Glossary
Financial Reporting

Variance Analysis

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

Variance analysis examines the differences between budgeted and actual financial results to improve decision-making.
Variance analysis is the financial process of identifying and investigating differences between planned (budgeted) and actual financial outcomes. This technique helps organizations pinpoint areas where performance deviated from expectations, whether favorable or unfavorable. By examining the causes of these variances—such as unexpected costs or increased donations—management can make informed decisions to improve budgeting, forecasting, and resource allocation. For nonprofits, variance analysis is particularly important as it ensures mission-driven funds are used efficiently and can highlight trends that require corrective action or further investigation. The process usually involves both quantitative and qualitative analysis to understand the root causes and potential impacts on future operations.

Key Takeaways

  • Identifies gaps between budgeted and actual financial outcomes
  • Supports better planning and resource allocation
  • Helps diagnose financial trends and operational issues
  • Essential for nonprofit transparency and accountability

Why It Matters

Helps nonprofits ensure financial accountability and improve future budgeting accuracy.

Real World Example

A nonprofit budgeted $10,000 for its annual fundraising event but ended up spending $12,500. Through variance analysis, they discover that increased catering costs and last-minute supply purchases caused the $2,500 unfavorable variance. Management discusses ways to negotiate better vendor contracts and improve expense tracking for future events. This analysis not only helps them control costs but also provides transparency to donors and board members about how funds are used.

How Aplos Helps

Aplos provides built-in financial reporting tools that make variance analysis straightforward for nonprofits. By comparing budgeted versus actual results in real time, users can quickly identify trends and take corrective action. Aplos reports help organizations stay on track with their financial goals and stewardship responsibilities.
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Frequently Asked Questions

What is variance analysis?

Variance analysis is the process of comparing budgeted figures to actual results to identify and explain financial discrepancies.

Why is variance analysis important for nonprofits?

It ensures accountability, highlights inefficiencies, and helps organizations make better financial decisions to fulfill their mission.

How does Aplos support variance analysis?

Aplos offers reporting tools that compare actuals to budgets, allowing users to quickly spot and address variances in their finances.

What are common causes of variances?

Variances can be caused by unexpected expenses, inaccurate budgeting, changing circumstances, or errors in financial data.

Can variance analysis help with future budgeting?

Yes, by analyzing past variances, organizations can improve the accuracy of future budgets and financial planning.

Related Terms

Grant Reporting
Faith‑Based Organization
Grant
Grant Budget
UBIT (Unrelated Business Income Tax)
Statement of Financial Position

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