Variance Analysis

Variance analysis is a method used in business intelligence and data analytics to explain the difference between expected performance and actual performance. Imagine you have a budget for a road trip based on expected gas prices, but when you hit the road, prices have changed, affecting your budget. Variance analysis is like looking at your receipts after the trip to see where you spent more or less than planned and figuring out why. In business, this means comparing things like sales figures or costs to budgeted or forecasted amounts and analyzing the reasons for any differences.

This process helps companies understand whether they’re on track with their financial goals and where they need to improve. For example, if a company expected to sell 100 units of a product but only sold 80, variance analysis would help uncover why. Was it because of a price increase, a supply shortage, or lower customer demand? By pinpointing the cause, businesses can take corrective action, like adjusting prices or improving marketing efforts.

Variance analysis isn’t just about looking at what went wrong; it also highlights what’s going right. If a business discovers that one of its products is selling way more than expected, they can analyze why and use those insights to make successful strategies even stronger. This analytical tool is key for budgeting, planning, and overall management, giving businesses the vital information they need to stay profitable and competitive.