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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 (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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