What is a budget variance?

A budget variance is fundamentally defined as the difference between budgeted and actual financial performance. This concept is pivotal in financial management, as it allows organizations and individuals to assess how well they are adhering to their predicted financial plans.

When comparing the budgeted figures—those estimates or projections made prior to the fiscal period—with the actual financial results, any discrepancy will reveal a variance. This can be either favorable (actual performance exceeding expectations) or unfavorable (actual performance falling short). Understanding budget variances is essential for effective financial control; it provides insights into operational efficiency, identifies areas for improvement, and informs future budgeting processes.

The other options present different financial concepts that do not relate directly to the measurement of performance against a budget. For instance, total expenses incurred within a month simply provides a snapshot of spending without the comparative analysis that a budget variance entails. The amount left after expenses have been deducted from income, commonly referred to as net income, reveals profitability rather than performance against a budget. Finally, forecasted income for the month indicates expected revenue but does not account for actual outcomes or performance assessments, which are the core of understanding budget variance.