How is a budget variance defined?

A budget variance is defined as the difference between actual results and budgeted amounts. This concept is crucial in financial management and analysis because it allows organizations to assess performance and make informed decisions based on the comparison between what was planned (the budget) and what has actually occurred.

When analyzing budget variances, it becomes possible to identify areas where spending or revenue generation did not meet expectations. Positive variances indicate better-than-expected performance, while negative variances suggest that adjustments may be necessary to align actual performance with budgetary goals. Understanding this variance provides insights into financial efficiency, operational performance, and potential areas for improvement, making it a key metric for any organization.