Variance analysis compares actual results against a reference — the budget, the prior year, or the estimate — and explains each material difference.
The reference decides the question
Against budget — did the plan hold.
Against last year, same period — is the business improving, with seasonality held constant.
Against the estimate, per job — was the pricing right. This is job margin variance, and for a trade business it is the most actionable of the three.
Splitting price from volume
A revenue variance has two possible causes: a different number of jobs, or a different value per job. They have opposite responses, and a single figure cannot tell them apart.
The same applies to costs: more material used, or material bought at a higher price.
What is worth explaining
Not everything. A threshold — by amount or percentage — keeps attention on differences that matter, and a line that is consistently within tolerance can be left alone.
Persistent versus one-off
A one-off variance is an event. A variance recurring in the same direction is a wrong assumption, and it will keep recurring until the assumption is corrected rather than the number explained.
That distinction is the whole value of doing it monthly rather than annually — see expense trend.
Common-size comparison
Expressing every line as a percentage of revenue, so growth does not disguise drift. Materials at thirty-two per cent against twenty-eight last year is visible; the raw amounts would both simply have risen.
The step that gets skipped
Deciding what changes as a result. A variance explained and not acted on is bookkeeping — see the planning cycle.