Budget Variance Analysis, or BvA, is a process that involves comparing a company’s budget to actual results and investigating/interpreting the drivers of variance. Companies often perform detailed variance analysis periodically to allow managers to know the business's direction.
Variances can be classified as a favorable variance when actuals are better than the budget, or a negative variance when actuals are worse than the budget.
Why it matters
Budget variance analysis helps a business know where it is performing above expectations and where it is falling short. A company's leaders understand what is and is not working by analyzing the variances and interpreting the drivers.