What is the definition of "variance" in financial analysis?

Variance in financial analysis refers specifically to the difference between projected or budgeted amounts and actual amounts. This concept is essential in performance management and budgeting as it provides insights into how well an organization is adhering to its financial plans. By analyzing variances, management can understand where discrepancies occur, enabling them to make informed decisions for corrective actions or future budgeting adjustments.

For instance, if a company budgets $100,000 for sales but only achieves $80,000 in actual sales, the variance would highlight a $20,000 unfavorable outcome. This analysis aids in identifying issues such as overestimating sales projections or unexpected market challenges, which can lead to strategic changes in operations or marketing.

Understanding variance is crucial for financial analysts and managers as it not only quantifies performance but also helps in strategic planning and operational improvement. This makes option B the accurate definition of variance in the context of financial analysis.