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Variance is the difference between budgetd and actual result.
If the difference is due to an event that is uncontrollable by the budget holder, it is a planning variance.
If the difference is due to an event that is controllable by the budget holder, it is an operational variance.
For example,
Budgeted sales = $ 1000
10% fall in sales was experienced by the industry due to recession.
Actual sales = $ 700
Overall variance is 1000 - 700 = $ 300 adverse
However, 10% fall in budgeted sales caused by recession was uncontrollable by sales manager.. Planning variance would be $100 (1000 * 10%).
Remainder amount of variance, i.e $ 200 (300 overall - 100 planning) is operational variance caused by decisions taken by sales manager.
In other words,
Planning variance refers to planning gap. And
Operational variance refers to performance gap.
The gap may be favourable or adverse.
More precisely,
Overall variance = Original Budget - Actual Result
Broken down into;
Planning variance = Original Budget - Revised Budget
Operational variance = Revised Budget - Actual Result
Operational Variances = Actual vs Revised Budget or Forecast
Planning Variances = Original Budget vs Revised Budget
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