Budget Management and Variance Analysis

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Budget Management and Variance
Olga Garcia
NCS/571 - Financial Resource Management
October 1, 2012
Theresa Pichelmeyer

Budget Management and Variance
A budget is a tool that helps managers to ensure that the required resources are obtained and used effectively and efficiently as the organization moves towards achievement of its objectives. The budgets are determined yearly and are based upon the previous year’s budget and variances. This paper will discuss a development of operating budget, comparison expense results with budget expectations, description of possible reasons for variances and strategies to keep results aligned with expectations, recommendation some benchmarking techniques that might improve budget accuracy. The operating budget is a plan for the organization’s revenues and expenses that generally covers a period of one year (Finkler, Kovner, & Jones, 2007). In healthcare organization the nurse manager of each cost center involves in the preparation and control of the operating budgets (Finkler, Kovner, & Jones, 2007). The finance office of the organization provides support throughout the budget process development. The budgets for the costs centers are combined, and the executive management of the organization makes final decisions on a budget to be submitted to the board for approval. The nurse managers need a variety of information to begin the process of preparing operating budgets for their cost centers, such as the information generated by the organization’s environmental review and by its development of general goals, objectives, policies, organization wide assumptions, program priorities, and specific measurable objectives (Finkler, Kovner, & Jones, 2007). For example, the environmental review and the general goals, objectives, and policies allow the manager to understand what the organization wants to accomplish and what it believes it will be able to accomplish. For another instance, the organization-wide assumptions and specific measurable objectives then provide the manager with information needed to start preparing the specific details of the budget. In addition, within nursing administration, additional back-ground information is needed before nurse managers can commence cost center budget preparation (Finkler, Kovner, & Jones, 2007). Especially the organization’s approach to delivering nursing care must be clearly understood by all nurse managers. For example, responsibilities of LPNs as opposed to RNs, role of nursing assistants, or proportion of staff works on each shift. According to Finkler, Kovner, & Jones (2007), the primary steps of the operating budget development include the calculation of expense budget for personnel, the expense budget for costs other than personnel services, and the revenue budget, budget submission, and budget implementation. To prepare the revenue or expense portions of the operating budget, the first step is to ascertain the volume of work for the coming year (Finkler, Kovner, & Jones, 2007). The amount of work performed by a unit is referred to as its workload (Finkler, Kovner, & Jones, 2007). Workload budget is budget that indicates the amount of work performed by a unit or department, measured in terms of units of service. Workload may be measured in a variety of ways, such as the number of patients, patient days, deliveries, visits, treatments, or procedures. Each cost center must determine the measure that is most appropriate for its unit of service. Once a cost center defines its key unit or units of service, it must predict the number of units of service that will be provided in the coming year. This will allow development of the operating budget. Expense budget for personnel is budget for all personnel under the manager’s direction, generally within a cost center such as RNs, LPNs, aides, and clerical staff (Finkler, Kovner, & Jones, 2007). Expense budget for other-than-personnel services is budget for all...
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