Cost Variance Analysis for Small Business Owners
Compare actual spending with budget or target, identify the largest gaps, and investigate whether the difference is expected, productive, or avoidable.
Key takeaway
A variance tells you where reality differed from plan; investigation tells you whether that difference deserves action.
Calculate the dollar variance
Subtract target spending from actual spending for the same category and period. Positive overspend should be reviewed in context rather than automatically labeled waste.
Add percentage context
Divide the dollar variance by the target when a valid target exists. Percentage movement helps compare categories of different sizes, while dollar impact helps prioritize what matters financially.
Investigate before acting
Ask whether volume increased, pricing changed, a one-time event occurred, or the additional cost produced revenue or capacity. Then choose the smallest useful action and measure the next period.
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