Variance analysis is the practice of reviewing the difference or variance between actual financial performance and budget/forecast figures.

The comparison for each budget/forecast account compares the current period to the corresponding period last year or last quarter and makes it easier to forecast the overall year-end result.

Reviewing variances allows business management to understand the causes of variances and then to control future costs. At the same time, variance analysis checks the validity of the budget or forecast and helps refine future budgets and forecasts. 

Variance analysis can also act as an early warning system to highlight any trends in financial performance (positive or negative) as they emerge. 

Ask an accountant or contact the local Business Advisory Service  for advice on variance analysis or to identify consultants qualified to assist.