20 May 2024

Agile variance and trend analysis

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
  • Controllability
  • Materiality

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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