Chapter 5 focuses on managing budgets, particularly budget variance, which is the difference between budgeted targets and actual performance, distinguishing between favorable and unfavorable variances. It discusses methods for calculating these variances, the importance of investigating trends, and outlines strategies for budget control and balancing, such as line item flexibility and adjustment authority. Key points emphasize the need for effective monitoring, investigation, and control in budget management.

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.