Variance analysis entails investigating reasons for deviations between actual and budgeted or forecast performance across financial and operational metrics through comprehensive quantitative and qualitative examinations.
Key Steps:
- Calculating variances highlighting monetary and percentage divergences item-by-item
- Identifying factors driving unfavorable variances through root cause analysis
- Classifying variances as controllable or uncontrollable to fixate accountability
- Proposing corrective actions addressing controllable variables to get back on target
Example:
Production managers analyzed variances such as higher-than-planned labor hours per unit to pinpoint issues like equipment downtime or training deficiencies.
Takeaways:
Regular variance analysis supports continuous improvement by providing visibility into what caused shortfalls for timely decision-making. It also assists goal-setting realism during planning amid environmental unpredictability.
