Causal-LLM: A Hybrid Framework for Automated Budgetary Variance Diagnosis and Reasoning

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Authors: Hejing Chen, Yixuan Lu, Yijing Wei, Jinyan Lyu, Ruibo Wu, Chen Chen
Cited by: 1

Abstract

Traditional Enterprise Resource Planning (ERP) systems excel at quantifying budgetary variances but fail to identify their root causes, leaving financial analysts with time-consuming manual investigation. We present Causal-LLM, a hybrid framework that integrates causal discovery algorithms with Large Language Models (LLMs) to automate root cause diagnosis in budgetary variance analysis. Our approach combines constraint-based causal inference to construct financial causal graphs with LLM-powered contextual reasoning to generate human-interpretable explanations. By leveraging a domain-specific Financial Causal Knowledge Graph, Causal-LLM bridges the gap between statistical correlation and genuine causation. Experimental evaluation on 240 labeled variance cases from a real-world enterprise (24 months of data) demonstrates that our framework achieves 0.87 top-1 accuracy in root cause identification (95% CI: [0.82, 0.91]), outperforming traditional statistical methods (0.68), pure LLM approaches (0.76), and standalone causal methods (0.72). The system generates actionable insights with 0.92 explainability scores (inter-rater agreement ICC=0.84), reducing investigation time from an estimated 2--4 hours (mean: 3.2 hours, based on internal workflow estimates from five senior analysts) to under 10 seconds per case. Results are demonstrated on one manufacturing enterprise; generalization to other industries requires domain-specific ontology adaptation.

Fields of Study & Subjects

Explainable Artificial Intelligence (XAI) Financial Distress and Bankruptcy Prediction Business Process Modeling and Analysis

Publication details

Journal / source
Preprints.org
Publisher
MDPI AG
Publication date
27 February 2026
Document type
Preprint