What is Variance Analysis?
Variance analysis is the comparison of actual financial results to budgeted or standard figures, breaking the difference into price, quantity, mix, and efficiency components to explain performance.
How It Works
- Compute total variance = actual – budget.
- Decompose into price/rate and volume/efficiency variances.
- Identify favorable vs. unfavorable variances and root causes.
Saudi Context
Saudi CFOs report monthly variance analysis to executive teams, often translating it into Arabic-language commentary alongside the IFRS-based numbers.
Example
A Saudi factory exceeds material cost budget by SAR 200K — variance analysis splits this into SAR 120K price variance (higher PET cost) and SAR 80K usage variance.