Theses reports are significant to the functionality of the organization. The main individual that often utilize these reports are mangers to ensure the unit will be staff appropriately and purchasing of new equipment for the unit. The budget amount is overseen and disbursed yearly to the units based on prior ear budget.
Thus, the budget management analysis report is what give mangers the ability to analyze the importance of the unit needs. The paper will identify of specific strategies to manage budgets, describe six expense results with budget expectations with reasons for variance and finally recommend three benchmarking techniques that identify those that might improve budget accuracy in the future. Strategies to manage budget Mangers use informed discretion on the methods of budget control. By ensuring the budget is controlled will allow for unforeseen forecast to be dealt with appropriately.
Some of the popular methods of adhering to a budget consist of zero based budget, activity based, performance based, cost variance, and finally benchmarking. Zero based budgeting is analyze the all the expenses within a organization and justifies the need for the expense. This method is sure to help in balancing the budget of the organization and incorporates explanation for each cost and expense. Activity based budgeting is another method that is used as a strategy to manage budgets. This is used as a method of gather operating cost data, which is a more specific method impaired too zero based budgeting.
Performance based is more for the metrics of performance and analyses the root cause of financial problems. Cost variance is a difference between the expected budgeted cost and the actual cost incurred for the period in question. Benchmarking is a strategy that is geared toward maintaining and increasing performance based on previous budgets , industry comparisons, and improvements based on data analyzed. Expense results The expense section of an report shows the budgets on various sections of the organization. The expense report shows the budget and the actual mount that was spent.
Fifth amount spent shows a deviation from the actual amount is called the variance. The variance is considered to be an unwelcome amount by the finical sector because that amount was unexpected and calls for validation on why that amount was spent. In any organization if a variance occurs that department manger has to explain to management as to why that amount occurred. If the reason is justifiable enough then upper management will be force to adjust the budget for the following year to incorporate that variance. Budgets are created based on the previous year.
The six budgets that are typically expected to have a deviation is payroll, cafeteria plan, health benefits, taxes such as PICA, supplies, and education expense. While analyzing the reports from Memorial healthcare their happens to be a variance in the payroll budget by one half of a full cycle payroll in May of 2014. The administration decided based on performance figures it was okay to award all employees a bonus of half of cycle paycheck. Now this does not include additional overtime hours or additional staffing acquired during the course of the year.
This will definitely affect the expected budget with a significant variance. Payroll is usually one of the companies biggest expenditures which becomes harder to mange due to the twenty four hour work cycle environment of a healthcare system. The cafeteria plan is an older name that refers to the retirement plans that include 403 B(non for profit organization) and 401 K. This budget may have variance due to the fact that their is a company match based on a percentage each employee decided to contribute to their retirement.
This variance will happen if more younger employees decide to sign and older employees decide to increase their percentage during a fiscal year. This increase in participation and percentage will increase the total amount of company match needed to satisfy the plan agreement. Health benefits are determined by current market conditions. Also, in the next several years the affordable care act is scheduled to cause significant changes to the healthcare environment. Companies such as Memorial healthcare system are pressured to increase their healthcare benefits budget.
This pressure comes from Memorial healthcare benefits provider whom analyze current market conditions to forecast how much more is expected to cover this cost. Due to the fluidity of the open market this forecast can come at a quarterly bases. In order to meet this challenge the healthcare system can place the burden on the employees on increasing their healthcare deductions. This action will cause a significant employee dissatisfaction and as a result the system decided to increase the budget and only a slight increase to employee deduction. This variance will be added to budget expectation bottom line.
Taxes also carries a company match required by the IRS regulations. As a result our special bonus in May will increase our expected budget for taxes by he tax amount paid by employees. Other things effect taxes include employee earning due to promotions, overtime, and new hire’s. Any failure by an employee to report taxes on time; quarterly, semi annually or annually, depending on size of company will have an IRS penalty and cause a variance to the tax budget expectation. Supplies are based on demand and typically there is no easy way to determine amount that will be needed.
So this among all expected budget in most cases will have a variance. In a hospital setting census will determine how much supplies are required in any given period. During low census periods disposable supplies are saved which results in a positive variance. Perishable supplies do not follow this same principle because the effectiveness of the product has a time limit. This has encouraged Memorial too look into supply chain management. Education of staff is on the rise considering the recent changes and required certification the healthcare organization is implementing.
With the recent increase in educational requirements will cause the organization budget to experience a variance. Thus,requiring staff to participate in classes within the aerospace will increase the amount of funds needed. Benchmarking Benchmarking is goal that many organization want to meet yearly to ensure their performance will always maintain at that level. Benchmarking is a technique that organizations use to find best practices and to incorporate those practices within the organization (Pinker, Cover, & Jones, 2007, peg 341 Incorporating benchmarking is what sets targets and goals for the organization to meet yearly.
Their are at least three benchmarks that many organization tries to incorporate in the organization which are financial, reference, and operational. Financial benchmarking is a performance way to analysis the overall productivity of the organization while still remaining competitive within your industry. This method is effective so that the financial sector of the organization will always have a goal that must be meet in order for the bottom line to not be affected to much throughout the fiscal year. Performance benchmarking involves analyzing data from other organization.
By forcing the organization to look beyond itself, many useful approaches developed elsewhere can be used to benefit the organization(Finnier, Cover, & Jones, 2007, peg 341). This benchmark allows for the organization to create benchmarking targets and identify opportunities to improve performance. Also allows to optimize their standards against others. Operational benchmarking embraces everything of the operational flow Of the organization. This benchmarking assessment considers every aspect of business from office productivity and staffing. This benchmark is critical to the various level of strategies that are implemented.
Conclusion Their are a variety of strategies that are implemented to ensure the budget s maintained and variance are not too widely deviated without proper explanation. Business is a world that has many strategies that has to be implemented to ensure the bottom line is not effected greatly. The point of business is too maintain expectations. These strategies are based on previous year performance so that the result do not deviate to greatly from expectations.