Budget variance analysis compares actual financial results against planned (budgeted) figures to identify differences.
Break the total variance into key components: price (or rate), usage (or efficiency), and volume effects. Don't just show numbers - explain what caused them, why they matter, and what to do. Identify which costs or revenues drove the variance (supplier price, waste, productivity, demand, etc.), and suggest specific actions (renegotiate, reduce waste, improve skills, adjust capacity).
Annotated sample:
Direct material variance: £‑36,000 favourable total = £‑28,000 price (lower unit cost) + £‑8,000 usage (less waste). [Decompose] The price drop came from a bulk order negotiation - it can be locked in with suppliers. [Cause → action] The usage gain is due to revised cutting patterns—rollout the change across all shifts. [Sustain]
Direct labour variance: £+22,000 adverse total = £+30,000 rate (overtime premiums) + £‑8,000 efficiency (workers more productive than expected). [Balanced view] To control rate, reduce peak overtime by re‑scheduling shifts; to preserve efficiency, reinforce the practices that improved productivity. [Recommendation]
View the UKEssays.com budget variance analysis guide for more info.