You are the manager of a hospital department that cares for patients, and you just received your monthly budget results that state your salaries were higher and your supply use was lower than budgeted.
You are the manager of a hospital department that cares for patients
Y ou are the manager of a hospital department that cares for patients, and you just received your monthly budget results that state your salaries were higher and your supply use was lower than budgeted.
Write a paper (1,000-1,200 words) that explains the following points:
1. Include what factors you should consider when writing your variance report to your vice president. Note: Your vice president expects her managers to write detailed variance reports that include all possibilities.
2. Include the relationships between interpreting operational variance report budget goals and actual results of performance.
3. Describe the variance issues to be addressed in accordance with Health Care Organizations (HCO) that require justification if they are over or under the threshold for action.
Include two scholarly references in addition to your textbook.
Prepare this assignment according to the guidelines found in the GCU Style Guide, located in the Student Success Center.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
Factors to Consider
When deciding which variances to investigate, the following factors should be considered
- Reliability and accuracy of the figures.Mistakes in calculating budget figures, or in recording actual costs and revenues, could lead to a variance being reported where no problem actually exists (the process is actually ‘in control’).
- Materiality.The size of the variance may indicate the scale of the problem and the potential benefits arising from its correction.
- Possible interdependencies of variances.Sometimes a variance in one area is related to a variance in another.
For example, a favourable raw material price variance resulting from the purchase of a lower grade of material, may cause an adverse labour efficiency variance because the lower grade material is harder to work with.
These two variances would need to be consider jointly before making an investigation decision.
- The inherent variability of the cost or revenue.Some costs, by nature, are quite volatile (oil prices, for example) and variances would therefore not be surprising.
Other costs, such as labour rates, are far more stable and even a small variance may indicate a problem.
- Adverse or favourable?Adverse variances tend to attract most attention as they indicate problems.
However, there is an argument for the investigation of favourable variances so that a business can learn from its successes.
- Trends in variances.One adverse variance may be cause d by a random event.
A series of adverse variances usually indicates that a process is out of control.
- Controllability/probability of correction.If a cost or revenue is outside the manager’s control (such as the world market price of a raw material) then there is little point in investigating its cause.
- Costs and benefits of correction.If the cost of correcting the problem is likely to be higher than the benefit, then there is little point in investigating further.