Understanding of the Expenditure Report
The May 2023 expenditure report for Clinical Area A outlines multiple cost categories and compares actual spending for each to its corresponding budget (Appendix). According to Van Schaik (2023), the variance in each component in the statement indicates how much it is under or over budget. A positive variation implies that the facility has used less than what was stipulated.
At the same time, a negative one indicates that the facility has incurred higher spending. The expenditure report showed a favorable variance. For instance, the clinical facility allocated $2,146 in the month’s budget for annual leave and spent $1,388. The difference was $75, indicating they used less of the money set aside.
Additionally, they stipulated $71,433 for medical supplies and $12,200 for medication provisions. However, they used $59,775 and $11,080 for the two expense items, respectively. They were less than the expected expenditure, with a variation of $11,658 and $1,120. Overall, non-labor costs had a similar trend, with a $10,763 balance influenced by food supplies and staff training.
Even though some expenses showed a positive variance, the overall report showed a negative lab cost entry. For instance, Clinical Area A allocated $ 163,5 to total labor costs and spent $197,3 in May 2023. The difference between the two records was -$33,822, indicating that more funds were used to cover these components. This variation is due to the same trend in salaries and wages (-$35,150).
Additionally, the institution’s budget included $10,066 for repairs, maintenance, and replacement (RMR) costs and paid a total of $11,668. The unit used $1,602 more for this activity, which is more than what it planned. Overall, the total month’s variance from the statement is -$24,661. Therefore, Clinical Area spent more operations than they expected in this period.
The Clinical Area expenditure report A shows various trends across expense items. Even though many of them, such as medical supplies, medication provisions, and annual leave, have favorable advantages, the overall financial picture points in the opposite direction. Labor costs registered a substantially unfavorable variance of 20.68%. A similar pattern can be seen in RMR costs, which increased by 15.91% in the month. However, the whole report shows a generally positive year-to-date (YTD) variance in both labor and non-labor costs.
Labor and Non-Labor Costs Analysis
Clinical area A’s expenditure report for May 2023 shows that labor costs were higher than the budget. The institution allocated $163,566 for these expenses, but used $197,388 at the end of the period. It recorded an unfavorable variance of $33,822 (20.68%), which indicates failure to meet the anticipated expenditure. On the other hand, the non-labor costs indicate a favorable variance of $10,763 (12.15%). The facility set aside $88,558 and used $77,795 at the end of the month.
Justification of Unfavorable Variance
There are many underlying reasons for overspending in various labor cost items. First, unfavorable salary and wage variances may be due to the increased workload and heightened staffing requirements the facility experienced during this period (Abdou et al., 2022). Clinical Area A might have experienced a surge in patient admissions and an increased demand for care services. This rapid influx might have necessitated the hiring of additional medical professionals to maintain adequate patient care (Holthof & Luedi, 2021). Therefore, the extra money spent could have been used to pay the new individuals.
Expense Item
One expense item that has an unfavorable variance this month is repair, maintenance, and replacement (RMR) costs. From Clinical Area A’s expenditure report, the facility allocated $10,066 and spent $11,668 by the end of the period. This spending resulted in a negative difference of $1,602 or 15.91%. It signifies a deviation from the planned budget, implying that more funds were used for related activities (Grabner & Moers, 2021). The same trend is also recorded in the YTD variance, which was -$5,094. This overall discrepancy raises questions about the factors that contribute to it.
This unfavorable variance in RMR may be due to several factors. First, unforeseen breakdowns of critical equipment or infrastructure can directly affect the spending on this item (Balkhi et al., 2022). The healthcare unit might be compelled to perform urgent repairs or replace malfunctioning equipment to meet the patient’s needs. Additionally, the constant changes in safety rules, compliance requirements, and unforeseen circumstances necessitate immediate maintenance (Wong et al., 2021). This occurrence may require additional labor costs and expedited procurement.
Development of Strategies
Proactive Equipment Maintenance Plan
One strategy that could be implemented in Clinical Area A to increase spending on RMR costs is developing a proactive equipment maintenance plan. According to Senthil and Pandian (2022), this intervention is a systematic approach designed to prevent unexpected breakdowns. It also extends the lifespan of necessary equipment and significantly optimizes overall RMR costs (Keshta & Odeh, 2021). It involves conducting regular inspections of critical tools and facility infrastructure to identify potential problems before they escalate (Mukherjee et al., 2023). The unit may also need to develop and implement preventive maintenance schedules, invest in technology, and maintain comprehensive documentation
Continuous Training for Staff
The second strategy for reducing RMR costs in Clinical Area A is investing in continuous training and skill development for maintenance staff. This approach is vital because it can help enhance the diagnostic capabilities and technical proficiency of the responsible team (Gebregzabher et al., 2023). The unit can empower its employees to stay up to date on the latest innovations, specific equipment protocols, and industry best practices (Main & Anderson, 2023). As a result, they will be well-equipped to meet the evolving demands for operational efficiency.
Healthcare Unit Financial Performance
The expenditure report for Clinical Area A shows that labor costs have a YTD favorable variance overall. For instance, the unit had a YTD budget of $1,666,703 but spent $1,62589 in the end. It had a favorable variance of $reduction, indicating a 2.77% reduction in the budget. This pattern is due to an overall reduction in costs related to salaries and wages, annual leave, and extended service leave.
A similar pattern was also noted in the non-labor costs. For example, the facility set aside a YTD budget of $983,822 and utilized $930,972. The difference between the two was $52,850 or 5.37%, indicating that they spend less. However, RMR costs still had a YTD unfavorable variance of -$5,094 or 4.6%. It had a budget of $110,594 but used $115,688, which was significantly higher.
In general, the healthcare unit’s financial performance is under budget. This conclusion is based on the favorable variances in both labor and non-labor costs that offset the unfavorable variance in RMR cost (Van Schaik, 2023). The area of care has effectively managed its spending on salaries and wages, as well as on extended and annual leave. Additionally, they have effectively controlled expeditions for medication, supplies, and food, as well as staff training.
It appears to have implemented prudent financial practices across various areas, which have contributed to its current overall performance (Beuvais et al., 2023). It can implement the strategies suggested in the previous section to control the RMR costs. This can help ensure that all its operations are under budget.
References
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Holthof, N., & Luedi, M. (2021). Considerations for acute care staffing during a pandemic. Best Practice & Research Clinical Anaesthesiology, 35(3), 389-404.
Keshta, I., & Odeh, A. (2021). Security and privacy of electronic health records: Concerns and challenges. Egyptian Informatics Journal, 22(2), 177-183.
Main, P. A., & Anderson, S. (2023). Evidence for continuing professional development standards for regulated health practitioners in Australia: A systematic review. Human resources for health, 21(1), 1-16.
Mukherjee, M., Abhinay, K., Rahman, M. M., Yangdhen, S., Sen, S., Adhikari, B. R., Nianthi, R., Sachdev S., & Shaw, R. (2023). Extent and evaluation of critical infrastructure, the status of resilience, and its future dimensions in South Asia. Progress in Disaster Science, 17.
Senthil, C., & Pandian, R. (2022). Proactive maintenance model using reinforcement learning algorithm in rubber industry. Processes, 10(2), 371.
Van Schaik, F. D. (2023). Reconciliation of budgeting and accounting. Public Money & Management, 43(5), 473-482.
Wong, W. F., Olanrewaju, A., & Lim, P. (2021). Importance and performance of value-based maintenance practices in hospital buildings. Sustainability, 13(21).
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