2 min read
What it means
Variance analysis sits each actual figure next to its budgeted figure and asks why they differ. A sales variance shows whether volume or price moved; a cost variance shows whether you overspent or a supplier price changed. Splitting the gap into causes is what makes it useful — it tells you which lever to pull, not just that something is off.
What this means for your company
Run it monthly as part of your management accounts, comparing to the budget. An unfavourable variance caught early can be fixed while there is still time — chase sales, trim a cost, or arrange short-term finance for a genuine timing gap. Directors who ignore variances discover the problem only when the cash runs out.
What it means for you
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.
Frequently asked questions
What is a favourable versus unfavourable variance?
A favourable variance means actuals are better than budget (higher income or lower cost); unfavourable means worse. Both are worth understanding — even a favourable variance can flag that the budget was unrealistic.
How detailed should variance analysis be?
Enough to find the cause and act. For a small company, splitting sales and main cost lines against budget monthly is usually plenty. Over-detailed analysis wastes time you could spend fixing the variance.
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