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Sarah Ward

Define Variance In 8 Steps: What Is the Meaning of Variance?

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When you hear about why it’s important to define variance, your brain might turn to math equations and formulas for finding a calculation. In the case of inventory, you’d be right, but there’s more to it than a calculation. When you buckle down to define variance, you have to ask yourself the broader question of, “What is the meaning of variance?” 

The meaning of variance covers a range of inventory concerns in a restaurant or bar. In restaurant inventory tracking and bar inventory, the meaning of variance is the difference between how much is sold versus how much is used. When you take inventory you’re guaranteed to find discrepancies between those two definitions. When you define variance, you find the importance behind those discrepancies.

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What Is the Meaning of Variance?

The meaning of variance is the difference between how much product is sold and how much product is used or lost. As a visual example, think of a carton of eggs. 

If you start the month with a carton of 12 eggs and end it with none, you might think that you sold 12 eggs. When you calculate variance, however, you may find a variance of three. This variance count means that you only sold nine eggs. Those three in variance could have been broken, or someone could have been slipped an extra egg. Ultimately, any number of things could have happened to those three eggs. 

Of course, you won’t necessarily be looking at variance in terms of singular eggs. Additionally, a variance count in small items such as individual eggs isn’t much to worry about. Variance only becomes a concern when it reaches levels outside of the expected norm. 

Finding the expected norm and understanding the reasons behind variance will help you feel more confident when variance unavoidably happens. We’ll take a look at eight reasons behind variance. With these facets of variance, you can find the meaning of variance next time it shows up in your inventory cycle count

8. Poor Product Quality

Poor product quality is one of the reasons behind variance that is often completely out of your control. With manufacturing costs and supply shortages, sometimes the products you purchase for resale aren’t at the quality level you would expect. This can lead to product damage in the pipeline inventory stage, and while being used in your business. 

7. Receiving Errors

There are lots of ways variance can show up in your inventory before products even make it into the hands of your wait staff. Receiving errors in your warehousing system and inventory intake can result in small variances across the board. Working with the right warehouse management software and a quality warehouse inventory management software program can help narrow the gap. 

Even with that supportive software, human error can cause problems. Implement multiple quality checks for inbound products so your variance is as low as possible.

6. Unrecorded Sales

The term unrecorded sales sounds a bit intense. Unrecorded sales could seem like theft or malicious behavior. That typically isn’t the case.

Unrecorded sales are most often in the form of a birthday treat that wasn’t marked down, or a happy hour sample that wasn’t recorded. Generally, unrecorded sales are on items and occasions that are within the rules of the business, they just get missed in accounting. 

5. Accounting Errors

Restaurant accounting errors can encompass unrecorded sales, receiving errors, modified food cost, and any number of clerical errors. You could hire the best accountants and run the tightest operation possible, and there would still be accounting errors. It’s hard to avoid, but accounting errors generally aren’t the culprit behind the biggest variances.

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4. Portion Size

Portion size is a factor that can affect variance counts from the kitchen. For the most part, your chefs and kitchen staff will keep a close eye on portion sizes. As they make the same dishes, portions will become uniform through habit. However, there is always room for error here, and it can lead to small variances in ingredient inventory counts. 

3. Modified Food Cost

Modified food cost can be affected by your restaurant business, and by outside forces around cost and demand. Since it can be outside of your control, learning how to price a menu can help you control what you can. Pricing can also help you get ahead of food cost concerns when outside forces cause trouble. 

2. Theft

Theft can be an internal or external issue. As far as external theft goes, dine and dash is something you can work against through customer service and a unique restaurant bar setup. A unique setup to deter theft should include a maze of tables, so someone can’t run in a straight line. You should also have a host near the front door to make running out the door daunting. Internal theft comes from your employees, often in the form of stealing alcohol. It's something you need to keep a close eye out for. Most employees anywhere are quality people, but keeping a close eye is always a good idea.

1. Waste

Waste is one of the biggest reasons behind variance in your counts. Waste can come from food that is past its expiration date, food that gets dropped, burned dishes, incorrect orders, and so many other things. Waste is often used synonymously with shrinkage, which is another term for what happens when your inventory expectation is higher than your count. 

It’s impossible to avoid waste entirely. However, keeping an eye out for it and working to use everything to the best of your ability will help.

Frequently Asked Questions About Define Variance

When you start the process to define variance and find what it means for your business, you’ll come across a lot of questions. Defining variance itself can seem daunting. When you dive into it, you can remove the uncertainty by learning as much as possible about what variance means for you. Our answers to these frequently asked questions will help you get there.

What Is Variance In Simple Terms?

In simple terms, variance is a measurement of your expected data or inventory compared to your actual data or inventory. It is the process of finding variations in your expected calculations and your factual calculations in inventory tracking. It’s a simple math equation that helps you find the difference between your inventory count and inventory expectations. 

How Do I Calculate Variance?

The calculation for variance is the sum of the squared differences between each data point and the mean. From there, it's divided by the number of data values. In other words, the variance calculation is the total difference between what you expected from your inventory versus what your actual count was. From there, it's divided by the total amount of inventory counts you were tracking. 

What Is a Bad Variance?

A bad variance is a difference in count that goes beyond what you can expect from typical stock loss and breakage. A certain level of variance can be expected with any inventory item. In fact, it’s something you can rely on fairly steadily when you’re calculating your inventory. It only becomes a bad thing when it’s higher than would be expected, and it starts to take a toll on your profits.

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Define Variance: Variations In the Meaning of Variance

Variance in a restaurant, bar, or other customer service business isn’t as scary as it sounds. When you first start to learn about variance, the potential loss in profits may scare you off from learning more. Leaning into the meaning of variance, however, is the best way to prevent it from becoming a drain on your business. 

Variance is one of many things you should learn about when it comes to getting a handle on your business. From learning how to get a liquor license to finding the best bar books to support your bartenders, there’s a lot to dive into. The BinWise blog is here to help you as you learn more about operating your business.

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