Agile variance and trend analysis
- A variance is the difference between an actual result and an expected result.
- The process by which the total difference between standard and actual results is analysed is known as variance analysis.
- When actual results are better than the expected results, we have a favourable variance (F).
- If, on the other hand, actual results are worse than expected results, we have an adverse variance (A).
Significance of variance analysis
- The type of standard being used
- Interdependence between variances
Variance and trend analysis
- Variance analysis is the difference between actual and planned behaviour.
- For example, if you budget for sales to be $10,000 and actual sales are $8,000, variance analysis yields a difference of $2,000.
- Variance analysis also involves the investigation of these differences, so that the outcome is a statement of the difference from expectations, and an interpretation of why the variance occurred.
- To continue with the example, a complete analysis of the sales variance would be : Sales during the month were $2,000 lower than the budget of $10,000.
- This variance was primarily caused by the loss of ABC customer at the end of the preceding month, which usually buys $1,800 per month from the company.
- We lost ABC customer because we had several instances of late deliveries to it over the past few months.
- This level of detailed variance analysis allows management to understand why fluctuations occur in its business, and what it can do to change the situation.
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