Budget vs actual compares what a company planned to earn and spend with what it actually earned and spent, line by line, for the same period. Each difference is a variance, favourable when results beat the plan and unfavourable when they fall short. The point is to find out why, then decide what to do.
What is budget vs actual?
A budget sets expected revenue and costs for each month of the year. After each month closes, finance puts the actual figures from the ledger beside the budget and shows the difference in riyals and as a percentage, usually for the month and for the year to date.
It is the most common form of variance analysis. Many teams also compare actuals with the prior year and with the latest forecast, because a budget set months ago can be out of date by mid-year.
How do you prepare a budget vs actual report?
- Close the month firstUse actuals only after the month is closed, with accruals and prepayments booked, so timing does not create false variances. See the month-end close checklist.
- Use one structureMap actuals and budget to the same accounts, cost centres and companies, and translate both at a stated rate.
- Calculate the variancesTake actual minus budget for each line. Revenue above budget is favourable; costs above budget are unfavourable.
- Set a thresholdInvestigate variances above a set amount or percentage, for example SAR 50,000 or 10%, rather than every line.
- Explain the causePrice, volume, timing, a one-off or an error. Ask the budget owner, and trace the figure to the ledger lines.
- Decide what changesAgree the action: a cost to cut, a target to revise, or an update to the forecast.
What does a budget vs actual report look like?
| Line | Budget | Actual | Actual − budget | Result |
|---|---|---|---|---|
| Revenue | 2,000,000 | 1,850,000 | −150,000 | Unfavourable |
| Cost of sales | 1,200,000 | 1,080,000 | −120,000 | Favourable |
| Gross profit | 800,000 | 770,000 | −30,000 | Unfavourable |
| Marketing | 150,000 | 210,000 | +60,000 | Unfavourable |
Why does budget vs actual matter?
It turns the budget from a once-a-year exercise into a monthly control. Each budget owner sees their own lines and answers for the gap, and leadership sees early whether the year is on track.
Two traps catch teams most often: a timing difference read as a saving, and a variance caused by a mapping error or a missing accrual. Explaining every large variance down to the ledger lines catches both. For a group with companies in different currencies, separate the exchange rate effect from performance by translating the budget at the planning rate.
Questions people ask
What is the difference between budget vs actual and variance analysis?
Budget vs actual is the comparison. Variance analysis is the work of explaining each difference, for example splitting it into price, volume and mix. A budget vs actual report without explanations is only half done.
Should we compare against the budget or the latest forecast?
Both. The budget is the target the board approved; the forecast is the current best estimate. Comparing actuals with each shows performance against the commitment and against what you now expect.
How often should budget vs actual be reviewed?
Monthly, after the close, with year-to-date figures. Budget owners should see their lines within days of the close, while the reasons are still fresh.