Is Variance Analysis Worth It? Pros and Cons Explained

Variance Analysis helps a business compare its actual performance against plan or budgeted figures. Variance analysis is an important financial instrument because it enables the identification of variances which help the organisation control costs, enhance operational efficiency, and provide reliable data to be used when making informed management decisions. Variances provide greater accountability within an organisation by identifying areas of concern and allowing for corrective action to be taken.Although there are disadvantages to variance analysis, it can be a time-consuming, complicated, and potentially misleading exercise when based on inaccurate data or unrealistic standards.