Describe the different types of budget variances and provide examples of each.
Describe the different types of budget variances and provide examples of each.
Topic 4 DQ 1
Assessment Description
Describe the different types of budget variances and provide examples of each.
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Topic 4 DQ 1
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Budget variances connote the distinctions between the actual and planned income amounts and expenditures over a given duration (Rundio, 2021). They show how effective the business is in adapting to changing conditions, realizing its goals, and managing its resources. There are two major types of budget variances in healthcare including positive and negative variances (Messer, 2020). The positive budget variance happens when the money spent on expenses is less than the amount that was budgeted for. For example, a healthcare organization can negotiate reduced prices with vendors leading to a positive variance. A positive variance can indicate that a healthcare organization is doing exemplary work in controlling its costs. A negative budget variance occurs in situations where the money used for expenditures is more than what was budgeted for. For instance, an organization may use more costly methods of care than what was budgeted for or prices may go up suddenly leading to a negative variance.
There are also other types of budget variances in healthcare (Ross, 2020). Mix variances occur when services provided shifts from what was initially planned. For instance, where numerous outpatient services are carried out than expected, a mix variance occurs. Price variances occur when the money spent on goods and services varies from what was budgeted. For instance, if the cost of medications increases, there would be a price variance. Utilization variances occur where the use of resources such as labor and supplies differ from the original budget. For instance, if numerous surgical procedures are conducted than anticipated, a higher labor cost is created than budgeted, leading to a utilization variance. Finally, volume variance occurs where there is a higher volume of patients attended or procedures conducted than what was budgeted.
References
Messer, R. (2020). Budget Management Decisions. In Financial Modeling for Decision Making: Using MS-Excel in Accounting and Finance (pp. 241-257). Emerald Publishing Limited. https://doi.org/10.1108/978-1-78973-413-320201015
Ross, T. K. (2020). Practical Budgeting for Health Care: A Concise Guide. Jones & Bartlett Learning.
Rundio, A. (2021). The nurse manager’s guide to budgeting & finance. Sigma Theta Tau.
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Describe the different types of budget variances and provide examples of each.
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