Importance of Variance

The word variance is actually derived from the word variety that in terms of statistics means the difference among various scores and readings. Variance can be termed as the basic or the raw material of the statistical analysis. Variance ensures accuracy as more variance is considered good as compared to the low variance or absolutely absence of any variance. Variance in statistics is important as in a measurement it allows us to measure the dispersion of the set of the variables around their mean. These set of the variables are the variables that are being measured or analyzed. The presence of the variance allows a statistician to draw some meaningful conclusion from the data.

In statistics variance can be calculated by taking the sum of the squared differences that are dispersed around the arithmetic mean that is divided by the total sample size subtracting one from that sample size. With the help of the mean we can find out the location of the statistical distribution and with the help of variance we can find out the dispersion of that distribution.

In terms of accounting variance is also very important as it is used to measure the deviation from the actual financial performance and goals of a company or a business entity. There are different types of variances that are measured within a business entity such as labor rate variance, sales volume variance, sales mix variance and labor efficiency variance.