Budget vs actual: does spending above plan mean money was wasted?
A budget is the plan, a forecast is a later dated expectation and actual is what happened. Jo budgeted materials for 100 jobs at €20 (€2,000) and spent €2,310 on 110 jobs at €21. Ten extra jobs explain €200; €1 more per job explains €110. Being €330 below the forecast does not cancel that, and neither total proves waste.
A higher total cost can mean more work was done, each job cost more, or both. This example shows why the total difference is a question to investigate before it becomes a judgement about waste.
Three versions, three purposes
A budget sets out the intended financial plan. A forecast records what you now expect based on available information. Actual figures record what happened. Label the period and the date of each expectation so that the comparison has a clear meaning.
The workshop spent €310 more. What changed?
Before June, Jo plans materials for 100 identical jobs at €20 each: €2,000. On 10 June, new information leads her to expect 120 jobs at €22: €2,640. At the end of June, the records show 110 jobs at €21: €2,310.
The actual cost is €310 above the original plan. Ten extra jobs at the planned €20 explain €200. The extra €1 on each of the 110 actual jobs explains another €110. Together they explain €310.
But actual cost is also €330 below the forecast made on 10 June. Both comparisons are true. They answer different questions. Neither total tells Jo whether the materials were wasted, were better quality, or bought work that earned enough money.
- This is an invented materials example: one identical package per completed job, with no stock timing, tax or product-mix differences.
- The totals are costs of this activity, not cash payment dates, sales revenue or whole-business profit.
| Version | Jobs | Materials per job | Total |
|---|---|---|---|
| Budget before June | 100 | €20 | €2,000 |
| Forecast on 10 June | 120 | €22 | €2,640 |
| Actual at 30 June | 110 | €21 | €2,310 |
Try it with your own numbers
The number of jobs the original plan for the period assumed.
The planned cost of one job. The split below fits when the jobs are comparable, as in the example.
The number of jobs you expected at the date of your latest forecast.
The cost of one job you expected at that date.
The jobs the records show for the same period.
The recorded cost of one job in the same category, from invoices and records.
Your result
Fill in every field to see the result.
Your numbers stay in this browser. Nothing you type is sent or saved.
Changing a plan need not erase its history
Changed assumptions can justify updating a budget. Keep the old and new versions labelled, with the reason for the change. That lets you use a realistic plan while still seeing why the earlier expectation differed. Repeated updates also take work; their frequency should serve a decision.
Find the cause before choosing a response
For Jo, the next questions are concrete: which ten additional jobs were completed, what changed the package price, and were the packages comparable? Delivery records and supplier invoices can test the explanation. A larger total alone cannot answer those questions. A percentage used to flag a review is not proof that every smaller difference is harmless.
Common misconceptions
- Above budget means buying became less efficient.
- In this example some of the increase comes from completing more jobs. Efficiency needs a comparison of what was used and produced.
- Below the latest forecast means we met the original plan.
- Jo spent €330 less than the forecast and €310 more than the budget. One comparison does not replace the other.
- Updating the budget means there was never a difference.
- A revised plan may be useful. It does not change what the earlier version said.
Explain one meaningful difference
Choose one cost that differs from plan. Compare the same period and category, then separate changes in activity from changes in cost per unit where that comparison fits. Check the records. Write whether the cause is understood, needs investigation or justifies a dated plan change.
Sources
- CPA Australia: Improving business performance, page 5 (opens in a new tab)Different purposes of budgets and forecasts, comparing actual results and revisiting assumptions. The numerical comparison is authored here.
- ACCA: All about budgeting, part 2 (opens in a new tab)Updating plans as assumptions change, and the workload and target-comparison tradeoffs. Retaining dated versions is our presentation choice.