Define: Variance

UK Accounting Glossary

Definition: Variance


Quick Summary of Variance


The difference between a planned, budgeted or standard cost and the actual cost incurred. An adverse variance arises when the actual cost is greater than the standard cost. A favourable variance arises when the actual cost is less than the standard cost.



What is the dictionary definition of Variance?

Dictionary Definition


  1. The act of varying or the state of being variable
  2. A difference between what is expected and what happens
  3. The state of differing or being in conflict

In standard costing and budgetary control, the variance is the difference between the standard or budgeted levels of cost (or income) of an activity and the actual costs incurred (or income achieved). If actual performance is better than standard then a favourable variable occurs, whilst conversely, if actual performance is worse, then there is adverse variance.

Adverse variances are usually subject to detailed analysis in order to pinpoint its exact cause(s).

  1. The quality of being subject to variation.
  2. A difference between conflicting facts or claims or opinions.
    A growing divergence of opinion.
  3. Discord that splits a group.
  4. An event that departs from expectations.
  5. The second moment around the mean; the expected value of the square of the deviations of a random variable from its mean value.
  6. An official dispensation to act contrary to a rule or regulation (typically a building regulation).
    A zoning variance.
  7. An activity that varies from a norm or standard.
    Any variation in his routine was immediately reported.

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Full Definition of Variance


Variance is a measure of volatility. Variance is calculated as the average squared deviation from the mean. The Capital Asset Pricing Model uses variance as a measure of investment risk. Investments with higher volatility (variance) have a greater risk. CAPM postulates that the risk (variance) of an investment portfolio consists of both market risk and specific risks associated with each asset. While market risk is unavoidable, portfolio variance can be minimized and the risk associated with specific assets reduced if the investor owns a diversified mix of assets. Most financial advisors seek to minimize portfolio variance for their clients by recommending that they invest in a diversified portfolio which includes both large and small market capitalization domestic stocks, as well as bonds, international equities and real estate.


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Synonyms For Variance


difference, discrepancy, variation, divergence, disparity


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Definition Sources


Definitions for Variance are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 23rd December 2018.