NUR 621 Describe the different types of budget variances and provide examples of each
Variance analysis denotes the comparison of the budgeted amount and then comparing it with the actual expenditure on a given item to determine the fiscal variances. The variance in a budget can be analyzed in three different areas that include efficiency, volume, and cost. According to Rundio (2021), efficiency in variance analysis denotes the quantity variable. For instance, if a nurse manager budgets for 8 care hours but the hours turn out to be 10, this would be a negative efficiency since it would cost more than what was budgeted. On the other hand, volume variance underscores the number of care recipients. A rise in this number would require more nurses to provide care. In addition, cost variance analysis represents the financial expenditure in care delivery (Rundio, 2021). In particular, when more hours are spent in patient care, additional staff would be required, and eventually, a rise in payment due to more staff and overtime.
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The two types of budget variances are favorable and unfavorable variances (Leger, 2023). The favorable variance occurs when the actual expenditure is less than the budgeted amount. For example, if a nurse has budgeted for 12 patient care hours at a cost of $4000 but only 10 patient care hours are utilized at a cost of $3200, it would result in a surplus of $1000, which is a favorable variance. Hence, it would cost less compared to the initial budgeted amount. On the other hand, an unfavorable variance type of budget is experienced when the actual expenditure is more than the budgeted amount (Leger, 2023). For instance, starting with a unit budget is $6000, the unit ends up spending $7500. The variance is $1500, which is above the initial budget. This means that more funds need to be allocated to cater for the unbudgeted amount, which denotes an unfavorable budget.a
References
Leger, J. M. (2023). Financial Management for Nurse Managers. Burlington, MA: Jones & Bartlett Learning. ISBN: 9781284231021
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Rundio, A. (2021). The nurse manager’s guide to budgeting & finance (3rd ed.). Sigma Theta Tau.
According to Leger and Brown, there are two different types of budget variances and they greatly affect the budget for any unit or organization. These budget variances consist of unfavorable and favorable variances (2021). In healthcare, no matter how many methods are used to plan a particular budget, there will still be some unforeseen situations that occur. Unfavorable variances are the actual expenses that exceed the amount budgeted (Leger & Brown, 2021). Unfavorable occurs when there is not enough money allotted toward something such as $50,000 for new isolettes in the Neonatal Intensive Care Unit. Each isolette costs $10,000 so the manager placed an order for five of them. Unfortunately, seven more have broken and the unit is at full capacity and in need of more beds. There $20,000 more is spent to replace the beds that were broken in addition to the isolettes that were already purchased. Favorable variances are when the budgeted amount is lower than the estimated amount resulting in a surplus (Leger & Brown, 2021). An example of this would be $8,000 allotted to new glucometers for the unit based on the age of them and based on the manufacturer. The hospital was able to get a discount on the previous model and only paid $6,500 for new glucometers. Now the unit has a surplus of money that was not spent on this expected expense. It is very difficult to predict what will be needed and how to accurately budget for those expenses. Those in charge of the budget must research and understand how to look at the trends to make meaningful decisions.
References
Brown, P., & Leger, J. M. (2021). Chapter 7, Budget Variances. Jones & Barlett (Eds.) Financial management for nurse managers: Merging the heart with the dollar (5th ed). Retrieved from
A budget variance emerges when there is a contrast between the arrangement and the conclusion (Mueller,2017). At the point when considering budget variance, it might be extremely vital to separate between the things that influence the budget that could be controlled and those that can’t. There are various reasons why a budget variance can happen. “An unfavorable variance reflects actual expenses that exceed the amount budgeted. A favorable variance, by contrast, is seen when actual expenses are lower than the amount budgeted” (Leger 2023).
Examples would be the budget for my department is set at 15,000, but the actual expense is 10,000 which leaves us with a surplus of 5,000 (favorable variance). There is also a downside in revenue which looks at the exact opposite. If the organization fails to meet the desired or projected revenue expected, it is called unfavorable variance. An example of this would be expecting projected sales of 20,000, but only 15,000 generated, leaving a deficit of 5,000 in unmet budget amounts. One reason is that the budget was misguided. The budget is not properly aligned with the proposed objective and strategy of the management.