Vareto Finance Glossary
Variance reporting is part of a company's FP&A processes. It involves comparing planned financial performance with the actual financial performance of the company. Simply put, variance reporting is comparing and presenting what was expected to happen versus what actually happened. Variance reports are used by CFOs or company management to analyze variances between budgeted figures and actual performance. Variances can also be called budget variances and can be expressed as a percentage or a dollar value.
Here are the common steps in variance reporting:1. Collect and sort financial data to be analyzed. This would be the budgeted data for a time period vs. the actual results for the same time period. For instance, the operating expenses of a company is one line item that can be compared against what was budgeted and how the company actually performed.2. Calculate the variance between the two and note it down as a percentage or value.3. No variance reporting is complete without a proper explanation on the cause of variance, whether positive or negative. It is also important to highlight how the variance will impact the overall financial performance.
Why it matters
Variance reporting is commonly used in profitability analysis, trend reports, and expense analysis.Variance reporting can offer meaningful insights to financial managers and CFOs. It allows them to make impactful decisions for the company. Some of its benefits include highlighting any inaccurate assumptions that may have a substantial impact on financials and allowing finance managers to make adjustments to the company's financial models depending on the extent of the variance seen in reports. It also helps in identifying root causes and addressing them in time. With variance reporting, organizations can proactively make changes to operations based on variance analysis
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