What terminology is recommended for budgetary variances to avoid misunderstanding?

The terminology of "over" and "under" for budgetary variances is recommended as it provides a straightforward and clear understanding of how actual results compare to the budgeted amounts. This way of expressing variances avoids ambiguity, as "over" indicates that actual expenses or revenues exceed what was budgeted, while "under" suggests that they fall short of the budgeted amounts.

Using "over" and "under" is particularly effective in financial communications because it focuses purely on the quantitative aspects of variances, thereby eliminating the potential emotional connotations that terms like "favorable" and "unfavorable" might carry. This neutrality can enhance clarity for stakeholders, as they may interpret "favorable" as a positive outcome, even when financial realities might not align with that perception.

In addition, expressions like "profitable" and "unprofitable" imply a broader context of profit which may not always be relevant in the case of budget performance analysis. "Excess" and "deficit" can similarly introduce confusion as they may relate less directly to budgetary variances and more to overall financial health rather than specifically addressing the performance against a planned budget.

By choosing "over" and "under," organizations can communicate financial results more effectively,