What does variance analysis primarily compare?

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Variance analysis primarily focuses on comparing actual financial outcomes against budgeted figures. This process is crucial for organizations as it helps identify the differences or variances between what was planned (the budget) and what was actually achieved during a specific period. By analyzing these variances, organizations can gain insights into their financial performance, understand areas of over or underperformance, and make informed adjustments to their budgets or operations going forward.

This analysis enables decision-makers to investigate the reasons behind variances, whether they stem from changes in revenue, unexpected expenses, or operational inefficiencies. By closely monitoring these variances, organizations can improve future budgeting accuracy and enhance their overall financial management practices. Thus, the focus of variance analysis is not just about the difference itself but about learning from those differences to inform better future planning and decision-making.

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