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Variance Analysis for Budgeting and Forecasting

Variance analysis is extremely important, and can definitely be more accurate and efficient.

Plans often go awry which is fine if it’s your dinner plans.  However, when your actual results don’t sync with your financial plan, you have a problem.

Every general ledger account balance of your monthly actual results is likely to be different than your plan, it’s only a matter of by how much. The first thing you need to determine is what level of variance is acceptable 1%, 5%, 10+%.  Once you determine that you can move on and begin to analyze what the differences are, and what caused them.  The fact that there is a variance is not in and of itself a bad thing –you may have decided that in the real world you need to approach things differently than when you put your strategic plan together 6 months ago – quite a bit can change in 6 months.

Variance analysis is a necessary evil, as you close the month or year.  In fact, unless you understand what your variance is comprised of “closing the books” for the month is a non-starter.

Digging into the numbers behind the variances can be a challenge.  Excel based planning can be flawed.  Even accurate assumptions can be compromised by faulty formulas, links or macros.  Income Statement planning is relatively straight forward, but in the end it still involves a lot of manual work.

Balance Sheet and Cash Flow planning in excel are fraught with danger because so many of your assumptions are derived from your income statement, but your key financial reports are prepared independent of each other.

If you require 100% accuracy in your plan as your basis for meaningful variance analysis, you need something other than excel.  Packaged applications are your answer.  However, not all packaged applications are created equal.

For the best, most accurate approach to planning and thus variance analysis make sure the application you choose has built in financial and operational logic, and synchronizes your key financial reports, so that your assumptions are consistent throughout.

After all accuracy and efficiency is what you’re looking for as a basis for analyzing your variances.

 

See how you can automate your forecasting processes, forecast the impact of multiple scenarios, and quickly identify where, when and why actuals differ from plan, so you can take appropriate action: 

 

Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.

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