budget-variance-analysis

Budget Variance Analysis Skill

Produces a complete variance analysis from numbers through to root cause explanation and management commentary.

Required Inputs

• Actuals and budget figures (paste as table or describe line by line)
• Period (month / quarter / YTD)
• Materiality threshold (e.g. £10k or 5%)
• Known reasons for variances (if any)
• Audience (CFO / board / management / auditor)

Output Structure

1. Variance Summary Table

| Line Item | Budget | Actual | Variance £ | Variance % | F/A |

|---|---|---|---|---|---|

| Revenue | | | | | |

| Cost of Sales | | | | | |

| Gross Profit | | | | | |

| Opex | | | | | |

| EBITDA | | | | | |

F = Favourable | A = Adverse

2. Material Variance Commentary

For each variance above threshold:

[Line item] — £[amount] F/A ([%])

• Root cause: [Specific explanation — not "timing" without detail]
• Permanent or timing? Will this reverse next period?
• Management action: What is being done
• Forecast impact: Does this change full-year outlook?

3. Top 3 Variances Requiring Attention

Ranked by materiality and strategic significance.

4. Forecast Revision

Does the full-year forecast need updating? State revised expectation and key assumptions.

5. Executive Summary

3-4 sentences of management commentary suitable for a board pack.

Quality Checks

• [ ] All variances above threshold explained
• [ ] Root causes specific (not vague)
• [ ] Favourable/Adverse correctly labelled
• [ ] Forecast impact stated for material variances

Anti-Patterns

• [ ] Do not explain a variance as "timing" without specifying which period it will reverse into and what amount is expected
• [ ] Do not label a favourable variance on a cost line without checking whether it is due to underspend, delayed spend, or reduced activity — the cause determines whether it is genuinely good news
• [ ] Do not omit variances below the materiality threshold entirely — note them collectively so the reader knows they exist and were reviewed
• [ ] Do not present a variance analysis without a forecast impact statement for material items — historical variances without forward implications are incomplete

Example Trigger Phrases

• "Write a variance analysis for these actuals vs budget: [paste]"
• "Explain why we are over budget on [cost line]"
• "Write the variance commentary for our finance review"
• "Produce a budget vs actual analysis for Q[N]"