The starting point of every meaningful management conversation about results. Variance answers two questions at once: what was the gap between expectation and reality, and which assumption was wrong?
Definition
Variance - the difference between expected results (budget or forecast) and actual results. Favorable variance means actuals beat expectations; unfavorable means actuals missed.
Formula
Variance ($) = Actual − Budget Variance (%) = (Actual − Budget) ÷ Budget × 100%
Common uses
- Monthly review - the structured conversation about what hit and what missed
- Assumption recalibration - which inputs need updating?
- Owner accountability - the basis for ownership conversations
Watch out
Single-month variance is often noise. Two months of variance in the same direction is signal. Three months means assumption recalibration.