Nursing Unit Budget Variance

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See Chapter 5 of Penner, Susan J. (2013). Economics and Financial Management for Nurses and Nurse Leaders, 2nd ed. New York: Springer Publishing Company. http://www.springerpub.com/product/9780826110497#.UOtV2axCrTo

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  • Penner, Susan J. (2013). Economics and Financial Management for Nurses and Nurse Leaders, 2nd ed. New York: Springer Publishing Company. http://www.springerpub.com/product/9780826110497#.UOtV2axCrTo
  • This is a simplified nursing unit budget report. The dollar values are in thousands, so the productive personnel expense budgeted for June 2013 is $200,000 Look this over for a minute. What are your thoughts about performance on this nursing unit?
  • Nursing Unit Budget Variance

    1. 1. Chapter 5: Managing Budgets, Part 2 of 2 • Focus on budget managing and budget variance – Monitoring – Investigation – Control • Be sure to review “Consider the Columns” presentation
    2. 2. Budget Variance • Variance: difference between the budgeted target and actual performance. • Favorable budget variance is a desirable difference between budgeted and actual amounts. – Actual expenses that are similar or less than budgeted indicate a favorable variance. – Revenues that are similar or greater than budgeted also show a favorable variance. • Unfavorable budget variance is an undesirable difference between budgeted and actual values – Actual revenues that are less than budgeted. – Actual expenses that are higher than budgeted.
    3. 3. Calculating Budget Variance • Expense budget variance: • Revenue or volume budget variance: Variance = Budget – Actual Variance = Actual – Budget • Example: • Example:  $1,000 budgeted  $1,100 actually spent  -$100 variance, unfavorable, spent more than budgeted  $1,000 budgeted  $1,200 actually received as revenue  $200 variance, favorable, earned more than budgeted
    4. 4. Table 1. Nursing Unit Expense Budget Variance 20 staffed beds, June 2013 ($ Budget thousands). Actual Current Prior YTD Item June June Variance YTD 2013 2012 2013 2013 Days in time period 30 30 -181 182 Productive $ 200 $ 220 -$20 $ 1,248 $ 1,257 Non-productive $ 50 $ 53 -$3 $ 312 $ 309 Total Personnel $ 250 $ 273 -$23 $ 1,560 $ 1,566 Supplies $ 25 $ 26 -$1 $ 153 $ 144 Overhead $ 10 $ 10 $0 $ 60 $ 60 Total Non-personnel $ 35 $ 36 -$1 $ 213 $ 204 Total Expenses $ 285 $ 309 -$24 $ 1,773 $ 1,770
    5. 5. Figure 5.2. Millway University Nurse-Managed Health Center (MNC) Medical Supplies Variance, January - June 2012. $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Jan Feb Mar Apr May Jun Budget $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 Actual $15,423 $8,999 $12,232 $8,434 $11,631 $13,498
    6. 6. Budget Investigation: How Important Is the Variance? • Continued increase in variance • Duration of variance: “three data points are a trend” • Institutional policies or guidelines, such as dollar limits • Extent of concern if the variance were to continue the entire fiscal year • Personal knowledge and experience
    7. 7. Budget Control • Is the unfavorable budget variance controllable? • Control uses management strategies to correct performance problems and meet budget targets • Medical Unit RN overtime example – unit assistant to manage phone and provide nonclinical support – policies to reduce shift change overtime – direct supervision and individual feedback – involve CNL and staff in solving the problem
    8. 8. Balance the Budget • Adjusting the budget so budget targets are reached by the end of the FY • Methods include line item flexibility and adjustment authority • No single formula or approach for all situations
    9. 9. Budget Balancing: Line Item Flexibility • Authority to transfer funds in one line item to another line item – within specified policy limits – typically line items must be within the same category of personnel or nonpersonnel expenses – may require additional budget justification or approval
    10. 10. Budget Balancing: Adjustment Authority • Authority to revise the budget over the FY – Variance is expected to continue for the remaining FY – Example: higher volume than planned, more staffing required
    11. 11. Budget Justification Report • Budget line item(s) requiring justification • Variance amounts • Frequency and trend of variance • Variance source or sources • Source identified as controllable or uncontrollable • Control steps taken and results
    12. 12. Key Points • Budget management includes monitoring, investigation and control. • Budget variances report amount of variance and whether the variance is favorable or unfavorable. • Line item flexibility and budget authority are ways a manager can balance a budget. • A CNL might assist in preparing a budget justification report.

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