What is a Variance Report?

A variance report compares actual to expected results. The typical format is to first present the actual results, followed by the expected results (in the form of a budgeted or standard number), after which the variance amount and variance percentage are stated. This report allows management to gauge the performance of an organization against expectations. The report is most commonly used to calculate revenue and expense variances from a baseline forecast or budget. A sample variance report that focuses on several specific types of variances appears in the following exhibit.

The best variance reports highlight the most significant variances and downplay minor ones, so that management attention is directed towards material issues that are most in need of investigation and correction.

When to Use Variance Reporting

Variance reporting should be used whenever the outcome can lead to actionable management decisions. Thus, it might be used in reviewing budget versus actual results, so that managers can determine where sales are falling short and where expenses are running higher than expected. Variance reporting is also useful for comparing actual sales to the sales forecast, so that the sales manager can determine which products are selling at unusual rates. This concept also applies to sales regions and even individual salespeople. Variance reporting is also useful in a non-financial setting, where managers might want to examine production tolerances or efficiencies. For example, a trend line analysis of product specifications might reveal that a particular machine is producing goods outside of the tolerable specifications limit. Thus, there are many ways in which variance reporting might be used.