How to calculate forecast variance
Forecast variance is the raw signal behind forecast accuracy. Where accuracy is a summary percentage, variance shows the direction and size of the miss, which is what you actually correct.
The direction matters most. Consistently positive variance (you beat the forecast) means sandbagging or conservatism; consistently negative variance means optimism or slippage. Either is fixable once you see the pattern.
- Actual - forecast The formula
- Dollars or percent Two expressions
- Direction matters Bias is fixable
Short answer
Forecast variance is the difference between actual results and the forecast. Subtract the forecast from the actual, in dollars, or divide that difference by the forecast for a percentage. If you forecast 1,000,000 dollars and booked 900,000, the variance is negative 100,000 dollars, or negative 10 percent. Consistent variance in one direction reveals systematic bias.
Step by step
Lock the forecast
Record the forecast at a fixed point, such as the start of the period, so variance measures a real prediction, not a moving target.
Capture the actual
At period close, record actual bookings or revenue on the same basis as the forecast.
Compute the variance
Variance equals actual minus forecast in dollars. For a percentage, divide that difference by the forecast and multiply by 100.
Track direction over time
Plot variance across periods. A consistent sign, always over or always under, reveals systematic bias you can correct in the next forecast.
Worked example
You forecast 2,000,000 dollars at the start of the quarter and booked 1,850,000 dollars. Variance = 1,850,000 minus 2,000,000 = negative 150,000 dollars, or negative 7.5 percent.
If the last four quarters all showed negative variance between 5 and 10 percent, you have a consistent optimism bias. You can correct the roll-up by discounting the forecast, or fix the root cause in close-date and commit discipline.
How Ardovo handles it
Ardovo locks the forecast at a fixed point and computes variance at close by rep and team. Rook surfaces consistent directional bias, such as a rep who always forecasts high, so leadership corrects the roll-up rather than being surprised each quarter.
Frequently asked questions
What is the forecast variance formula?
Actual minus forecast, in dollars, or that difference divided by the forecast for a percentage. A negative variance means you fell short of the forecast; a positive one means you beat it. Lock the forecast at a fixed point.
What does consistent forecast variance tell me?
A consistent direction reveals systematic bias: always beating the forecast suggests sandbagging or conservatism, always missing suggests optimism or slippage. Either is fixable once the pattern is visible, unlike random variance.
How is forecast variance different from forecast accuracy?
Variance is the raw difference between actual and forecast, showing direction and size. Accuracy is a summary percentage of how close they were. Variance is what you diagnose and correct; accuracy is the scorecard.