Budget Variance Explanation

Variance memo distributed monthly: budget vs actual, top 5 material variances with explanations, forward forecast adjustment.

Before you start

Pull budget vs actual by category and department — Compare budget vs actual for the period. Calculate variance in dollars and percent. Flag any line >10% off plan as material.
Categorize variances — Tag each material variance: timing (will reverse next period), one-time event (new hire delayed, equipment purchase), structural (new vendor, pricing change), or operational miss (overspend without explanation).
Request explanations from department owners — For material variances, ask the department lead: 'Why is this off plan? Is it a one-time or recurring? What's the impact on the rest of the year?' Don't accept 'I don't know' — push for clarity.
Adjust forward forecast — Based on explanations, adjust the rest-of-year forecast. Structural variances reset the trajectory; timing variances don't. Forecast updates show whether the year-end number is at risk.
Compile the variance memo — Format: budget vs actual table, top 5 material variances with explanations and forward impact, full-year forecast adjustment. Distribute to: CEO, CFO, department leads.
Schedule discussion if year-end is at risk — If full-year forecast diverges materially from plan, schedule a 30-minute discussion with leadership. Decisions: adjust spending, increase revenue focus, restate plan. Don't let drift continue silently.

Variance accountability is part of the owner's role. Escalate non-responses to their manager. Without explanations, variance analysis is just noise.

Reclassify as structural. Adjust the budget if necessary. Repeated 'one-times' are budget design issues.

Quarterly forecast review meeting. Variance memos feed into it. Without decisions, variance analysis is theater.