Your Variance Report Is Wasting Time It Doesn’t Have To
Picture this: a 28-year-old Controller is spending his Friday evening rewriting a paragraph about a $12,000 unfavorable office supplies variance. At a $16 million publishing company. And he’s on his fourth draft.
$12,000 isn’t a sweep-it-under-the-rug number at a small private business. But it’s also not the sort of material miss that’s going to come up in the leadership meeting. Nobody’s going to lose sleep over it. Except Patrick, the Controller, who shared with me that he was working 60-hour weeks.
I remember asking Patrick why he was working so much. He was staying late, working weekends, and putting in the sort of hours that I used to when I was doing management consulting. I’ll share his answer with you at the end.
Each month, Patrick closed the books and prepared commentary on every variance above a predetermined threshold. Every explanation had to include the “why” behind the variance and what it meant for the business.
When I reviewed one of his reports, I thought to myself: “There’s no way anyone actually reads this thing.” I pushed him on it further and asked why he applied the same blanket thresholds to everything in the P&L. “Why would a $12,000 office supplies variance deserve the same level of analysis as a $12,000 contract labor variance?”
His answer was pretty typical: “Because that’s the process the consulting firm put in place.”
And of course, when smart people tell you that rigor in finance means every variance gets an explanation, people nod and stop questioning.
That conversation exposed an assumption that’s baked into so much FP&A training and financial reporting. A superior analyst writes clearer variance explanations, cleaner commentary, better bridges. They have sharper price/volume/mix breakdowns.
Search YouTube or Google for advice on variance commentary, and you’ll find the same recycled tips: identify the driver, use the PVM framework, explain the “why,” and provide thoughts about “what does it mean.” Most of that advice is perfectly reasonable.
But almost nobody asks the more important question: Should this variance be explained at all?
Materiality isn’t the real test
I know that this cavalier attitude might get some pushback because some finance professionals believe every material variance deserves an explanation. I don’t.
I’m coming from a position of scarcity – time, attention, and analytical energy are limited resources. Every hour spent polishing commentary on an inconsequential variance is an hour that isn’t spent investigating something capable of changing a business decision.
From that angle, it means some analyses get attention, and some don’t. And that’s why I always tell FP&A professionals that materiality isn’t the real test.
The real test is this: If we fully understand this variance, will anyone make a different decision?
Those are two very different tests, and conflating them is where FP&A teams waste so much time.
If the answer is no – we would do nothing differently – then a variance of $12,000 may be a moot point. It’s just a footnote, maybe. It shouldn’t be something that Patrick is rehashing four times before he sends the email.
On the other hand, if that office supplies variance revealed someone bypassing procurement controls or abusing purchasing policies, then it suddenly deserves attention—not because of the dollar amount, but because it points to a process that needs to be fixed.
That’s the judgment call.
Here’s what this looks like in practice
A $12,000 variance is less than one-tenth of one percent of revenue to this publishing company. It’s immaterial by any reasonable threshold, yet it has the same polished commentary – and Patrick’s focused brainpower – as everything else on the report. The template doesn’t discriminate. When you set variance thresholds arbitrarily, it elevates the importance of activities that hardly matter.
Meanwhile, an $180,000 unfavorable contract labor variance also received the same level of attention. But the consequences couldn’t have been more different. The office supplies variance was largely administrative noise, but the contract labor variance might signal a project that’s running over budget, poor estimating practices, or operational issues that could affect future profitability.
The reporting process treated them equally, but they had totally different consequences and stakes.
That’s the real cost of treating “explain every material variance” as a rule instead of a judgment call. Patrick wasn’t lacking technical skills. He was following a process that rewarded completeness over usefulness.
Misses can matter, but they matter in terms of magnitude, impact, and action.
Examine the consequences
Before writing a single word of variance commentary, I always suggest asking two questions:
- Is this variance large enough, relative to the decision it might inform (not just a flat percentage or dollar amount), to be worth anyone’s attention?
- If I fully diagnosed the root cause, will anyone change a decision? A forecast, a hiring plan, a quote to a customer, a policy?
If the answer to the second question is no, it doesn’t matter how interesting the story is or how easy it would be to explain. I recommend skipping it. Redirect that time and focused brainpower to a handful of other variances that genuinely shape what happens next.
I’ve seen companies obsess over relatively minor issues while overlooking decisions with far greater financial consequences. That’s the danger of turning reporting into a compliance exercise instead of a decision-making tool.
I understand why this variance habit exists. Controllers can be meticulous. Auditors want explanations. And consultants who come in and establish protocols can sometimes be seen as the drivers of the business’s evolution. These are all reasonable instincts, but they all have little to nothing to do with decision-making – which is the entire point of what FP&A does in the first place.
If you’ve ever written the comment “variance is due to timing,” you already know exactly what I’m talking about. That sentence has explained precisely nothing. If I’m tracking cash flow and liquidity issues in a distressed business, sure. But most performing businesses don’t need nitpicky commentary on timing issues that make little difference. And yet, “variance is due to timing” shows up on variance analysis reports all the time.
The real objective of variance analysis
Focusing on every exception leads to constant distraction.
The objective is never to explain every number that pushes past the materiality threshold. It’s to protect the attention of the people reading the report, so that when something in the commentary actually matters, they know to trust it.
That’s the power of judgment over technique. Once you stop narrating noise, you have room and mental bandwidth to actually dig into the small number of variances each month that change decisions – that’s the insight leadership is paying you to do in the first place, whether you’re a Controller like Patrick, or an FP&A advisor serving clients.
What happened to Patrick?
Earlier I mentioned that Patrick was working 60-hour weeks. When I asked him why, he rattled off a long list of recurring responsibilities that had accumulated over the years.
So I asked him to do something simple. I had him put together a short bullet-pointed list of everything he was doing on a daily, weekly, and monthly basis and then estimate how much time each task required. He put together his list quickly and I looked it over.
One item immediately stood out. “What is the Monday morning recap email?” I asked him. It was taking him upwards of 2 hours per week, every Monday.
“It’s the email that I send out to Pat (the Owner), the department heads, and the consultants every Monday.” It reflected developments in the business from the past week, as shared by the department heads to Patrick.
“Why are you the one doing this?” I asked.
“Because the consultants asked me to do it when they first started here.”
What I haven’t shared in this story yet is why I was there in the first place. At the time, I had been hired by that same consulting firm to evaluate a potential carve-out of part of the business. But my analysis hinged on Patrick’s ability to get me the financial information I needed.
With him working 60 hours a week already, he just didn’t have the capacity. So my success for this engagement meant clearing up some of his schedule so he could help me.
So I met with Pat, the owner. I explained that if he wanted my help on the carve-out analysis, Patrick needed room to support the project. Then I asked him one question.
“Why do you still need this Monday morning recap email?”
His response was immediate.
“He’s still sending that out?”
