See Chapter 5 of Penner, Susan J. (2013). Economics and Financial Management for Nurses and Nurse Leaders, 2nd ed. New York: Springer Publishing Company. http://www.springerpub.com/product/9780826110497#.UOtV2axCrTo

1. Chapter 5: Managing Budgets,
Part 2 of 2
• Focus on budget
managing and budget
variance
– Monitoring
– Investigation
– Control
• Be sure to review
“Consider the Columns”
presentation

2. Budget Variance
• Variance: difference between the budgeted
target and actual performance.
• Favorable budget variance is a desirable
difference between budgeted and actual
amounts.
– Actual expenses that are similar or less than
budgeted indicate a favorable variance.
– Revenues that are similar or greater than budgeted
also show a favorable variance.
• Unfavorable budget variance is an undesirable
difference between budgeted and actual values
– Actual revenues that are less than budgeted.
– Actual expenses that are higher than budgeted.

3. Calculating Budget Variance
• Expense budget
variance:
• Revenue or volume
budget variance:
Variance = Budget – Actual
Variance = Actual – Budget
• Example:
• Example:
 $1,000 budgeted
 $1,100 actually spent
 -$100 variance,
unfavorable, spent
more than budgeted
 $1,000 budgeted
 $1,200 actually
received as revenue
 $200 variance,
favorable, earned
more than budgeted

4. Table 1. Nursing Unit Expense Budget
Variance
20 staffed beds, June 2013 ($
Budget thousands).
Actual
Current Prior YTD
Item
June June Variance
YTD 2013
2012
2013 2013
Days in time period
30
30
-181
182
Productive $ 200 $ 220
-$20 $ 1,248 $ 1,257
Non-productive $
50 $ 53
-$3 $
312 $
309
Total Personnel
$ 250 $ 273
-$23 $ 1,560 $ 1,566
Supplies $
25 $ 26
-$1 $
153 $
144
Overhead $
10 $ 10
$0 $
60 $
60
Total Non-personnel $
35 $ 36
-$1 $
213 $
204
Total Expenses $ 285 $ 309
-$24 $ 1,773 $ 1,770

5. Figure 5.2. Millway University Nurse-Managed Health Center (MNC)
Medical Supplies Variance, January - June 2012.
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Jan
Feb
Mar
Apr
May
Jun
Budget
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
Actual
$15,423
$8,999
$12,232
$8,434
$11,631
$13,498

6. Budget Investigation:
How Important Is the Variance?
• Continued increase in variance
• Duration of variance: “three data points are a
trend”
• Institutional policies or guidelines, such as
dollar limits
• Extent of concern if the variance were to
continue the entire fiscal year
• Personal knowledge and experience

7. Budget Control
• Is the unfavorable budget variance
controllable?
• Control uses management strategies to
correct performance problems and meet
budget targets
• Medical Unit RN overtime example
– unit assistant to manage phone and provide nonclinical support
– policies to reduce shift change overtime
– direct supervision and individual feedback
– involve CNL and staff in solving the problem

8. Balance the Budget
• Adjusting the budget so budget targets are
reached by the end of the FY
• Methods include line item flexibility and
adjustment authority
• No single formula or approach for all
situations

9. Budget Balancing:
Line Item Flexibility
• Authority to transfer funds in one line
item to another line item
– within specified policy limits
– typically line items must be within the
same category of personnel or nonpersonnel expenses
– may require additional budget
justification or approval

10. Budget Balancing:
Adjustment Authority
• Authority to revise the budget over the
FY
– Variance is expected to continue for
the remaining FY
– Example: higher volume than
planned, more staffing required

11. Budget Justification Report
• Budget line item(s) requiring
justification
• Variance amounts
• Frequency and trend of variance
• Variance source or sources
• Source identified as controllable or
uncontrollable
• Control steps taken and results

12. Key Points
• Budget management includes monitoring,
investigation and control.
• Budget variances report amount of variance and
whether the variance is favorable or unfavorable.
• Line item flexibility and budget authority are
ways a manager can balance a budget.
• A CNL might assist in preparing a budget
justification report.