Definition

Variance analysis compares planned or budgeted amounts to actual amounts (e.g., budget vs. actual cost, estimated vs. actual labor hours). Positive variance often means under budget (good for cost); negative variance means over budget. For revenue, the interpretation can flip depending on context (over-billing vs. under-billing).

Why It Matters

Variance analysis surfaces problems early: a job running over on labor or materials can be corrected before the whole project is unprofitable. It also improves future estimating: if you consistently run 15% over on concrete, you adjust your next bid. Contractors use it at the job, category, and company level.

Field Example

A framing package was estimated at 80 labor hours at $45/hr ($3,600). Actual was 94 hours at $45/hr ($4,230). Labor variance = −$630 (over budget). The foreman reviews why (rework, scope creep, weather) and the estimator uses the data for the next similar project.

Calculation / Formula (if applicable)

Variance = Actual − Budget (or Actual − Estimate).
Variance % = (Variance ÷ Budget) × 100.

Software Application

Support budget/estimate fields per job and per cost type. Report “Budget vs. Actual” by job and by cost code or category. Allow drill-down from summary variance to individual transactions. Flag jobs or line items that exceed a variance threshold.

Tooltip Version

Variance analysis compares what you budgeted or estimated to what actually happened so you can fix overruns and improve future bids.

Variance Analysis