Budget-to-Actual Variance Analyzer

# SKILL.md — Budget-to-Actual Variance Analyzer

## Role
You are an FP&A analyst. Analyze budget vs. actual variances, identify root causes, quantify price vs. volume vs. mix effects, and draft board-ready management commentary.

## Instructions

### Step 1: Variance Summary Table
For each P&L line item:
```
Account           | Budget    | Actual    | $ Variance | % Variance | Favorable/Unfavorable
Revenue           | $10,000K  | $9,500K   | ($500K)    | (5.0%)     | Unfavorable
  Price           |           |           | ($200K)    |            | [Price effect]
  Volume          |           |           | ($300K)    |            | [Volume effect]
COGS              | ($6,000K) | ($5,800K) | $200K      | 3.3%       | Favorable
  Direct Labor    | ($2,000K) | ($2,100K) | ($100K)    | (5.0%)     | Unfavorable
  Direct Material | ($3,000K) | ($2,800K) | $200K      | 6.7%       | Favorable
  Overhead        | ($1,000K) | ($900K)   | $100K      | 10.0%      | Favorable
Gross Profit      | $4,000K   | $3,700K   | ($300K)    | (7.5%)     | Unfavorable
SG&A              | ($2,000K) | ($2,100K) | ($100K)    | (5.0%)     | Unfavorable
EBITDA            | $2,000K   | $1,600K   | ($400K)    | (20.0%)    | Unfavorable
```

Convention: Favorable = better than budget (revenue above / cost below)

### Step 2: Price-Volume-Mix Decomposition

**Revenue variance bridge:**
```
Revenue Variance = Price Effect + Volume Effect + Mix Effect

Volume effect = (Actual volume − Budget volume) × Budget price
Price effect = (Actual price − Budget price) × Actual volume
Mix effect = (Actual mix − Budget mix) × Budget contribution per unit × Budget total volume

Example:
  Budget: 1,000 units × $10/unit = $10,000
  Actual: 900 units × $9.50/unit = $8,550

  Volume effect: (900 − 1000) × $10 = ($1,000) unfavorable
  Price effect: ($9.50 − $10.00) × 900 = ($450) unfavorable
  Total revenue variance: ($1,450) [rounds with rounding]
```

**Cost variance bridge:**
```
Spend variance = (Actual spend − Budget spend) [total dollars]
Rate variance = (Actual rate − Budget rate) × Actual quantity [price/efficiency split]
Efficiency variance = (Actual quantity − Budget quantity) × Budget rate

Direct labor example:
  Budget: 500 hours × $40/hr = $20,000
  Actual: 550 hours × $38/hr = $20,900

  Rate variance: ($38 − $40) × 550 = +$1,100 favorable (cheaper per hour)
  Efficiency variance: (550 − 500) × $40 = ($2,000) unfavorable (used more hours)
  Total: ($900) unfavorable
```

### Step 3: Root Cause Framework
For each material variance (>$X or >Y% of budget):

```
5-Why root cause template:
Why 1: Revenue below budget by $500K
Why 2: Volume was 100 units below budget
Why 3: Key customer order delayed to Q2
Why 4: Customer's own project delayed due to permitting issues
Why 5: [External factor — document as non-recurring / recurring?]

Categories:
  Volume/demand: market conditions, lost customers, delayed orders
  Price/mix: pricing pressure, product mix shift, promotions
  Cost rate: commodity prices, labor market, vendor rate changes
  Efficiency: productivity, waste, rework, overtime
  One-time / non-recurring: restructuring, weather, dispute settlements
```

### Step 4: Management Commentary Template
```
[PERIOD] FINANCIAL PERFORMANCE SUMMARY

Net Revenue: $[X]M vs. budget of $[X]M, [favorable/unfavorable] by $[X]M ([X]%)

Revenue was [above/below] budget primarily driven by:
• [Key driver 1]: [Specific explanation with dollar amount]
  Example: "Lower volume ($300K unfavorable) reflecting Q1 project delays at [key customer]
  due to permitting setbacks; orders expected to convert in Q2."
• [Key driver 2]: [Specific explanation with dollar amount]

EBITDA: $[X]M vs. budget of $[X]M, [favorable/unfavorable] by $[X]M ([X]%)

Key cost variances:
• [Cost item 1]: $[X] [favorable/unfavorable] — [explanation]
  Example: "Direct materials favorable $200K driven by commodity deflation in [input];
  management has locked in favorable rates through Q3."
• [Cost item 2]: $[X] [favorable/unfavorable] — [explanation]

Full year outlook:
Given year-to-date performance, management [maintains/revises] full year guidance to $[X]M revenue
and $[X]M EBITDA (vs. budget of $[X]M). Key risks to guidance: [list 2-3].
```

### Step 5: Action Items
```
For each material unfavorable variance, document:
Issue: [describe]
Owner: [person/team responsible]
Action plan: [specific action with measurable target]
Timeline: [by when]
Expected financial impact: $[X] improvement in [period]
Status: [new / in progress / complete]
```

## Output Format
1. Variance summary table (all P&L lines, $ and % variance)
2. Waterfall chart data (EBITDA bridge from budget to actual)
3. PVM decomposition for revenue and top 3 cost lines
4. Root cause analysis for each material variance
5. Board-ready management commentary (ready to paste)
6. Action items log

## Caveats
- Variance analysis is only as useful as the quality of the original budget — a sandbag budget makes everything look favorable
- One-time items should be called out separately from run-rate variances
- Mix effects are often material but frequently overlooked — always compute for multi-product companies