Financial analysis
Financial Variance Analysis: How to See What Changed
Variance analysis answers what changed across periods or segments, then leaves the why-question to separate investigation.
Quick answer
Variance analysis compares a current value with a reference value to identify absolute change, percentage change, and direction. It describes the movement; it does not prove its cause.
What is financial variance analysis?
It measures the difference between a current value and a comparison value, such as the prior month, the same period last year, or another branch. Absolute variance = current − comparison; percentage variance = (current − comparison) ÷ comparison × 100 when comparison is non-zero.
A period-comparison example
| Metric | Previous | Current | Absolute change | % change | Interpretation question |
|---|---|---|---|---|---|
| Revenue | 1,000,000 | 1,100,000 | +100,000 | +10% | What changed in period or mix? |
| Gross profit | 400,000 | 400,000 | 0 | 0% | Did cost move despite flat profit? |
| Operating expenses | 250,000 | 290,000 | +40,000 | +16% | Which category contributed? |
| Operating profit | 150,000 | 110,000 | −40,000 | −26.7% approx. | Where should investigation begin? |
What if the comparison value is zero?
Do not divide by zero. Use absolute change, state that percentage variance is undefined or not meaningful, and describe the appearance or disappearance of the item in context.
What does variance analysis answer?
It identifies what changed, by how much, and in which direction across periods or branches. It does not prove why; the cause question can move to account, classification, timing, and business-context review.
For likely drivers: How to Trace Financial Performance Drivers
Explore financial variance analysis
Frequently asked questions
How do you calculate percentage variance?
(Current value − comparison value) ÷ comparison value × 100, provided the comparison value is not zero.
Does a variance prove the cause of a change?
No. It identifies movement; the cause requires separate investigation.