Budget variance
How far actual performance has drifted from plan, and in which direction.
01 What it is
Why anyone looks at this number
How far actual performance has drifted from plan, and in which direction.
It is the earliest management signal most organisations have. It is also the one most often wasted, because a variance nobody can attribute to a cause is just a number to explain in a meeting.
02 The formula
How it is worked out
Budget variance = (actual − budget) ÷ budget grain : month × cost centre unit : percentage, reported with the absolute amount source : General ledger actuals joined to the budget or forecast ledger
Variance means nothing without phasing. A budget spread in twelve equal parts against a seasonal business produces eleven months of false alarms and one month of false comfort. Commitments matter too — spend approved but not yet invoiced is a variance that has already happened.
03 Worked example
The same number, with real inputs
| Actual | €4.28m |
| Budget | €3.95m |
| Of which timing | €0.21m |
| Calculation | (4.28 − 3.95) ÷ 3.95 |
| Result | +8.4%, €330k |
Two thirds of the overspend reverses next month. The €120k that does not is the only part worth a management conversation, and it sits in three cost centres.
04 What moves it
Four things that actually change this number
Phasing
How the plan was spread, which is a modelling choice, not a fact.
Timing differences
Invoices that slipped a month and reverse next period.
Volume
Costs that should move with activity and a plan that assumed one level.
Accruals discipline
Whether the cost landed in the period it was incurred.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| General ledger actuals joined to the budget or forecast ledger | Cost centre joined to Account and Period | account_code, cost_centre, period, actual_amount, budget_amount, commitment_amount |
Variance means nothing without phasing. A budget spread in twelve equal parts against a seasonal business produces eleven months of false alarms and one month of false comfort. Commitments matter too — spend approved but not yet invoiced is a variance that has already happened.
06 How it goes wrong
Three ways this metric misleads people
Straight-line phasing
Seasonal costs generate variances that are pure arithmetic.
Fix: Phase the budget the way the business actually spends.Percentage without the absolute
A 40% variance on a €12k line outranks a 3% variance on €9m in every report.
Fix: Rank by absolute impact, filter by materiality.Timing and permanent variances blended
Every month is spent re-explaining the same slipped invoice.
Fix: Split timing from permanent at source, and only forecast the permanent part.08 Questions
Frequently asked
Should variance be against budget or latest forecast?
Both, and they answer different questions. Against budget measures the promise made to the board; against forecast measures whether you understand your own business right now.
What materiality threshold works?
One that produces a page, not a book — commonly the greater of 5% and a fixed absolute amount per cost centre. The threshold matters less than publishing it and holding to it.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.