Intermediate level · Module 5: Budget Management and Donor Reporting · Lesson 2 of 3
Variance Analysis
Compare actual results with the budget and explain the differences.
In this lesson you will
- Calculate variances and burn rate
- Explain variances specifically and propose action
Key concepts
variancefavourable and adverseburn ratemateriality
The lesson
Variance = actual − budget, for each line and in total. In expense lines, spending under budget is favourable unless it signals that activities were delayed.
Focus on material variances — for example over 10% and over a set amount — and explain each specifically: 'Training underspent because the second session moved to next quarter'.
Burn rate compares spending with time elapsed; a project halfway through its period that has spent 20% of its budget is probably behind.
Step by step
- Calculate variances by line.
- Calculate percentages.
- Identify material variances.
- Explain each and propose action.
Quarterly budget variance for an NGO project
Comparing actual spending with budget line by line and explaining the material variances.
| Budget line | Budget | Actual | Variance | Variance % |
|---|---|---|---|---|
| Staff | 1,200,000 | 1,200,000 | 0 | 0.0% |
| Training | 800,000 | 650,000 | -150,000 | −18.8% |
| Travel | 300,000 | 380,000 | 80,000 | +26.7% |
| Supplies | 500,000 | 470,000 | -30,000 | −6.0% |
| Total | 2,800,000 | 2,700,000 | -100,000 | −3.6% |
What the data shows
Total spending is 96.4% of budget, but the total hides two material variances.
Training is 150,000 SSP under budget because one session moved to quarter 3; travel is 80,000 SSP over because road closures forced flights to two field sites.
Recommendation
Explain both variances in the donor report, keep the training funds for quarter 3, and check whether the grant's flexibility rules allow the travel overspend or a budget change request is needed.
Practice activity
Prepare the quarterly variance report.
Expected result: A variance report with specific explanations and actions.
Check your understanding
-
How is a variance calculated?
Show answer
Actual − budget.
-
What might an underspend signal?
Show answer
Delayed activities.
Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.