Budget variance can be defined as the measure of difference between planned and actual figures in the budget. In nursing administration, the ability to analyze budget variances is of critical importance as they can reveal major problems of the hospital or new trends that should be taken into consideration in planning the budget for the next period of time. Even though the causes of variances are not always controllable for the nurses, they should still try to investigate the reasons for the significant variances within the global goal of improving the administration activities and the quality of care.

The statement of operations from a neighborhood nursing center in Table 12-3 shows a large number of variances both in current month and year-to-date. Thus, in the current month there was a variance in net patient revenues, which amounts to $600 ($550 in insurance payment and $50 in donations). This variance is favorable as the hospital received more revenues than the administration had expected. The budget variance of $50 in donations can be interpreted as minor, whereas the variance of $550 in insurance payment is a major one and should thus be analyzed by the administration. The most probable reason for this variance is the larger number of patients than had been anticipated on the basis of previous data. Another possible cause is the greater severity of conditions of the patients, which naturally led to higher insurance payments. It would be helpful to know the number of patients served during this month and the average severity of their problems to say more exactly. The differences in the number of patients, as well as in the severity of their conditions, are the causes that cannot be controlled by the nurse manager as it is not possible to predict them with precision. They can only be forecasted on the basis of continued variances that repeat for a long time: thus, as there is a significant favorable variance of $1,650 in insurance payment in year-to-date, the nurse manager should consider planning larger revenues in this aspect if the trend continues and similar variances take place in the next few months.

The variances in net personnel expenses in the current month amounted to $750 ($550 in net salaried and wages and $200 in benefits). This variance is generally unfavorable as it means that the hospital spent more money on its personnel than expected. The unfavorable variance is largely confined to the expenses on managerial and professional personnel ($750), while the variance in expenses on clerical and technical personnel is actually favorable ($200). The major negative variance in the salaries of managerial and professional personnel can be explained with different reasons. Primarily, the acuity level of the patients’ conditions could have been higher than expected, which resulted in more hours of nursing care per patient. In this case, the cause would not be controllable for the nurse manager as the acuity of diseases cannot be predicted. It is also possible that the hourly rate for professional personnel was increased or more hours of care were paid than it had been anticipated due to the mismanagement of administration. The increase in hourly rate cannot be predicted as it generally happens due to the increase in the number of patients served. Furthermore, the higher expenses can result from increased overtime, which mostly happens due to excess in the use of sick leaves by the personnel. This factor is out of control for the nurse manager and can be particularly relevant when there is an epidemic in the community. The variance in personnel expenses can potentially result from some or all of these factors combined. The information that would help in defining the causes is the average severity of the patients’ conditions, the number of hours of care per patient and the number of overtime hours.

Within non-personnel expenses, only minor variances can be identified: $100 of unfavorable variance in supplies and materials, and $150 of unfavorable variance in travel expenses. Higher travel expenses can be explained with the larger number of conferences where the personnel participated this month. The travelling costs are hard to plan with precision because many of them arise unexpectedly. The statement of operations for non-patient revenues shows no variances either in the current month or in the year-to-date, which means that the budget was accurately planned in this aspect, with the consideration for all trends of the previous time periods. As a result, in the current month the center had the unfavorable variance of $400 in the rate of revenues over expenses. Hence, there is a need for the administration to analyze the causes behind the variance and plan the budget more accurately further on.

Neither favorable nor unfavorable variances should be interpreted as good or bad without prior investigation and analysis (Yoder-Wise, 2015). A large favorable variance might mean that the nurse manager failed to account for some expected changes in the sources of revenues. Also, it is not desirable in conditions when the hospital administration plans the major purchase of supplies or equipment and thus needs to know the actual amount it can spend the next month. Contrariwise, an unfavorable variance in benefits can be generally a positive sign of higher productivity and motivation of the personnel. When the travelling costs are concerned, the unfavorable variance can mean that the personnel are invited to more conferences than expected, which is positive for the reputation of the facility.

During the current months, the neighborhood nursing center had both favorable and unfavorable variances, though the extent of the latter was more significant. The cause that could potentially explain both kinds of variances is the increase in the number of patients andor in the average severity of their health conditions. In this case, the insurance payments would be higher than expected, but at the same time more hours of professional care would have to be provided, resulting in higher-than-expected salaries for the professional personnel. It is important to analyze the reasons behind the variances and to monitor their continuity over time in order to plan the budget more accurately further on.