Variance percentage provides a quantifiable measure of the difference between a projected or budgeted figure and the actual result. It expresses this difference as a percentage of the original projection. For instance, if the budgeted sales were $100,000 and the actual sales reached $120,000, the difference is $20,000. Dividing this difference by the budgeted figure ($100,000) yields a variance percentage of 20%. This percentage indicates the degree to which the actual result deviated from the initial expectation.
The significance of understanding and analyzing the calculated percentage lies in its ability to identify areas where performance aligns with, exceeds, or falls short of expectations. Businesses leverage this metric for budgeting, forecasting, and performance management. Historical analysis of these figures can reveal trends and patterns, enabling proactive adjustments to strategies and resource allocation. Furthermore, it facilitates clear communication of performance outcomes across different stakeholders within an organization.