What does conducting a variance analysis help identify?

Conducting a variance analysis specifically helps identify discrepancies between actual and expected performance. This financial analysis compares the budgeted figures against the actual results, allowing organizations to pinpoint areas where performance deviates from planned expectations. Such discrepancies can arise from various factors, including changes in costs, sales volumes, and operational efficiencies, leading to insightful discussions on how to manage performance moving forward.

It serves as a critical tool for managers to understand their business's financial health and operational effectiveness, enabling them to make informed decisions based on the underlying reasons for these variations. This analysis forms the foundation for developing strategies to address these discrepancies and improve overall performance.