Budget Variance

Budget Variance

Budget Variance Jonathan Poland

Budget variance is the difference between the budgeted amount and the actual amount spent on a department, team, project, or activity. It is often expressed as a percentage of the budget. For instance, if a project has a budget of $100,000 and the actual spend is $120,000, the budget variance is 20% and is classified as an overspend. On the other hand, if the actual spend is only $50,000, the budget variance is 50% and is classified as an underspend. Although an underspend may seem favorable, it may also indicate poor financial planning and control, as unnecessary funds were committed to the project. Therefore, budget variance is often used to evaluate the effectiveness of financial planning and control, regardless of whether it is a positive or negative variance.

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