Takeisha Collins
HCA-240
May 11,
2019
Instructor Steve Klense
HCA-240 Topic 2 Essay Variance Analysis
Variance Analysis
Variance analyses are important interpretive tools for managed care health care facilities
seeking to monitor and control their costs. Most managed care health care facilities operate with
relatively small margins and because most of their cost is variable, changes in budgetary
expectations can have a substantial influence on costs and therefore on profitability. When
budgetary expectations have not been met, a detailed report should follow explaining the deficits
and include plans and all solutions that will prevent negative reporting moving forward. In this
essay, we will explain factors that should be considered when writing a detailed variance report,
that will include the relationships between variance reporting, the interpretation of variance
report results, and actual results of performance.
The objective of management should be to reduce the efficiency cost in any given
situation. Upon receiving monthly budget reports for the previous departments production
month, the data concluded salaries were higher and supplies were lower than budgeted. When
negative reporting has been established, a variance report should be written to the vice president
of the company explaining factors that should be considered to prevent such negative reporting
in the future and all possibilities to solve the issue. A variance report is a document that
compares planned financial outcomes with the actual financial outcome. Particularly: a variance
report compares what was supposed to happen with what actually happened. Ordinarily, variance
reports are used to analyze the difference between budgets and actual performance. While
achieving this objective, two major alternatives are accessible to management: the preventive
1
, Takeisha Collins
HCA-240
May 11,
2019
Instructor Steve Klense
approach and the detection–correction approach. “In the preventive approach, management
attempts to minimize the efficiency cost by minimizing the probability that a problem will occur.
The detection–correction approach seeks to minimize efficiency cost by minimizing the time that
a problem remains uncorrected” (Cleverley, Song, Cleverley, 2011, p. 381). A decision to
investigate given variances is not an automatic occurrence but only when negative reporting has
occurred, which involve some financial commitment by the organization and thus should be
weighed carefully against the expected benefits.
Variance analysis is simply an examination of the deviation of an actual observation from
a standard and an important management function to assist with managing a department
budgetary expenses and salaries. Identifying such variances, will allow managers to recognize
problems, identify root causes, and implement correction actions. In the case of salaries, the
variance is unfavorable and more than projected. When studying the variance and trending
overtime, we can see the root cause, such as the departmental overtime utilization for increase in
volume or a higher paid rate for labor than was captured during the budget process. With the data
that has been reported, managers can implement a corrective action plan to help alleviate the
variance. Similar steps should be applied for the supply variance. By performing such variance
analysis, favorable variances are identified. Reports will identify trending over time and
demonstrate whether this is a contingent occurrence or if the savings are realized due to new
contract negotiations with suppliers or process improvements. Once variances are identified,
department managers can effectively identify the information effectively to make strategic
decisions within the department moving forward.
2
HCA-240
May 11,
2019
Instructor Steve Klense
HCA-240 Topic 2 Essay Variance Analysis
Variance Analysis
Variance analyses are important interpretive tools for managed care health care facilities
seeking to monitor and control their costs. Most managed care health care facilities operate with
relatively small margins and because most of their cost is variable, changes in budgetary
expectations can have a substantial influence on costs and therefore on profitability. When
budgetary expectations have not been met, a detailed report should follow explaining the deficits
and include plans and all solutions that will prevent negative reporting moving forward. In this
essay, we will explain factors that should be considered when writing a detailed variance report,
that will include the relationships between variance reporting, the interpretation of variance
report results, and actual results of performance.
The objective of management should be to reduce the efficiency cost in any given
situation. Upon receiving monthly budget reports for the previous departments production
month, the data concluded salaries were higher and supplies were lower than budgeted. When
negative reporting has been established, a variance report should be written to the vice president
of the company explaining factors that should be considered to prevent such negative reporting
in the future and all possibilities to solve the issue. A variance report is a document that
compares planned financial outcomes with the actual financial outcome. Particularly: a variance
report compares what was supposed to happen with what actually happened. Ordinarily, variance
reports are used to analyze the difference between budgets and actual performance. While
achieving this objective, two major alternatives are accessible to management: the preventive
1
, Takeisha Collins
HCA-240
May 11,
2019
Instructor Steve Klense
approach and the detection–correction approach. “In the preventive approach, management
attempts to minimize the efficiency cost by minimizing the probability that a problem will occur.
The detection–correction approach seeks to minimize efficiency cost by minimizing the time that
a problem remains uncorrected” (Cleverley, Song, Cleverley, 2011, p. 381). A decision to
investigate given variances is not an automatic occurrence but only when negative reporting has
occurred, which involve some financial commitment by the organization and thus should be
weighed carefully against the expected benefits.
Variance analysis is simply an examination of the deviation of an actual observation from
a standard and an important management function to assist with managing a department
budgetary expenses and salaries. Identifying such variances, will allow managers to recognize
problems, identify root causes, and implement correction actions. In the case of salaries, the
variance is unfavorable and more than projected. When studying the variance and trending
overtime, we can see the root cause, such as the departmental overtime utilization for increase in
volume or a higher paid rate for labor than was captured during the budget process. With the data
that has been reported, managers can implement a corrective action plan to help alleviate the
variance. Similar steps should be applied for the supply variance. By performing such variance
analysis, favorable variances are identified. Reports will identify trending over time and
demonstrate whether this is a contingent occurrence or if the savings are realized due to new
contract negotiations with suppliers or process improvements. Once variances are identified,
department managers can effectively identify the information effectively to make strategic
decisions within the department moving forward.
2
