Opinion Question: How do you Calculate Expense Budget Variance?

mkozai
mkozai Member
edited March 2023 in Scheduled Reports

We have an internal debate among executives here and I am curious what everyone else here does and thinks.  When thinking of sales I think it is an easy answer.  Actual - Budget = Variance.  If you exceed your budget in sales that is a good thing and so we can show that as a positive number.  However when looking at expenses the game changes.  Now exceeding your budget is not a good thing.  So my question to everyone is this.

 

When calculating an expense budget variance which equation do you use: 

 

Option 1:

Budget - Actual = Variance

Option 2: 

Actual - Budget = Variance

Or put differently does a positive variance mean: 

  1. You have budget available
  2. You have overspent

Comments

  • GrantSmith
    GrantSmith Coach

    I keep it consistent where OVER budget is represented in the positive and UNDER budget is represented in the negative. I may make some colorization changes representing one as green and the other as red if it's good or bad respectively. This keeps a consistent definition to avoid confusion and also easily illustrates if it's good or bad.

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  • mkozai
    mkozai Member

    Thanks for the feedback Grant.  This is exactly the perspecitve of our CEO.  He wants an overage to always be represented as a positive number, regardless of the flow of cash.  The more I think about it the more I can see both of your points.

     

    I think the answer depends on how you look at your budget.  Is your budget a number that you are just trying to not exceed? Or do you treat it like a bank account? I think some users are always asking the question, how much money do I have left to spend.  And if you have never managed a corporate budget, the only place you have exposure to this is your bank account.  In this case, a positive number means you have money to spend.  

     

    Anyway I created a survey and posted it to linkedin.  So far the response is 50/50.  Although your response here tips the scale towards Actual - Budget.  

     

     

     

     

  • mkozai
    mkozai Member

    Thanks for the like @Neeti.  Would love to hear what you think.  

This discussion has been closed.

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