VarianceAnalysis

Amanagerofavariablehospitaldepartmenthasmanyresponsibilities.Themanagerisaccountablefor
budgetingandtoprotectprofits.Thefinancialmanagerisresponsibleforguardingoverspendingand
generatingprofits.Theyareactiveinthebudgetingprocessthroughoutthefiscalyear.Thebudget
departmentmanagercommunicateswithothermanagers,andaccountingdepartmentsconcerningbudget
issues,financing,andconcernsintheorganizationsdepartments.Sometimessituationsoccurwhereas
payrollsalariesarehighandsuppliesarelowerthanplannedandbudgeted.Thebudgetmanageris
responsibleforprovidingfeedbackaboutfinances,revenue,andanypotentialvariancesinthebudgeted
costs.Thisessaywillbebasedonascenarioofsalariesthatwerehigherandsupplieslowerthaninitially
budgeted.Thispaperwillexplorevariancesinthescenariomentionedearlier,andexplaintherelationship
betweenvariancereporting,interpretingvariancereportingresults,andtheresultsofperformancewithina
healthcareorganization.
Thehospitalvariabledepartmenthasexperienceacaseinwhichemployeesalariesarehigherthan
budgeted,whilethesuppliesarelowerthaninitiallybudgeted.Thisistheresultofanepidemicofasthma
patientswhowereadmittedtothehospitaloverthelastthreemonths.Thehospitalapprovedovertimeto
assistinthegrowingnumberofpatientsandtoaccommodatetheirneeds.Intheprocessofcaringfor
patientsmoresupplieswereneededandused.Thevicepresidenthasaskedforavariancereportshowing
thesituationathand.Ihavedecidedtowriteareportandexplainmyinterpretationofthevariancereport
thatexplainswhathappenedandtheoutcome.
Avariancereportisawayforbusinessexecutivestogaugetheircompany'sperformancebycomparingone
setoffigurestoanother.Thisusuallymeanscomparingaplannedamounttoanactualamount.Most
companieshavecomputersystemsthatgeneratereportsthatshowvariancesfromthebudget.Managers
needtobeableunderstandthemtoreportaccurately.Themanagersfirstestablishabudgetbutmore
importantlyheorshemustbeabletodistinguishdifferencesbetweenactualperformancesandthebudget
itself.Avariancereportissometimescalledmonthlyoperatingreportsanddepartmentalreports.Withinthe
variancereportaretheresults,thebudget,budgetvariance,andpercentageofvariance.Thereportalso
showsthemonthandwhathappenedtodate.Insidethereportwillbethefiguresassociatedwiththetitles.
Variablecosts(formedicationandsupplies)aresavedifafacilitydoesnotprovideaservicewhereasfixed
costs(forsalariedlabor,buildings,andequipment)arenotsavedovertheshorttermwhenahealthcare
facilityreducesservice.Thenursingdepartmentneededforpatientcareisconsideredtobeanexpenseonly
iteminthereport(ncbi).Anegativevarianceinthescenariomentionedearlier.Nursesandotherstaff
memberswereaskedtoworklonghourstocovertheamountofpatientcareneededbecauseoftheasthma
epidemic.Aspatientscametothefacilitythenursingstaffscheduledincreased,andmorenursestowork
longerhoursandwasreflectedincurrentandtheupcomingmonthsbudget.Aspatientshealedtheywere
dismissedfromthefacilityleavinganexcessnumberofthenursingstaffscheduledtowork.Theproblem
thatoccurredisthattherewerenotenoughpatientscaredforleavingsupplieslowerthanbudgeted.
Wheninterpretingthevariancereportadetailexplanationofwhythereisanegativeinthereportis
requiredbythevicepresident.TheHutchinson(2011)websitethemanagerwantstobeasaccurateand
detailedaspossibleinhisorherexplanationofthebudget.Somereasonswhyabudgetmaycontain
varianceareincorrectcalculationsinfigures,incorrectreality,ordifferenceinthebudgetassumptionsand
theactualoutcome.Themanagerensuresthevicepresidentheorsheacknowledgestheseverityof
overspendingandunderspending.Theoverspendinginthenursingdepartmentmeansareevaluationin
numberofstaffmembersandhoursneeded.Underspendingisequallyaconcernbecauseitshowsa
problemmayexistinqualitycontrol.Withthefinishedvariancereportthevicepresidentwilllookatthe
reportandanalyzefinancialrisksifthistypeofspendingcontinues.Heorshedetermineswhetherthe
explanationisfeasibleandwhetherafollowuporchangesareneededinbudgeting.

Inconclusionfinancialmanagersareresponsibleforguardingoverspendingandgeneratingprofits.Heor
sheisresponsibleforinformingotherdepartmentsaswellasthevicepresidentofanyfinancialissuesby
givingfeedbackaboutfinances,revenue,andanypotentialvariancesinthebudgetedcosts.Aneffective
managermustbeabletodistinguishbetweenprovidingavariancereportandunderstandingone.Withinthe
variancereportaretheresults,thebudget,budgetvariance,andpercentageofvariance.Variancereportis
neededinordertoknowwhethertoomuchisspentmonthly.Italsoletsthemanagerknowwhetherfuture
actionneedstobetaken.