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Variance Analysis and Justification
I would choose scenario 1. If I were the leader of this department’s cost center, the first step would be to evaluate the specific variances in the monthly operating budget. Since the volume was on target, the overages in salaries and supplies indicate inefficiencies in expense management rather than an increase in demand. Here’s how I would address the issue and develop an action plan:
Explanation of Variance
Salaries: Overages in salaries may have occurred due to factors like overtime, unnecessary shift coverage, or temporary staffing that exceeded the planned budget. Another possibility is a misalignment between scheduled hours and the workload.
Supplies: The overspending on supplies could be due to over-ordering, inefficient use, or waste. It’s also possible that supplies were purchased without aligning with the actual needs of the department.
Action Plan for Expense Alignment
Review Staffing Patterns: Assess the schedule to ensure that staffing aligns with actual patient volumes and acuity levels. Use historical data to predict needs accurately.
Control Overtime: Set stricter guidelines for overtime approval and use float or PRN staff strategically to fill gaps without exceeding the budget.
Evaluate Workload Distribution: Ensure tasks are being distributed efficiently to prevent overstaffing or unnecessary hours.
Inventory Management: Implement a tighter inventory control system to track usage and prevent overstocking or waste.
Usage Monitoring: Train staff on supply usage to minimize waste and ensure items are used appropriately.
Streamline Ordering Process: Adjust order quantities based on actual consumption patterns from the past month.
Budget Monitoring: Schedule weekly budget reviews to identify any variances early and implement course corrections immediately. Develop a variance report to track the root causes of overages and use it to refine planning for future months.
Communication and Accountability: Meet with team members to explain the budget variances and emphasize the importance of aligning expenses with budgeted targets. Assign responsibility to department leads for monitoring staffing levels and supply usage, ensuring they are accountable for staying within budget.
Justification for Overages
If certain overages were unavoidable, such as an unexpected spike in acuity requiring more staffing or additional supplies, these will need to be documented clearly in a variance report. This justification should include specific examples, along with plans to mitigate similar occurrences in the future. By implementing these corrective actions and justifying any necessary variances, I would ensure that the department aligns its expenses with its budget in the next reporting period. This approach not only addresses the immediate issue but also sets a foundation for sustained financial discipline (Finkler et al., 2018).
Reference:
Finkler, S. A., Smith, D. L., Calabrese, T. D., & Purtell, R. M. (2018). Financial management for public, health, and not-for-profit organizations (5th ed.). CQ Press.
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