If you are like me, you probably winced when you read that term. Variance commentary is something every FP&A professional does, and at times, it can be monotonous and challenging. Learning to provide actionable value-added commentary is necessary to succeed as an FP&A professional. It is not enough to just explain what happened we need to provide actionable insight to the business.

Let's take an example and say for April 2022; we missed our revenue forecast by $0.5M

A lazy commentary would be as follows:

➡️Account: 406010 Subscription Revenue was unfavorable by $0.45M

➡️ Account: 406009 Professional Services was unfavorable by $0.05M

This only tells us at a high level what missed as it relates to the financial accounts and provides no value to the business. Variance Commentary should include the following:

⚫️ What - What happened in actual business terms

⚫️ Why - Why the results ended up the way they did

⚫️ How - How will it impact the rest of the year

⚫️ Recommendation: We should include some recommendations. If it is a miss, what might it take to get back on track or a trend we noticed, and the impact if it continues. If we had upside, how do we keep it going?

For the above example, a more complex variance commentary would be as follows

🔴Sub Rev unfavorable by $0.45M consisting of:

➡️ $0.3M of the miss was due to the cumulative impact of the January miss primarily caused by prior period resignation of 3 fully trained sales reps.

➡️ $0.1M was a difference between budget and actuals on product mix. We have had more customers sign up for the light version vs. the pro version resulting in less revenue

➡️ $0.05M due to customer credits tied to product outage related to a server failure. The server was scheduled to be replaced in February but was delayed due to issues with supplier inventory

🔴Prof Rev Unfavorable by $0.05M due to timing of revenue recognition and expect to receive the revenue in May.

In addition to the above commentary, you should provide a recommendation or value add insight that helps the business understand potential options to overcome the miss, for example:

➡️The business hired six additional sales reps beyond the original plan in April. This increase in hiring will allow us to recover the April rev miss assuming the reps are fully productive by August.

➡️A 1% increase in the number of customers signing up for the Pro version each month for the rest of the year will allow us to overcome the YTD rev miss due to the product mix.

The above is an example of the type of commentary the business needs.

As FP&A professionals, our job is to provide the story of what happened in business terms, not accounting terms, and provide value-added insights that help the business achieve its goals.

Next time you are doing month-end commentary, stop and ask yourself, is the variance commentary I am providing helping the business understand the results and driving the business forward or just checking a box?