Question

Below is the variance report

					Prior year
Item	Budget	Actual	Variance	Variance %	Actual
Days in time period	31	31			31
Staffed Beds	20	20			20
Patient days	527	498	(29.0)	-5.5%	415
Total RN FTEs	45.1	50.1	(5.0)	-11.1%	36.7
Revenue:
Gross patient revenue	$460,450	$441.932	($18,518)	-4.0%	$417,883
Personnel Expense:
Total salaries and wages	$171,920	$192,845	($20,925)	-12.2%	$141,552
Benefits	$51,576	$52,797	($1,221)	-2.4%	$42,466
Total personnel expenses	$223,496	$245,642	($22,146)	-9.9%	$184,018
Overtime wages %	2.0%	6.1%			3.2%
Personnel cost PPD	$424	$493	($69)	-16.3%	$327
Personnel cost FTE	$4,960	$4,908	$52	1.1%	$3,697
Non-personnel expense:
Medical Supplies	$23,700	$23,498	$202	0.9%	$21,839
Depreciation	$10,000	$10,000	$0	0.0%	$10,000
Other non-personnel	$3,500	$2,899	$601	17.2%	$2,734
Total non-personnel	$37,200	$36,397	$803	2.2%	$34,573
Total Expenses	$260,696	$282,039	($21,343)	-8.2%	$218,591

Review all components of the report and determine where variances occur, if any. Discuss your conclusions and recommendations as if you are the Nurse Executive reviewing this report with the unit manager

Answer 1

Revenue Variance

The actual revenue of current year is below its budgeted revenue. Thatis, 4% reduction. But while compareing to the actual prior year revenue, actual revenue of current year has been increased. The reason for this adverse revenue variance may be because of:

• Sales volume variance: This is the difference between the actual and budgeted number of units sold, multiplied by the budgeted price per unit.
• Selling price variance: This is the difference between the actual and budgeted price per units , multiplied by the actual number of unit.
• Sales mix variance: This is the difference between the actual and budgeted number of units sold, multiplied by the budgeted contribution.

The reason why revenue variance occur are cannibalization, competition, price change, etc..

Labour Variance(Personnel Expense)

The total labour rate and benefits also shows an adverse variance. Both the total wages and salaries and the benefits are greater than budgeted. Thus the total labour expense is also greater than budgeted. Thus the labour variance is adverse.

But in the case of personnel cost FTE they have a favourable variance. Incase of of overtime wage % and personnel cost PPD they have an adverse variance.

The reasons for this variance may be because of;

• Labour rate variance: The causes for this variance are change in basic rate, paying higher wages in seasonal and emergency operations, paying overtime for urgent works, application of different wage payment system, appointment of unskilled workers, etc..
• Labour efficiency variance: The causes for this variance are appointing low grade workers, inadequate training to employees, incorrect instructions, increased labour turnover, poor working condition, poor scheduling of work, poor supervision, use of poor technology, etc..

Overhead Variance(Non-Personnel Expense)

All the non-personnel expenditure have an adverse variance. The actual medical supplies, depreciation and other personnel expense are greater than the budgted. Thus the actual total personnel expense is also greater than the budgeted. The reasons for this variance may be because of:

• Overhead expenditure variance: The causes for this variance are seasonal conditions, poor standard setting, over or under utilization of services, non-availability of specific services,ineffective control of spending etc.
• Overhead volume variance: The cause for this variance are over or under sales demand, loss of working hours, working days being more or less than budgeted, change in efficiency of labour and machines, change in the number of men employeed, number of shifts or machines used, etc..
• Overhead efficiency variance: The cause of this variance are poor working conditions, inefficiency of labour, poor supervision, poor scheduling of production,use of inferior or defective tools, improperly set standards, etc..

Others

Other than the above variance they need to consider the variance in patient days and total RN FTEs. Both are showing an adverse variance. The reason for this adverse variance may be because of the adverse variation in the above variance.

Conclusions & Recommendations

From the above we can come to a conclusion that the firm is facing an adverse situation. All the variance are adverse for them. We had already dicussed the factors that causes adverse variance in the above pragraghs. An adverse variance can alter the management the firm's profit will be less than the expected. The sooner an adverse variance is detected, the sooner attention can be directed toward fixing any problem.

The recommendations to overcome this adverse situation are as follows;

• Proper budget planning
• Efficient production planning
• Proper employee management
• Constant wage payment system
• Proper scheduling of work
• Controlled spending
• Use of good technology
• Good supervision
• Proper management of working hours