Variance report

If the financial results differ from that which was expected, it’s important to present explanations as to why this has happened. However, it’s often easy to assume a glib and sometimes convenient reason for these variances instead of revealing the truth. It’s better to set out each of the major elements of a variance in a report, which is easily understood by the board.

Volume v price

You can quite often get at the truth behind a variance (actual versus budget) by splitting it between a “volume” (quantity) and a “price” (cost per unit) element. In the interests of brevity (and ease of preparation) set yourself a target of explaining each variance with, say, up to three key factors and attaching a numerical value to each reason. If you can account for the variance with only two factors that’s fine. The golden rule is not to get dragged into providing too much detail. Instead, to reconcile back to the total variance, use a balancing figure approach and label this as “other variances”.

Our Variance Report has been pre-populated with sections covering both volume and price varainces for sales, materials, and direct labour.

Of course some figures might not have a volume/price varaince split. If these have a significant impact on your explantions just add them to the bottom of your variance report.