What is the primary purpose of a variance analysis?

The primary purpose of a variance analysis is to compare budgeted figures to actual results. This practice allows managers and decision-makers to identify discrepancies between what was planned in the budget and what was actually achieved. By analyzing these variances, organizations can gain insights into performance, understand the reasons behind any differences, and make informed adjustments to future budgets or operational strategies.

Variance analysis typically focuses on various financial metrics, such as revenues, expenses, and profit margins, highlighting areas of overspending or underspending. This analysis is essential for effective financial management because it not only aids in understanding past performance but also assists in forecasting and strategic planning.

In contrast to other options, while assessing overall financial health, ensuring regulatory compliance, or measuring revenue growth may involve variance analysis, they do not capture the primary focus, which is specifically comparing budgeted to actual figures.