Factors Contributing to Variances Between Planned and Actual Budget Results
Budget planning is paramount in an effective company, particularly in clinical service organizations, whose optimized and productive health outcomes depend on it. Situations in which a planned budget proves to be wholly inaccurate and flawed due to both foreseeable and unpredictable circumstances must be avoided (Ho, 2018). In accounting, the term “budget variances” refers to such inaccuracies, defining the difference — more or less — between an organization’s actual expenses and revenues compared to those projected (Woodruff, 2019).
In the proposed scenario, the company’s revenue was consistently favorable because the actual numbers exceeded the projected numbers. In other words, the organization generated more revenue than projected, which is a positive sign. The total variance between projected and actual earnings was $266,550.
For expense categories, prosperity was seen only for Patient Day (∆ = +1000), while in all other cases, the actual budget showed unfavorable results compared to projections. The total variance was $ 824,600 ($823,600 when Patient Day was excluded). Thus, the company spent much more than it had planned, reflecting unfavorable planning.
Corrective Strategies Used by Healthcare Organizations to Maintain Financial Performance
To avoid similar problems with budget variances, organizations can use corrective actions during the reporting period to manage observed variances. Such actions can include budget re-planning and reducing waste. On the other hand, a company can budget for unanticipated expenses and revenues in advance, thereby reducing their impact on the plan. Based on historical data, organizations can continually adjust budget planning policies in anticipation of changes in specific categories.
The proposed organizational solution is the implementation of an online assessment tool for the pre-procedural evaluation of day surgery patients. It is expected that a tangible advantage of such a solution will be a reduction in the clinic’s costs for patient rounds, both in-person and over the phone. At the same time, all data will be uploaded to the cloud and constantly synchronized, allowing staff with access to have unfettered access to it (Gao et al., 2018).
Implementing a new tool is a significant financial burden, as it is expected to incur high costs for development, implementation, and nurse training (Kowalski et al., 2019). Nevertheless, such costs should be planned for the entire reporting period. An excellent practice for this planning is to forecast the budget monthly, allowing deviations to be pinpointed and corrective actions to be taken immediately, without waiting for significant variances. Additionally, it is recommended that modern technological resources be utilized to ensure that budget control is as automated and efficient as possible, thereby minimizing the risk of human error.
References
Gao, F., Thiebes, S., & Sunyaev, A. (2018). Rethinking the meaning of cloud computing for health care: a taxonomic perspective and future research directions. Journal of Medical Internet Research, 20(7), 1-10.
Ho, A. T. K. (2018). From performance budgeting to performance budget management: theory and practice. Public Administration Review, 78(5), 748-758.
Kowalski, S. L., Burson, R., Webber, E., & Freundl, M. (2018). Budgeting for a video monitoring system to reduce patient falls and sitter costs: A quality improvement project. Nursing Economics, 36(6), 291.
Woodruff, J. (2019). What is budget variance analysis? CHRON.