What is a budget variance?

A budget variance represents the difference between budgeted figures and actual figures for a specific period. This concept is crucial in financial management as it allows businesses and organizations to assess their financial performance by comparing expected financial outcomes with what was actually achieved.

When analyzing budget variances, key areas of focus include examining whether revenues were higher or lower than expected and identifying any discrepancies in expenses. Understanding these variances helps management make informed decisions, adjust forecasts, and improve future budgeting processes. Analyzing the reasons behind these variations can lead to enhanced financial discipline and strategic planning, critical for achieving the organization's financial goals.

In contrast to other options, the planned difference between revenues and expenses describes a budget goal rather than the analysis of actual performance. The total of fixed and variable costs refers to cost classification instead of variances, while evaluating cash flow against liabilities relates to cash management rather than budget analysis. Thus, recognizing that a budget variance specifically measures the gap between what was anticipated and what occurred underscores the importance of this concept in effective financial management.