Read a selection of your colleagues’ responses and respond to at least two of your colleagues on two different days by offering supporting ideas you believe they should address, alternative solutions to the issue, or specific financial, budgetary, or other challenges you believe their approach should address.
DISCUSSION POST #1
Week 5 DB
In this scenario, they went over budget by nearly $60,000, which is remarkable given the revenue gained from surgery. The variance in surgical volume is favorable in this scenario. Woodruff (2019) explains a favorable variance as when the increase in units sold improves revenue, which in this situation, did enhance the income. They mistakenly underestimated patient days, representing the maximum possible utilization over a specific time period given the bed capacity. Utilization indicates the extent of consumer demand for services. The proper procedure must consider planning and managing health care services with the available capacity (Penner, 2016, pg 90-91). The patient days’ variance in the scenario is unfavorable. The most profound loss is in the costs of supplies. It was underestimated by over $700,000 and was the top expense for the hospital. The variances due to volume in this scenario were surgeries, gift shop revenues, and parking. The variances due to rates were pharmacy and miscellaneous supplies.
The first course of action for the hospital is to find different vendors or manufacturers for their medical supplies. I would also meet with the bedside nurses to get their input on their preferred medical supplies before making any significant changes. Lockhart (2018) suggests that the involvement of interprofessional team members at various stages of the proposal development, including management analysts, chief nursing officers, and nurse managers, was crucial for success. Another valuable change would be to look into pharmaceuticals necessary for these patients and look for less costly alternatives.
DISCUSSION POST #2
There is increasing pressure in the United States to control healthcare costs. Effective use of an annual operating budget to control expenditures while achieving financial performance outcomes is critical for the long-term survival of these organizations (Slyter et al., 2017). The earlier that you get involved in budgetary planning, the more likely you will be able to influence outcomes. Planning will involve deciding upon strategic goals, reviewing options, and deciding upon the best one (Walsh, 2016).
To better manage a financial budget, it is best to have baseline data to estimate revenue and expenses for when the business is being established. The expectation is a reduction in unfavorable variances. Poor planning can lead to business closure and magnified losses. One of the primary purposes of management is control over the processes and expenses associated with them. Some variances are caused by internal issues and are controllable, while others may be caused by external factors over which an institution has little to no control. For example, in the recent pandemic, the expenses were beyond most healthcare facilities. Another factor that affects variances is inflation which affects supply and demand. The country, after the pandemic, is undoing a shift where supplies are limited and can not meet demands. Those, as mentioned earlier, in turn, have caused an increase in prices. Moreover, the continuous change due to evidence-based practice can render some supplies obsolete, leading to a loss for a company that has overstocked.
Variance analysis is an essential tool of control in financial budgeting. It helps to measure the business efficiency and isolate problems in performance. Depending on past results, the results can be used to prepare future budgets. Therefore, accounting for variances is very important for the efficient functioning of a healthcare facility.
Insight into the Budget Variances Scenario
The total variance between the planned and actual budgets for Surgical Volume is favorable in the provided scenario. The budgeted volume was 2300, but the actual was 2600, 300 more than anticipated. As a result of the increase in volume, the hospital received more revenue of $281,550. The total variance between Patient Days planned and actual budgets are unfavorable. For example, the hospital budgeted for more patient days with the assumption of spending a total of $1,019,000, but even with fewer patient days, they exceeded the expenditure by $824,600.
Some variances are expected for any prepared budget, and the variances themselves can be favorable or unfavorable, depending on the variance itself and the budget category. For example, in the provided scenario, the revenue variance resulted from volume; the increase in surgical volume brought more revenue in the form of an increase in gift shop purchases, parking ticket purchases, and more surgical procedures’ remuneration. On the other hand, the expense variances were due to increased rates or other factors. In addition, despite fewer patient days, the hospital spent more on pharmacy expenses and miscellaneous supplies, and there was an increase in overhead expenses.