Cost Variance in Healthcare Organizations Introduction Budget management is essential in different industries of an economy. This is because it enables organizations to operate with low costs while maintaining their effectiveness in service delivery. Budget management involves analysis and controlling of budget variance…
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Like other healthcare organizations, the budget management in this healthcare organization is said to be underdeveloped. This is the reason why we have identified it for the analysis so that we can make possible recommendations. Strategies of Managing Budgets Within Forecast Managing budgets within forecasts is significant in revenue attainment and costs containment. However, ensuring that budgets remain within forecasts is not an easy task. Moreover, budget forecasts are not always accurate in terms of budgetary estimates they give. This makes designing of a strategic budgets management approach to be a necessity in healthcare organizations. In this healthcare organization, specific strategies exist for managing budgets within forecasts. These strategies vary both in their characteristics and in applicability. However, the majority of them are applicable in healthcare organizations like the one identified in this paper. One of the strategies that could be significant in managing budgets within forecasts is the use of both quantitative and qualitative approaches during forecasting. According to Cole (2003), quantitative approach uses numeric data such as statistics and the accounting data to draw projections. Qualitative approach, on the other hand, uses explicit assumptions and individual judgments about the assumptions to draw conclusions (Cole, 2003). Combination of these two approaches, when looking for budget forecast estimates, assists in obtaining the most accurate and unbiased estimates. These estimates guide the actions taken to maintain the budget within the forecasts. As a result, the strategy could help in managing the budgets within forecasts. The interval which the forecast is based on is significant in obtaining accurate estimates from the forecast. Another strategy that could be adapted to manage budgets within forecasts is the use of small intervals when forecasting. The strategy can be implemented by use of a rolling forecast produced on a quarterly basis to provide a full-year outlook (Dressler, 2004). An approach that uses short intervals like this one can promote obtaining of more accurate forecasts. Moreover, it can provide forecast estimates that could be obtained from within the large interval forecasts. This could greatly assist in managing budgets within forecasts, thus promoting operability of the organization. According to Cokins (2006), budgeting and financial planning are confusing to many organizations. As a result, many organizations in different industries find it difficult to integrate the two as organizational management. A strategy of employing budgeting together with financial planning in management of an organization is another strategy that could help in managing budgets within forecasts. Financial planning would assist in the drawing of accurate forecasts while budgeting would be assisting in maintaining the spending within the forecasts. However, for this to be achieved, these two aspects must be used in an integrated manner. Otherwise, they would not be able to supplement each other, thus failing to achieve their objectives. Expense Results With Budget Expectation Healthcare organizations have several expense results. Each of the results has its own budget expectation. Five of the most significant expense results of healthcare organizations such as the one identified in this paper are salary and wages expenses,
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