Variance Analysis - Grade: A PDF

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1 Amy Olsen HCA - 240 July 28, 2019 Pauline King Variance Analysis Variance analysis has a couple many key factors to consider when looking at the initial report. Cost variance analysis is however is of great importance to the healthcare industry (Cleverley, Song, Cleverley, 2011). An operations manager needs to decide which deviations need to be investigated as sometimes the investigating can cost more money than the deviations. However, in the long run the variance reports are a very useful tool that an operation manager can utilize to see potentially how well each of the department are doing with running on projected budget. This is a key factor for knowing an entity’s overall financial health and being able to report back to the Vice President. What is the importance of tracking variance? Variance analysis is the examination of the deviation of an actual observation from a standard (Cleverley, Song, Cleverley, 2011). How the financial department looks at this information is from prior period’s values and a budgeted value stand point. In this instance the financial department would explain why the current cost is different form prior years or budgeted cost, then the variance report would need to explain the offset in the current working budget. As it is always important to be able to explain where and why numbers are not lining up, and the operations manager can adjust mid-year. There can be many factors that can be attributed to variances such as, increase or decrease in patient admission, wages increase, supply utilization and need for acute surgery or specialty care.

2 Staffing is an ever-challenging task. If one budgets for a month for FTE RN for 160 hours x $43.00 per hour = $6880,00, but the RN works for 168 hours, at $43.00 / 2 = 21.50 +43.00 = 64.50 (overtime pay) x 8 = 516.00 + 6880.00 =7396.00. In the long run a $516.00 over budget. That is just for the Registered Nurse. The operations manager will have to take all the eight hours in to account because they add up. Five hundred dollars per person adds up, if you are able to have a CNA in the building or even Aid instead of a RN they are paid a quarter as much by the hour that can save drastic amounts monthly. One must even look deeper than that to find out why the 8 hours of overtime was needed, was its patient care, was it paperwork or was it lack of good time management. Is there a work flow issue? Could there be protocols put in place to help, or a work flow changed to help avoid over time. Or was this a one-time thing. These are all things that the operations manager can look at with a variance report and be able to include in the report back to the Vice President. When working in healthcare you never can say there will be three patients admitted today, four discharged tomorrow. You literally have to be prepared for any and everything. All one can do is make an educated guess with the data that is presented. If you have a hospital that is in a large area that is a teaching hospital or a level 1 trauma center, then it is probably safe to say you will be busy with patients. What kind of patients is important to know as well? Are they going to be long tern Medicare patients, they have a restriction on billing and compensation, this makes it critical to know who and what you are treating. This does not mean that one changes the course of treatment or how one is treated while in the hospital, however it just brings vigilance to the amount of time they that they have before the hospital starts losing money and the need for discharge planning needs to begin. With the eb and flow of patients the operations manager needs to be prepared to have staff available to care for the patients properly. RN’s need to be

3 available, CNA’s, Nutritional support, Physical Therapy, Occupational Therapy, Surgeons and the list goes on. However, a full staffed department of each do not necessarily need to be on the clock around the clock. After review of the variance reports the operational manager can adjust accordingly to fit the needs of the hospital and the needs of the patients. With any department in healthcare there is a need for medical supplies. This is one of the most variable expense. This changes with every patient, every diagnosis, every procedure, every exam, every test, every injection, there are many different variables to supplies in healthcare down to the hand sanitizer the healthcare providers use daily. If the flow of patients changes the change in utilization of supplies change, if there is a rise in traumas, the supplies change. The operations manager must be prepared to either be flexible in other areas or have a very good picture of what is used in this area. There can always be adjustments made mid-year review. It would be the responsibility of the operations manager to provide to the Vice President a clear and concise detailed report of the why there are any and all discrepancies in the budget and explain how they will be achieving the new goals. The operations manager would be responsible for implementing any and all the workflow changes need to achieve these goals. The OM would be responsible for follow up with a revised budge to present to the Vice President as well as report to show progress. One would want to present the information in a way that shows acknowledgement of the problem, how the problem occurred and how the problem will be fixed. The Vice President needs to be confident that it is handled in a fashion that it will no longer continue to be a loss in revenue or a continuous cost to the hospital. In conclusion, variance analysis reports are handy way when used correctly. One can either spend more money chasing down a little deviation, or one could potentially save the

4 company hundreds of thousands over time. Ultimately it could cost more money sometimes then what it is worth to track down the why.

5 References Cleverley PhD, W. O., Song PhD, P. H., & Cleverley PhD, J. O. (2011). Essentials of Health Care Finance (7th ed.). Sudbury, MA: Jones & Bartlett....