FP&A guide
Budget vs actual analysis: explain the operating profit gap
Published 23 October 2026
A budget review often begins with a simple question: why did profit miss the plan? A table of percentage variances rarely answers it on its own. Finance needs to connect the movement in revenue and costs to the change in operating profit, then identify which explanations the available data can actually support.
Start with a consistent comparison
Actual and Budget must cover the same period, entities, accounts and reporting currency. Missing data is not automatically zero. If part of the budget is absent, a percentage variance can look precise while the comparison itself is incomplete.
Establish the scope before interpreting the result. Where currency conversion is required, document the rates and conventions used. Keep changes in the reporting perimeter separate from operating performance where the data permits that distinction.
Reconcile the operating profit bridge
For a simplified P&L where COGS and OPEX are represented as positive expenses:
Operating profit = Revenue − COGS − OPEX
The corresponding variance is:
Δ operating profit = Δ revenue − Δ COGS − Δ OPEX
Consider this illustrative example, created for this guide and separate from the public demonstration dataset:
| EUR | Budget | Actual | Actual − Budget | Effect on operating profit |
|---|---|---|---|---|
| Revenue | 1,000,000 | 1,050,000 | +50,000 | +50,000 |
| COGS | 600,000 | 680,000 | +80,000 | −80,000 |
| OPEX | 250,000 | 260,000 | +10,000 | −10,000 |
| Operating profit | 150,000 | 110,000 | −40,000 | −40,000 |
Revenue beats budget, but the additional COGS and OPEX more than absorb the gain: 50,000 − 80,000 − 10,000 = −40,000. Operating margin falls from 15.0% to approximately 10.48%, a decline of approximately 4.52 percentage points.
If the source ledger records costs as negative values, normalise or adapt the convention before applying this bridge. Do not subtract negative expenses twice. A zero budget also makes the usual percentage variance undefined; show the amount and flag the limitation.
A financial contribution is not yet a business cause
The bridge proves that COGS contributed an adverse EUR 80,000 effect. It does not prove that supplier prices increased. More units sold, product mix, freight, production yield or classification changes could also contribute.
To investigate a purchasing-price hypothesis, obtain unit quantities and comparable prices. To investigate mix, obtain revenue and costs by product or segment. Keep the measured effect, proposed explanation and evidence request visibly separate.
Turn the review into an investigation
Begin with the largest adverse contribution. In this example, first reconcile the COGS movement by account and business scope. Then request the operational data needed to distinguish price, volume and mix. Assign an owner and a next review date to each material question.
This gives the finance review a useful output: a reconciled explanation of the numbers and a focused list of questions the business can resolve.
Explore a worked demonstration
The Planova Silver Preview shows Actual vs Budget analysis and an operating profit bridge using synthetic Aurelia Sensors data. It also lets you explore a forecast across three scenarios. It does not accept real company financial data during the public Preview, and AI explanations are disabled.