How does calculated budget variance provide suggestions for better cost management?
Budget Variance is the difference between the budgeted cost (or planned or standard amount) and the actual cost incurred. This analysis can be carried out for both the cost and revenue.
Cost variance = actual Cost - budgeted cost
Revenue Variance = actual revenue - budgeted revenue
Depending on the analysis, two scenario may exist: favorable variance denoted by (F) and adverse or unfavorable variance, denoted by (A).
The budget variance is typically used for better cost management and helps the decision makers/management in cutting the costs or keeping them in check to ensure a favorable variance. Once the variance analysis results are available, the managers can decide if the project is doable (at the beginning of the project) or how much cost management is required (if the project is underway) to achieve the desired deadline and profitability.