Variance Analysis In Healthcare

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The successful administration of a hospital requires the effective fiscal stewardship of the organizations resources. These resources come in a variety of forms, from capitol assets such as durable medical devices and equipment, financial resources to include investments and trust or grants and finally human capital that runs the organization. All of these assets and the resulting liabilities that come about by operating a hospital require thoughtful and effective control mechanisms if the organization is to return a profit on investments. Effective budgeting is one of these mechanisms and variance analysis is a particularly effective tool to better understand the performance of an organization, not just financially but variance analysis can also help the administrator better understand the interactions within their organization.
Variance analysis is not simply a budgetary tool, although it is effective in assisting the administrator to better explain how operational expenses affect financial performance. Variance analysis allows a tool to question how the various aspects of an organization are performing. Cleverley, Song, and Cleverly (2011) states there are essentially three …show more content…
To be used effectively, administrators must utilize a number of reports, as well as have a basic understanding of financial theories and practice. Cleverly, Song and Cleverly (2011) states that this process is preventative in nature, thus it is an attempt to correct issues before they escalate monetarily. To examine why staffing salaries are higher than budgeted, the administrator should be prepared to examine the budgets for prior years and statements of operations. These reports will give the administrator a better idea of why these items are not matching their budgeted amounts. When the administrator receive explanations of variances from managers, Lee (n.d.) states that explanations for variances should be a brief few

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