What is Budget Variance Analysis?

Budget variance analysis is the process of comparing a company’s projected budget against actual results to identify where and why deviations occurred. It’s a key financial control tool used by CFOs, finance teams, and department heads to monitor performance, control spending, and adjust future planning.

Types of Variance:

  • Revenue Variance: Difference between projected and actual income.

  • Expense Variance: Difference between budgeted and actual spending.

  • Favorable Variance: When actual revenue exceeds or expenses are lower than expected.

  • Unfavorable Variance: When actual revenue is lower or expenses are higher than planned.

Example:

If a company budgeted $50,000 for marketing in a quarter but spent $65,000, the unfavorable variance is $15,000. Finance teams would investigate whether the overspend was due to campaign overrun, unexpected fees, or misalignment in projections.

Importance:

  • Improves financial discipline and accountability

  • Identifies inefficiencies and areas for cost control

  • Provides data for more accurate future budgeting

  • Enhances transparency for internal stakeholders and investors