The short answer
- Size it in dollars, not percent. The largest dollar gap on the report is the one to discuss first.
- Classify it. Timing, a one-off, a new run rate or the wrong fund. Only a new run rate compounds.
- Decide the smallest answer, and write it down. What it is, who owns it, when you look again.
Every month the treasurer's report has a column that says Actual and a column that says Budget, and somewhere down the page a number is bigger than it should be. The board looks at it, someone says "we'll watch it," and the meeting moves on.
"We'll watch it" is not a bad instinct. It is an incomplete one. Watching is what you do between a question and a decision, and in most boards nobody wrote down which question was being watched, who is watching, or what would end the watching.
This is the third step in the argument we began with the modern HOA operating model: in an assembled-by-hand system, the expensive part is not any single task. It is the join, the place where a person has to carry a fact from one spot to another. Yesterday's piece looked at why a year-end surplus is a decision rather than a profit. Today's is about the smaller, more frequent version of the same problem: a number that is off, and the months that pass before anyone decides what it means.
A variance is an observation. An amendment is an act.
Keep two words apart.
- A variance is the gap between what the budget said and what the books show. It is a fact. It does not ask anyone to do anything.
- A budget amendment (or a special assessment, or a spending freeze) is a decision by the board, made under your governing documents. It changes what is authorized.
Most variances never need the second thing. A line runs over in one month and under in the next. But a board that treats every variance as noise will miss the one that is a trend, and a board that treats every variance as an emergency will spend its meetings on small lines. The discipline is not reacting more. It is classifying, every time, and writing the classification down.
What delay costs: a worked example
The numbers below are an illustration, not a real association's.
A community budgets $3,000 a month for landscaping. A new contract rate takes effect in March and the actual bill becomes $3,900. The variance is $900 a month, 30% over on that line.
| When the board acts | Overage absorbed before the fix |
|---|---|
| Caught at the April meeting (March's bill reviewed) | $900 |
| Caught in June | $2,700 |
| Caught at the December close | $8,100 |
The March bill is the same in all three rows. What differs is how many times the same $900 was paid before a human decided what it was. Nothing about the December board is less capable than the April one. The December board simply learned about it through the year-end report.
Two things follow. First, the cost of a variance is roughly size × months unquestioned. You cannot always control the size; you can control the months. Second, the percentage is the least useful thing about it. A 30% overage on a small line and a 3% overage on a large one can cost the same in dollars, which is why the call sheet below asks for both.
You cannot always control the size; you can control the months.
Three questions, in this order
When a line is off, ask:
- Is it timing, a one-off, or a new run rate? An annual fee billed early is timing. A storm cleanup is a one-off. A contract repricing is a new run rate. Only the third compounds.
- Which fund does it belong to? A repair charged to the operating budget that should have been a reserve draw (or the reverse) is not an overspend; it is a classification to fix. This is the seam from yesterday's piece, operating versus reserve.
- What is the smallest decision that answers it? Often: ask the vendor, re-bid, or move the expectation into next year's budget. Raising assessments is the largest lever, not the first. (What a board may do without an owner vote depends on your documents and state law; see how much a board can assess without a vote.)
Where the seam actually is
None of this is hard arithmetic. The hard part is that three things live in three places: the bill (an email or a PDF), the budget (a spreadsheet), and the decision (somebody's memory, or a line of minutes if the meeting ran long enough). The variance exists only when a person puts the first two side by side, and it gets answered only if that person also carries the result into the third.
That is why the seven numbers a board should see every month work better when the comparison is not something one volunteer has to remember to build.
Your next meeting
Do one thing at the next meeting. Take the largest variance on the report, in dollars, and answer the three questions above out loud. Then write one sentence in the minutes: what it is, who owns it, when we look again. The free Variance Call Sheet below is one page for exactly that.
If the number was nothing, you spent two minutes. If it was a new run rate, you have just bought back the months.
What this article does not claim
It cites no industry statistics because none were needed and none that could be verified were used. The table is arithmetic on an invented example. Whether and how your board may amend a budget, or levy more, is set by your governing documents and state law. Ask your association's attorney and CPA.
Not legal, tax or accounting advice.