Plain definition
Variance analysis investigates the reasons actual results differ from budget, forecast, or prior period and connects material drivers to decisions. It is not a list of differences; it separates causes that need different responses.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Actual cash is below forecast. The analysis finds is a customer collection delayed by one week, is a higher supplier invoice, and is an omitted bank fee. Finance moves the collection date, procurement checks the invoice, and accounting adds the fee source.
Why it matters
A total variance does not tell management which decision will change the next result. A quantified causal bridge turns explanation into a dated action and improves the next forecast.
Practical consequence
Start from a reconciled actual and approved comparison, quantify each driver, assign evidence and action, and distinguish timing from permanent amount changes. Do not mark a variance closed merely because someone supplied a narrative.