So here’s the significant view, the variance. Sales are below plan, but costs are also below plan, and let’s stop there and make a point. You can see in the illustration how sales are negative and costs are positive. If you weren’t careful, you could interpret that as sales are down and costs up, which would be a disaster. But variance analysis is fairly specific, defined by accountants and financial analysts, so the positive in the direct costs lines means less costs, not more. That can be tricky.
You can check on that by looking at the gross margin. The gross margin is disappointing, below plan, but not horribly so. It seems like the cost controls helped soften the blow of lower sales.
Then you start looking at the expense rows, and there are several interesting surprises.
This is where we go from the accounting details, the actual calculation, to the human details. What happened here? What should be changed? Does the plan need revision? Have assumptions changed. How have the people performed?