What do variance analysis and performance measurement assess in budgeting?

Variance analysis and performance measurement are integral components of budgeting, focusing specifically on assessing the differences between the budgeted amounts and the actual financial outcomes. This process allows organizations to identify discrepancies, understand their causes, and analyze their impact on overall financial performance.

By conducting variance analysis, companies can determine whether they are staying within their budgetary limits and meeting their financial goals. This insight is crucial for decision-making and helps in making any necessary adjustments to future budgets or expenditures. Performance measurement further complements this by evaluating the effectiveness and efficiency of resource usage within the context of the budget, providing a comprehensive view of financial health relative to the planned objectives.