Unlock game-changing insights in your variance reporting with FP&A software

As SaaS businesses continue to realize the full value of their data, new technologies have emerged that are changing the financial planning and analysis (FP&A) function into a more strategic role, one that has finance leaders looking for new ways to simplify variance reporting (among their many other tasks) and leverage their data to make better decisions.

Is your tech stack a limiting factor in your success?

Variance reporting identifies the difference between actual performance and forecasted in terms of a company’s financials or key KPIs. 

Variance is measured both in terms of the actual amount (absolute variance) and the percentage difference (the variance percentage). While they are typically considered just one of a number of routine financial reports that finance teams create, variance reporting is most powerful when used as a management tool.

Variance reports can enable SaaS businesses to make better decisions that foster growth. This is possible because different types of variance can reveal actionable insights. For example, drilling down to figure out the factors driving unfavorable variances can help identify areas of your business that need improvement, while taking a look at what contributed to favorable variances can reveal new opportunities to leverage. 

For many businesses, digging into all the different data sources needed to generate actionable insights from variance reports can be very time consuming depending on the technologies they're using. This is especially true if they’re still relying on spreadsheets for their financial planning and analysis. 

In this article, we’ll look at the most common tools that SaaS businesses and finance teams are using for variance reporting. We'll also explore how different technologies can help you take your variance reporting to the next level, allowing you to leverage powerful insights for better predictability and growth.

What tools and technology do SaaS businesses use to create variance reports

Currently, there are many types of financial management software and tools that simplify various aspects of variance analysis. Many of them make data aggregation from various source systems easier, significantly reducing the work typically associated with variance reporting. 

Some financial reporting tools also offer powerful automation features that can be used to generate variance analysis reports faster and reduce the risk of errors associated with manual report generation.

Integrating software solutions allow FP&A teams to focus more on their analysis instead of compiling and validating their data. With modern FP&A tools, business leaders can generate actual results in real time and compare them to projections more quickly. When they find a large discrepancy that needs attention, they can proactively start working to mitigate it by controlling future costs.

While technology can be a game-changer, not all technologies are created equal. Here, we’ll take a look at the most common types of software SaaS companies are using to support their FP&A activities and how well they serve the purposes of variance reporting specifically. 

Spreadsheets

Conducting a variance analysis in spreadsheets is deceptively simple. Although it may be tempting to chuck your data into a template, you’ll probably find that it takes a lot more time than you expect to compare your company's actual performance against the budget or forecast.

First of all, you have to query and download the data you need from different business systems, making sure the actual numbers in your income statement and for your cash flow are current.

Aggregating the data is a manual process, which can lead to inadvertent deletions, mistyped equations, and inaccurate cell references. So, you’ll spend yet more time making sure the data is not only current but correct and that every change in one spreadsheet or data set has been carried through all the others needed for your analysis.  

Once you get your data to a place where you can trust it, actually doing the variance analysis to find where variances are occurring is simply a matter of comparing your actuals with your projected or forecast values, and calculating the increase or decrease in each line item and the percentage variance.  

The tough part is all the work required to understand the internal and external factors driving expense variances, which is where the actual insights are hiding. To find the actionable insights, you need to do a root-cause analysis to understand what’s driving the variance. This type of analysis requires drilling down into your data.

This is hard to do in a spreadsheet because the data you need to get a full picture of what’s going on is often spread across multiple systems and spreadsheets.

Besides the enormous amount of time it takes to prepare your data for analysis, once you prepare your variance analysis report, there’s no simple way to include the insights gained in your forecasts because the level of detail may differ between departments contributing to the data needed. 

Another potentially costly problem is that given the time it took to generate those insights, they may well be already outdated. Any decisions made on such results may not achieve the intended effects.

Automation and integration tools

There are a number of automation and integration tools designed for various types of financial analysis and reporting activities like variance reporting.

Such systems connect to and automate data downloads from your accounting and other business systems, eliminating all the work and error associated with manual data aggregation. With these systems, variance is calculated automatically. So they can deliver results faster, allowing for real-time or near-real-time examination. 

Most of these tools are limited to variance analysis and notification of variance. While some may also automate the development of the actual variance report they cannot explain the underlying reasons for the variance. This requires a root-cause analysis, which automation and integration tools are not equipped to provide.

Further, automation and integration tools do not offer the ability to analyze variance in SaaS metrics, which is another important way to use variance reporting to improve your business.

Given these limitations, such tools are an incomplete solution for fully leveraging the power of variance reporting in your business. 

Data visualization tools

Data visualization tools allow you to create visual representations that improve data comprehension that make understanding variance easier for stakeholders. However, they fall short when trying to determine the underlying causes that would help you minimize the negative impact of variances on your business. 

Business intelligence 

Unlike the other solutions discussed here, BI tools are quite well-suited to variance analysis reporting. 

