When should you investigate variances

When should you investigate variances is a massive part of financial management.  it's also this week's I Hate Numbers podcast episode.

If you're thinking, what's a variance, well that's the difference between where you expected to be financially (budget) and where you actually are.  Time, money and your energy is limited so you need to know when it is worth investigating a variance.  This is all part of a system called management by exception, react and correct when things differ from your expectations.

There are five factors for you take on board as to When should you investigate variances.

• Firstly, how large is your variance?   How material is it?  For example, a £100 overspend may be significant to your business, a drop in the ocean to others.
• Secondly, consider controllability.  Can you control this, for example does it arise from external factors, are these fixed costs?
• Thirdly, how accurate and realistic is your Financial Story Plan, Budget as some would call it.  Has there been a conscious effort to accurately forecast resources required?
• Fourthly, cost-benefit.  How much time and money will need to be invested in investigating this variance compared with any potential savings resulting from identifying any underlying problems?
• Finally, consider whether the variance is a one-off or is a pattern and more regular.

Conclusion and good to know

When should you investigate variances is the first step before you dive in to get your insights.  Those insights are showing you how well your financial performance is doing against your financial forecasts.  Knowing when to take a closer look, needs you to have an easy-to-use framework as part of your decision-making process.

The I Hate Numbers podcast covers a range of topics to help serious business owners thrive, let alone survive.  From financial storytelling to tax, and more!  Every episode provides actionable advice from me, business finance coach, accountant and educator. Subscribe to keep in touch, contact me if you want my help for your business

Are you a small business owner, social enterprise or organisation passionate about change? Managing your finances can be a lot of work, trust me.  Finally, there’s software that makes keeping track of your cash flow and financial planning easier: Numbers Know How.