What are the factors to consider in creating a Variance Report in Management Reporter?

A variance report is a way for business executives to gauge their company's performance by comparing one set of figures to another. This usually means comparing a planned amount to an actual amount.

Companies frequently use variance reports to analyze how close they've come to hitting forecasted sales targets or to see if they've met their budgetary goals.

A well-rounded budget variance report will address trends, overspending, and under spending.

Trends: In challenging economic times, it is important for businesses to carefully monitor overspending and underspending. If there is a trend towards either, then the entire budget may need to be revisited. A graphic depiction of trends should reveal to the analyst if there are minor budget lapses or if there is a more serious problem.

Overspending: Overspending: this can pose a serious threat to the project, to other projects, and to the company if resources are scarce.

Under Spending: Under spending may indicate a problem in quality control (i.e., the manufacturing process may be cutting corners) if the project budget was correct at first. It can be as serious a problem as overspending.

Tables or Graphs?

Variance tables

Tables which show the variances by item, budget period, and project are the most common variance report format. Companies typically set an approved variance percentage such as 5% before the item appears in a variance report.

Variance graphs

Graphs present data in an illustrative way that is conducive to spotting trends. In many variance reports, tables are accompanied by graphs to present the most comprehensive view of the data.

Over/Under or Favorable/Unfavorable?

Microsoft Office PerformancePoint 2007 Management Reporterprovides two templates for variance reporting: Over/Under and Favorable/Unfavorable.

Over/Under Variance Report Sample

An Over/Under report is the simpler of the two, both in its purpose and how it is created. One amount is deducted from another. If the difference is positive, the account is considered “over”. If the difference is negative, the account is considered “under”.

Favorable/Unfavorable Variance Report Sample

A Favorable/Unfavorable report not only shows whether an account is over or under. It also considers the kind of account and its effect on the business. If revenue numbers are more than what was budgeted, the variance is shown as favorable. However, if actual expenses are more than what was budgeted for, that variance is shown as unfavorable.

How are Variance Reports used?

Once a Variance report is prepared, company executives can analyze the state of the enterprise. One way to do this is to evaluate the financial risk to the company should those trends continue. Another is to address the reasons behind the variances identified in the report. A follow up to both of those steps may be to create new targets for improvement.