Vaiances are the difference between actual and budgeted performance

By February 9, 2019 Management

Vaiances are the difference between actual and budgeted performance, whether that be a negative or a positive figure. There are several formaulas used to calculate the varianances;
Revenue Variance to budget % = (Actual revenue – Budget revenue) ÷ Budget revenue
Revenue Variance to last year % = (Actual revenue – LY revenue) ÷ LY revenue
Expense variance to budget % = (Budget expenses – Actual revenue) ÷ Budget revenue
Expense variance to LY % = (LY expenses – Actual expenses) ÷ LY expenses
Below is a snap shot of a mock Profit and Loss statement which all Heads of Departments receive. Management use a Profit and Loss statement (P&L) to determine the strengths and weakness in their department and in the hotel as a whole. Variances are usually shown as a percentage however, it is vital to look at the actual figure as well. For instance, below, illustrates that actual performance is -8.71% which doesn’t seem like a lot however, if we look at the amount it is -147,458 which is a considerable amount of revenue. Heads of Departments would then need to look into the variance in more depth to determine why these variances occurred. Was it due to the budget being unrealistic, was it due to reservations being closed out too early, was it due to the team not upselling enough; there are so many questions that need answers to which come to light just through monitoring the variances,
Food and Beverage Revenue
Actual % Budget % Variance Last Year % Variance
1,546,330 -8.71% 1,693,788 100 -147,458 1,668,367 -7.31% -122,037
It is essential that all variances whether they are negative or positive are explained and recorded as they should be taken into consisderation when formulating the budget for the following finanical year. For example, if Food and Beverage revenue exceeded budget by 500K due to two one off events in Private Dining during the month of June, notes should be recorded on the details. That revenue should not be shown as a growth in the next years budget as those events will not take place again therefore, the budget will be unrealistic an unachievable. In the case of the businesses not keeping notes on their variances, then the error of showing a siginificant growth within Food and Beverage will take place and will most likely result in a loss at the end of year.


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