Budget Management Analysis
Budget Management Analysis
Budgets are used in many organizations to plan the fiscal year of the institutions. Preparing a budget helps to allocate the available funds of each department within the company. Creating a budget is a vital tool in keeping the financial status in order, focusing on all the cost over a select period of time to achieve financial stability. Budgeting involves forecasting the demand for resources that create variable cost or flexible cost. Chief financial officers of the organizations are in charge of creating the budget through forecasting. Not having a budget can be catastrophic for any organization.
There are many types of budgets. ...view middle of the document...
This tactic also drives an individual toward the establishment of effective monetary policy”. (Deschamps, 2004, p. 648).
The second strategy is to adopt policies and principles toward to limit the debits of the institution that are not essential to the functioning of the business. Good management needs to be able to cut expenses in order to establish a solid financial statement for the institution. Business needs to operate with the basic needs, what is not a needed, should be saved and should be allocated on others cost of the facility. One way of reaching a financial goal is reducing expenses and increasing productivity through effectively controlling costs.
Budget analysis is an important aspect of budgeting. Examination of the expenses and analyzing the financial data of the business is a fundamental part in a budget. Financial date provides useful information that health care leaders utilize to project the future finance of the organization. Analyzing the two years data, a variance or a difference is obtained which, helps to identify each expense. Managers can utilize the variance data to determine the reasons why each expense has increase or decrease in order to forecast future budgets.
Budget expenses | 1st Year | 2nd Year | Variance |
Salaries and wages | $650,000 | $655,600 | $5,600 |
Professional fees | $25,000 | $22,000 | $3,000 |
Tuition | $5,000 | $3,000 | $2,000 |
Benefits | $15,000 | $13,000 | $2,000 |
Supplies | $13,000 | $16,000 | $3,000 |
Management by exception is the practice of examining the financial and operational results of a business, and only bringing issues to the attention of management if results represent substantial differences from the budgeted or expected amount. For example, the company controller may be required to notify management of those expenses that are the greater of $10,000 or 20% higher than expected. The purpose of the management by exception concept is to only bother management with the most important variances from the planned direction or results of the business. Managers will presumably spend more time attending to and correcting these larger variances. The concept can be fine-tuned, so that smaller variances are brought to the attention of lower-level managers, while a massive variance is reported straight to senior management ("What is management by exception? - Questions & Answers - AccountingTools", n.d., p. 1).
Analyzing the two years data, it was found an increase in salaries of $5,600 in the second year. This increment could be the result of decrease of LPN through the institution. Now the hospital is not hiring any more LPN’s. An LPN will cost $10,000 less than a RN per year. Benefits showed a decrease of $2,000, since JHS Health Care Plan monopolized the health care of the institution, so it was possible to decrease the cost. The tuition reimbursement showed a decrease of $2,000 dollars for the second year since the institution is not given the $2,000 bonus once...