Improve Your Problem Solving With Variance Reporting

Written by: Matt Van Vleet

Variance reporting aims to help business owners be more proactive in making decisions that positively impact desired business outcomes. But if we’re not checking for variances regularly, we spend valuable time figuring out why the change happened instead of solving the problem.

To become better at solving problems, we can’t just react to variances in a crisis or after seeing how badly they affect our finances.

We need to build variance reporting as a discipline in our data management. We need to see the discrepancies between our plan and our outcomes in real-time, have visibility of future ones, understand why they’re happening, and have time to react to them before they happen.

Challenges of Managing Variances

In general, most businesses see their variances after they happen without an easy way to understand why. If we need to ask multiple people and compare many reports, we’re going to waste a lot of time figuring out the root cause of what changed between our plan and reality.

Then, with this strategy, we are always looking at old data. Yes, it’s essential to know what variances happened in the past. But it doesn’t help us make better decisions to prevent future variances.

Another common problem is a lack of data transparency between business owners and their leaders responsible for slices of the company data. If leaders lack visibility of variances in the first place, they also probably don’t understand why they happened or what to do about it. There’s also a concern that managers may manipulate their data to make things look better than they are or downplay the differences for fear of getting in trouble.

Overall if we don’t have a system to look at variances regularly, we aren’t managing them. Instead, they are happening outside of our control.

How We Should Manage Variances

Ideally, our data management system will allow us visibility to quickly move through these three steps:

1. Identify Variance

2. Understand Why

3. Solve Problem

The ability to quickly understand the root cause of the variance helps us know how to solve the problem. The action we take could mean focusing on sales, moving projects around, or working with our bench to impact the variance. It also helps us understand whether the variance is inevitable or not and if it came from a wrong decision that we made. All this information helps to inform better business decisions.

Looking ahead and knowing the data is correct allows businesses to become more predictable. The more proactively we can manage variances, the better outcomes we will have and the easier it will be to solve problems. Then, the business owner can spend their time planning, making sales, developing their people, etc., instead of running around figuring out why variances happened.

In the long run, with a better system to manage variances, a greater understanding of why they happened, and strong leadership to help manage everything, problem-solving will happen much faster and make a more significant positive impact on future planning.