Budget Management Analysis
Juan Vazquez-Nieves
HCS 571
August 27, 2011
Tamica Lewis
Abstract
A budget is an instrument used to help managers ensure that the resources used effectively and proficiently toward the goals of an organization. A budget projection can be made on a yearly base depending on previous year or existing one. They can further be broken down quarterly or monthly depending on it use. Generating a budget is complex undertaking, and for a budget to be effective the organization ought to follow it strictly. However, no matter how closely a business follows their guidelines there will always be some form of variances. The organization should expect a few variances and be able to work these discrepancies in any budget
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One reason is that most organizations pay their manager’s a set salary and not by the hour. In this case the variance would be zero, also known as a fix cost. However when looking at the employee’s salary the budget for one nurse is $5,760 dollar, and the actual was $5,184 dollars with a variance of $576 dollars. In this case the organization pays their nurse by a modified full time. This means that instead of work a full 40 hour week nurses work 36 hours a week. In a two week period this would add up to eight hours not paid however, the nurse can make up those lost hours if the nurse decides to assist in educational courses, staff meetings, or committee meetings.
Finally, looking at medical supplies expenses for the unit it demonstrates that the unit surpassed their budget. This is a demonstration of a negative variance for the unit, in other words the unit overspent in medical supplies for that month by $225 dollars. This is also a negative cost for the organization. The manager can further scrutinize what items were of enormous cost by checking inventory or look at what items were of great demand for that particular month, which in turn can justify the extra cost.
In general the organization has made savings in their variances cost of $451 dollars but could have saved more if not for the negative cost in medical supplies of $225 dollars.
Benchmarking Strategies:
According to Finkler, Kovner &
Compares five to seven expense results with budget expectations and describes possible reason for variances and strategies to keep results aligned with expectations
When considering requests such as a new piece of equipment, staff training, and supplies for the unit, a manager must consider the overall budget, constraints, and variances. If equipment has a useful life of more than one year and exceeds the minimum cost level of the facility, the manager may request the cost originates from the capital budget of the facility (Yoder-Wise, 2012). Large equipment such as a patient lift, which costs $3000 per lift, would be beneficial to the staff and
Since a company’s’ budget is typically based on knowledge from their financial history therefore, if a budget variance occurs, it can be because inaccurate estimates were done, or one or more factors have changed unexpectedly, and the company need to make some type of adjustments to their budget. Once a company discovered a significant budget variance, they will need to identify the cause, and address it accordingly. For example,
Flexible budget variance is used to do the variance analysis, it measures how well the business keeps units cost material and labor inputs within standards. The comparison noted in Exhibit F uses budget data on the original activity level. Variance analysis, direct material and direct labor, indicates that they are over budget and are unfavorable significantly. As per the data for direct material it is 13% over budget ($28055 / $212195), and for direct labor it is 10% over budget ($48000/$480000).
Total Patient Revenues at $31,231K were over budget by $1,009K or 3.3%. Inpatient Revenues at $6,448K were $116K over budget or 1.8%. Inpatient Admissions were under budget by (7.2%), Patient Days were under budget with a unfavorable variance of (13.6%), Deliveries were (15.6%) under budget and Routine Services revenue was under budget by (16.5%). Inpatient Ancillary Service revenue
Variance Analysis is used to promote management action in the earliest stages. It is the process of examining in detail each variance between actual and budgeted costs to conclude the reasons as to why the budgeted amount was not met (Ventureline, 2012). There are several factors that go into a variance report. One is the assumption of the department. The second is the risk of the assumption. And thirdly the actual expense used to portray the budget. The vice president announces the budget that needs to be met monthly. Upon receiving the monthly budget results, the materials budget was not used properly, and the salary was higher than the planned budget. I will be explaining the
The actual charge was $70.00 with the projected 1600 at $80.00 totaling $128,000.00. The actual revenue was 1,400 at $70.00 with a total of $98,000.00. Flu treatment had a negative price variance of 12.5% per patient which comes out to $30,000.00, an unfavorable result. Patients traffic is an uncontrollable variable, but pricing is fixed.
The nurse manager would keep the budget to 25,000 dollars a month for personnel. If the nurse manager has to hire a new staff now it would be more costly and may go over the budget. New hire also has to be trained for a period of time before working on the floor and assigned patients and there is only three months left of the budgeted year. Therefore the nurse manager can move the 6,000 dollars in the overtime budget. The amount was 6,000 dollars was considered because 50,000 dollars for the year was already used. If one divides 50,000 dollars by three quarters and again in three months help see that the unit used, 5,555 dollars each month in over time. As a result, the nurse manager can provide overtime hours for staff already employed, to help support the increase in acuity on the unit. 11,533 dollars is now free to be move into other areas of the financial plan to help prevent going over budget.
According to Shim, Siegel, Shim 2012, budgets are an efficient method of allocating financial resources to achieve strategic goals. For companies to compete in the global market it is essential to monitor and control spending in order to see progress toward reaching their goals. Budgets help to control spending, estimate cash flow and profits, while striving to meet goals.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
A budget is a projection/estimation of the financial requirements and burdens that an individual/business drafts to understand their spending and financial boundaries. A budget generally outlines the situation a person will be in financially and can be created using estimates of future incomes and expenses.
Budget formulation and use are tools that guide many decision making strategies in business. The measures that are least effective could create an avalanche of catastrophic events that can negatively impact the decision making strategies. It is in the best interest of the pertinent parties to draft an operating budget based on a collective set of information relating to organizational vision and mission. Ineffective measures can be catastrophic based on the foundation for measures used in creating the budget. Among the many issues organizations face that relates to creating an effective operating budget results from poor
The personnel budget, being the largest part of the operating budget, consists of multiple factors such as the average daily census, patient acuity, personnel required relating to full-time equivalents (FTEs), as well as productive and non-productive hours. The supplies include medical and office supplies, minor equipment, orientation and training, and travel expenses. Although budgets are based on assumptions, using the previous year’s expenses for personnel and supplies, helps the nurse manager/leader to accurately predict the next year’s budget.
Budget is a comprehensive business plan for procuring and appropriating a firm’s financial resources over a specified time period.
Budget and budgetary control practices are undeniably indispensable as organizations routinely go about their business activities and operations. These organizations are constantly on the alert on how actual levels of performance agree with planned or budgeted performance. A budget expresses a plan in monetary terms. It is prepared and approved prior to a particular budgeted period and explicitly may show the income, expenditure and the capital to be employed by organizations in achieving their goals and objectives.