Their primary limitation is that they often require the help of IT teams. To work with BI tools, finance teams usually need support for integrating with the source systems that contain the data they need and then actually getting the data in the form they need it. 

Depending on the complexity in your business and the number of source systems you’re working with, having to go through an IT team to get the data you need can add significant time to your variance reporting process. However, when you receive the data, it will have far fewer data quality issues as compared to spreadsheets. 

Most BI platforms include visualization tools, allowing your IT to build interactive dashboards that aggregate data from all your source systems and track deviations in real time. 

Unlike integration and automation tools, BI platforms offer a more complete solution because they are not only able to identify the variances in your business, they can also help you determine the underlying issues driving them. Thus, they can uncover actionable insights you can use in your business. 

However, BI technologies cannot "speak the language" of business finance. They do not have the ability to comprehend the model or the reasoning required for planning and forecasting. This means that while they can uncover key insights, they cannot help you figure out how to best leverage them to improve your business. 

This is just one of the ways that a purpose-built FP&A platform like Drivetrain can take your budget variance reporting to the next level, not only unlocking the insights, but also giving you the modeling and forecasting capabilities you need to put those insights to work in your business.

How a modern FP&A platform can transform your variance reporting process

Cobbling together a tech stack from several different tools to provide all the capabilities needed for modern FP&A is difficult and expensive. 

‍With the availability of technologies purpose-built for strategic finance, this begs the question: Why would a SaaS company continue to struggle with a tech stack built from multiple incomplete solutions that don’t allow them to fully leverage their data? 

‍A modern FP&A platform eliminates that issue, helping finance teams create variance reports in a fraction of the time and easily access their data to understand and leverage the insights their variances reveal. Let’s look at some of the features that make this possible. 

1. Seamless data integration

When interpreting variance report results, you must look at data from diverse sources and integrate it to ensure consistency and compatibility. 

‍Strategic FP&A software, such as Drivetrain can integrate with virtually any business data system, making it easier to calculate financial KPIs and SaaS metrics. 

This makes it possible to further compare actual vs. predicted performance in core SaaS metrics, such as LTV:CAC ratio, net revenue retention (NRR), and the Rule of 40 to reveal insights into changes in your operational efficiency.   

2. Root-cause analysis to identify the drivers of variance in your business

Understanding the drivers behind variance is a key component of variance reporting. Your board and investors will expect you to explain the variances you find, especially any variances that can have a significant impact on your business. 

More importantly, you need to understand the underlying drivers of variance in order to fully leverage them to improve your business.

For example, if you understand what’s behind a positive variance, you can double-down on the activities that are driving it. Similarly, knowing the reasons for an unfavorable variance can indicate areas in your business that need improvement. 

3. Scenario planning to leverage the insights in your variance reports

Even when you understand the drivers of variance in your business, knowing what to do in response is not always a simple matter. There may be multiple factors driving a single variance,  some of which may have offsetting effects.   

Any robust FP&A tool will enable you to seamlessly connect the myriad interrelated and complex metrics that financial planning and accounting processes require. Further, if you choose a software with scenario planning capabilities, you can test different ideas about how to address a given variance with scenario analysis.  

4. Ability to do ad-hoc variance analysis

Finance teams often need to run an ad-hoc variance analysis to address a specific question or provide information for key business decisions. For example, how to respond to changing market conditions. If they’re using spreadsheets it may take too long to get results, and rushing the analysis can lead to inaccuracies.

In contrast, a financial planning software will continuously aggregate data in real time, making it easier for you to access the data you need at any point in time.

5. Ability to develop highly accurate, strategic budgets

Generally speaking, the more precise your budget, the less variance you’re going to find in your variance analysis reporting.

‍SaaS finance leaders work hard to create accurate budgets each year, but for many, predictability in their business remains an elusive goal. Simply put, it’s hard to get it right in such a dynamic market as SaaS. 

Strategic budgeting can help because it not only aligns with your company’s strategic goals but also gives you a great deal of flexibility to respond more quickly than a traditional, incremental budget does.

The best FP&A tools are also strategic budgeting tools, purpose built for SaaS and B2B businesses will support all strategic budgeting methods, including zero based budgeting, activity based budgeting, driver based budgeting, and value proposition budgeting. 

FP&A technology is the shortest path to faster growth in SaaS

Technology is a key differentiator in almost every industry today, especially in SaaS. Flexibility and speed are critical. With a feature-rich FP&A platform like Drivetrain, tailor-made for SaaS, you can unlock game-changing insights in variance reporting and other core finance functions in a fraction it would take with other types of technology. 

Every SaaS company today is competing in a mercurial market where those that can pivot— responding quickly to problems and opportunities based on data-driven insights—will grow faster than those that can’t. If you want to accelerate your company’s growth, it’s time to start exploring what FP&A technology has to offer. 

Contact us for a demo to start driving your business forward faster.