What is the main purpose of variance reporting?

Variance reporting serves the crucial function of identifying and analyzing differences between what was planned in the budget and what has actually occurred in financial performance. This analysis allows management to understand the reasons behind these variances, whether they are favorable (actual performance better than budgeted) or unfavorable (actual performance worse than budgeted). By examining these differences, management can make informed decisions on how to address issues, improve efficiency, and adjust future budgets.

Additionally, variance reporting plays a key role in performance evaluation, helping organizations to assess the accuracy of their budgeting processes and informing strategic planning. Understanding these variances ensures that corrective measures can be taken timely, leading to better financial controls and more accurate forecasting in the future.