ACCA Performance Management (F5) Certification Practice Exam

What does variance analysis primarily measure?

1. Historical trend deviations

2. Differences between actual and expected results.

3. Changes in market share over time.

4. Forecasting future trends.

The correct answer is: Differences between actual and expected results.

Variance analysis primarily measures differences between actual and expected results. This process involves comparing what was anticipated in terms of financial or operational performance against what occurred. By identifying variances—whether favorable or unfavorable—organizations can evaluate performance more effectively and understand the reasons behind these discrepancies. Understanding actual performance against forecasted figures is essential for management as it helps in pinpointing areas that require attention or improvement. For instance, if actual sales are significantly lower than expected, a company can investigate specific factors contributing to this shortfall, such as changes in consumer behavior, increased competition, or operational inefficiencies. While historical trend deviations, changes in market share, and forecasting future trends are important aspects of business analysis, they do not encapsulate the primary focus of variance analysis. The primary goal is to quantify the deviations from expected performance to facilitate informed decision-making and enhance future planning.