##### Asked by: Rebbeca Balogh

asked in category: General Last Updated: 10th January, 2020# What do you mean by variance analysis and what is its importance?

**Variance analysis**is an integral part of any business to be successful. It is an

**important**tool for budgetary control by

**means**of evaluating the business performance by analyzing the

**variance**between budgeted amount, planned amount or standard amount and actual amount spent.

Correspondingly, what do you mean by variance analysis?

**Variance analysis** is the quantitative investigation of the difference between actual and planned behavior. This **analysis** is used to maintain control over a business. 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.

Additionally, what is variance analysis explain the objectives and importance and types of variance analysis? In other words, **variance analysis** is a process of identifying causes of variation in the income and expenses of the current year from the budgeted values. It helps to understand why fluctuations happen and what can / should be done to reduce the adverse **variance**. This eventually helps in better budgeting activity.

Also, why is variance analysis important?

**Variance analysis** is **important** to assist with managing budgets by controlling budgeted versus actual costs. **Variances** between planned and actual costs might lead to adjusting business goals, objectives or strategies.

How do you do a variance analysis?

**How to Perform a Variance Analysis:**

- Step 1: Gather All Data into a Centralized Database.
- Step 2: Create a Variance Report.
- Step 3: Evaluate your variances.
- Step 4: Compile an explanation of the variances and recommendations for senior management.
- Step 5: Plan for the future.