Interpretation of Variance
Calculating and analyzing of the variations in organizations’ budgets is essential to the planning process of the healthcare organizations. Often, experts calculate these differences after coming up with actual and flexible budgets. This process is necessary to help the health organizations avoid compromising their future activities due to poor planning. Thus, healthcare organizations should invest in experts who can accurately interpret the variance in the organizations’ budgets. This measure will help them to know the real status of the organization and make successful plans for the organization.
Table 1: Revenue and Expert Budget for a Pediatric Unit During a Cholera Outbreak in London.
| Actual budget | Flexible budget | Original budget | Flexible Budget Variance | Volume variance | Total Variance | |
| Supplies | $40, 000 | $40, 000 | $20, 000 | 0 | $10,000U | $20, 000U |
| Patient Volume | 2, 000 | 2, 000 | 1, 000 | 0 | 1, 000U | 1, 000U |
Relevance of Variance Analysis to Nursing Budgets within a Health Organization
Analyzing the variance of health organizations’ budgets is essential to the nurse managers of those organizations. The analysis helps the nurse managers to discover the hidden issues about the organizations’ budgets that were related to the organizations’ operation inefficiencies which are impossible for the nurse manager to detect (Porter & Stephenson, 2011). This discovery enables the nurse managers to get the accurate assessment of how the health organization is performing. For instance, the analysis can help the nurse manager to detect false profit indicators in the budget that might cause unnecessary excitement in the organization (2011). Therefore, the nurses can use this information to make informed predictions about the organizations’ future.
Forecasting Model Application in Health Care Organizations
Forecasting models are important in the evaluation and planning process of health care organizations. For example, the Delphi technique can help a healthcare organization to make an accurate assessment and prediction of organizations’ future (Finkler, Jones & Kovner, 2013). According to Finkler et al. (2013), the method enables healthcare organizations to get an accurate evaluation of the professionals’ opinion on the current situation of the organization. This accuracy is mainly caused by the method’s guarantee of anonymity to the participants in the forecasting process. Besides, the benefit is helpful when the nurse manager needs controversial information that might lead to the member’s victimization.
Difference between Original Budget and Flexible Budget and the Use of Both Budgets
The difference between original budgets and flexible Budgets result from the different times that enterprises prepare the budgets. As Stephenson and Porter (2011) state, businesses make original budgets using information from predictions of possible sales, inputs and costs of a particular financial period. On the contrary, they prepare flexible budgets from the data of already incurred sales, inputs and costs. Both of these budgets are useful since original budgets can help enterprises to get the estimated fixed costs, margins and margin safety. On the other hand, the flexible budgets help the organizations to detect the exact change in profits that strictly result from the difference in the projected and actual sales. This proves the relevance of both budgets to organizations.
The accurate interpretation of variances is important for health organizations’ survival. The interpretation helps the organizations’ management to assess their performance and make informed predictions accurately. Thus, health agencies should invest in employing experts who can provide useful professional that will help in analyzing the organizations’ budgets. This can result in the reduced number of collapsing organizations.
References
Finkler, S., Jones, C., & Kovner, C. (2013). Financial management for nurse managers and executives (4th ed.). St. Louis, MO: Saunders.
Porter, J., & Stephenson, T. (2011). Calculating operating variances. Strategic Finance, 3(3), 45-51. Retrieved from http://sfmagazine.com/
Stephenson, T., & Porter, J. (2011). Comparing Budgets to Performance. Strategic Finance, 2(3), 36-43. Retrieved from http://sfmagazine.com/
