What is the difference between actual costs and planned costs?

When setting out a cost budget you are using an estimated figure of what X will cost in the next Y months. This figure is not plucked out of the sky but calculated on prices at the time of budget creation plus addition % to cover the chances of inflation. When you reach the point of that expenditure it may be found that the cost will be

(1) As calculated

(2) Higher than calculated

(3) Lower than calculated

1,2, and 3 are the ACTUAL costs and can be compared against the Planned Cost data. Where the actual meets options 1 and 3 then the cost will normally be accepted. where the actual is option 2 then a review is undertaken to establish the need to allow the cost, reevaluated the need for the cost or to reject the expenditure outlay.

the actuals are recorded against the planned so that a historic pattern for the next planning term is used. It will also serve to inform the business plan of issues in future cost controls