What is a budget variance?

A budget variance refers to the difference between the budgeted amount of expenses or revenues and the actual figures. This discrepancy can indicate how well an organization is managing its finances and can highlight areas that may require attention or adjustment. To elaborate, a budget variance occurs when there is a divergence between what was planned in the budget and what actually transpired financially. This can involve either overspending or underspending compared to the budgeted figures. Understanding these variances is crucial for organizations as it helps them assess their financial performance and make informed decisions moving forward. By analyzing these differences, businesses can identify trends, adjust future budgets, and improve overall financial management.