One important step in learning how to manage a business is performing plan vs actual analyses. In business, planning is just one piece of the puzzle. A plan moves you in the right direction, but unless you compare it with your actual results, you’ll never know whether you’re reaching your goals.
Tracking your results and reviewing your progress helps you make course corrections when necessary to help reach your performance goals.
But exactly does plan vs actual mean, and how do you perform an analysis?
What Does “Plan Vs. Actual” Mean?
Plan vs actual compares your financial forecasts with your actual, real-world results to see how they measure up. After reviewing your planned and actual results, you can implement changes or adjustments to get back on track or stay on course.
The process is relatively simple and straightforward.
- Start with your forecast for the time period.
- Compile your actual results for that same period.
- Compare the two statements.
The difference between your planned and actual results is known as “variance.” Variance can be positive or negative.
- A positive variance means that your actual results were better than your planned results. For example, this may mean that you generated more profit or sales than expected, or that your expenses were lower than you anticipated.
- A negative variance is the opposite of a positive variance. Your results were lower than expected. Maybe your expenses were higher than you anticipated, or your profits or sales were lower than planned.
A positive variance is a good sign and indicates that your business is doing better than expected. A negative variance may mean that it’s time to change course to improve your business’s performance.
Why Is It Important To Compare Your Plan With The Outcomes?
It’s essential to perform a plan vs actual analysis regularly. Why? Because the practice helps you improve your business management skills.
If you’re not actively engaging in actual vs planned management, then you’re steering your company blindly. The differences in your planned vs actual results can help you make changes that will improve the financial health and performance of your business.
Comparing your planned and actual results allows you to:
- Get better insight into your sales.
- Trim expenses as needed.
Performing comparisons regularly will also help you identify trends in sales, profits and expenses. Identifying these trends can help open up discussions on how to improve or correct issues to get back on the right track.
What Financial Elements Can You Compare Between Your Plan And Your Actual Spending?
There are several financial elements that you can compare when looking at your planned and actual results.
These elements include:
- Profit and loss
- Cash flow
Looking at each of these elements will give you a clearer picture of your business’s financial health and performance. Are you spending more than you should be? Are sales slumping, or are they booming? Is your cash flow positive or negative?
Having all of these data points to compare will help you make smarter business decisions.
Plan Vs. Actual Review: What To Look For?
When comparing your planned vs. actual, there are a few essential things to look for:
A negative variance is an indication of underperformance compared to your planned results. Maybe there was a dip in sales or cash flow. Perhaps your expenses were higher.
No matter the cause, it’s crucial to investigate any negative variance closely and implement changes to help correct the issue.
A positive variance means that you overperformed compared to your planned results. You may have sold more units than expected or generated a higher profit than you anticipated. You may have more cash flow or lower expenses than planned.
The Importance Of Holding Regular Plan Vs. Real Review Meetings
Comparing your planned and actual results can help you get a better idea of how well your business is performing and whether you need to make changes to correct issues that are preventing you from reaching your goals.
Holding regular planned vs actual review meetings can help ensure that your business is on the right track and that your forecasts are accurate.
Performing planned vs actual comparisons is an important part of managing a business. If you’re not comparing and analyzing your planned and forecasted results, then you’ll have no way of knowing whether your plans and strategies are working.