Week 5 DQ
The higher volume of surgical (2,600 versus 2,300) was possibly a real source of pressuring the higher revenues of surgery as the actual numbers were way above the budgeted ones. This positive variance appears to be caused primarily by the fact that more surgeries were carried out, as opposed to what was initially scheduled. In a similar manner, the increase in parking revenues seems associated with the fact that there is an increase in activity but there seems to be a subsequent increase in the number of visitors or utilization of the parking service that directly relates to the high level of surgical and patient volumes. This increase in parking revenue is an indication of high demand and this indicates a positive variance.
There were some costs that had unfavorable variances. Pharmacy costs, e.g., increased by almost 4 times the budgeted amount of 119,000 to the actual 158,000, and miscellaneous supplies expenses increased significantly by an amount of 68,000 to 795,600. These variances appear to be less of volume, and more of cost overruns, price increases or unexpected expenditures. The drastic increase in the costs of miscellaneous supplies might be due to inflation or other unforeseen factors and not the growth in the number of patients. Lastly, the fixed overhead expenses increased by 832,000 to 890,000 which was probably as a result of increased operation expenses or inflation, and not the increase in surgical volume.
The variance in each category will be determined and evaluated to find out whether it is desirable or not.
Variance in Surgical Volume
The variance of Surgical Volume can be computed by comparing the actual volume and the budgeted volume.
Formula
Variance=Actual Volume−Budgeted Volume
For Surgical Volume:
Variance=2,600−2,300=300
The actual volume is more than the budgeted volume, so this is a favorable variance (F).
Variance for Patient Days
On the same note, Patient Days variance can be determined by comparing the actual days and the budgeted days.
Formula
Variance=Actual Patient Days−Budgeted Patient Days
For Patient Days
Variance=25,000−26,000=−1,000
The actual days of the patient are less than the budgeted days; hence, it is a negative variance (U).
Effectively Managing Budget Variance
In order to successfully manage the budget variances, it is essential to keep track of both the revenues and expenditures and determine what triggers the variances. Compared to the analysis of budget and actual performance, it is regularly done to see the cause of variances and this can be due to volume or rates. The identification of the negative trends at the initial stage allows making appropriate corrections at the right time to ensure that financial performance is not derailed. Proper forecasting is one of the methods that can be used to control variances (Broby, 2022). With the help of historical data and predictive analytics, organizations will be able to forecast changes in revenue and costs more accurately and minimize the chances of significant variation of budgetary revenue and expenses.
Best Practice Strategies
Establishing realistic budget objectives upon thorough analysis of trends of the operation can also be effective in averting excessively optimistic budgets that result in high variances. Tight measures in cost control play a critical role in controlling costs. Savings opportunities can be identified through regular evaluations of the procurement practice, supplier contracts, and operational processes (Yang et al., 2022). Indicatively, in the healthcare field, bulk purchases, negotiating reduced costs, and supply chain optimization can be used in managing costs of supplies, pharmacy, and overheads.
Budget management is even more essential in the example of Remote Patient Monitoring (RPM) in the context of healthcare. One such service is the remotely based monitoring of patient health data termed as RPM, which may result in significant cost savings due to hospital readmissions and emergency visits. In order to make it cost-effective, it is crucial to make the patient enrollment and usage rates monitored, so that the system usage was not to surpass the costs that were budgeted. Also, the combination of RPM and current healthcare processes will allow managing the costs by minimizing the necessity to visit in person and streamline the resource distribution.
References
Broby, D. (2022). The use of predictive analytics in finance. The Journal of Finance and Data Science, 8, 145–161. https://doi.org/10.1016/j.jfds.2022.05.003
Yang, L., Millstein, M. A., & Campbell, J. F. (2022). Unlocking cost savings hidden in hospital tier contracts. Omega, 113. https://doi.org/10.1016/j.omega.2022.102713