurts it. Finance teams report both, because a result on budget can still hide one large problem offset by one lucky break.
Worked example: costs against budget
The budget allowed $142,000 of costs: 4,000 units at $28 each, plus $30,000 of marketing. Actual costs came to $145,800.
The $3,800 adverse variance splits into three parts. Units came in at 3,800, saving $5,600 of product cost. The unit cost rose to $29, adding $3,800. Marketing ran $5,600 over. The headline says costs were 3% over; the analysis says marketing is where to look.
Try it in FlowProofs: try it on sample data
Related terms
- Price-volume-mix analysis: Price-volume-mix (PVM) analysis splits a change in revenue or margin into three effects: prices changed, more or fewer units sold, and the share of each product in what sold changed.
- Bridge chart (waterfall chart): A bridge chart, also called a waterfall chart, starts at one total, adds and subtracts a floating bar for each cause, and ends at the new total.
- Driver tree: A driver tree breaks one result, such as profit, into the inputs that produce it, joined by arithmetic, so you can see which input moved the result.