Registered Nurse

Budget Management Analysis of Valley Medical Center

Shari Spencer

HCS/571

February 7, 2011

Debbie Vaughn

Budget Management Analysis

Valley Medical Center (VMC) is a publically owned healthcare network and in alignment

with it’s mission and vision work toward managing its operations in a fiscally responsible way.

VMC management uses careful planning and sound business practices to attempt to maintain a

financially strong organization and ensure adequate funds to provide the needed healthcare to the

community it serves (VMC, 2011). Effective financial control has a large impact on a hospital's

bottom line.

The cost variance of an operating expense is the amount of money that was actually spent

on a specific expense compared to the actual budgeted amount for a specific period of time. The

cost variance for an expense is figured by subtracting the actual expense from the budgeted cost

of a specific expense item. According to Cleverley and Cameron (2007, p.354), cost variance

analysis is of great potential importance to the health care industry”. The use of cost variance

analysis requires a system or method of setting standards used in the budgeting process and a

related system of cost accounting. Cost variances can signal that a potential or actual problem

exists in an organization and can also suggest or point to a possible cause. From a cost variance

analysis management can explain why actual expense costs are different from the budgeted

values. Looking at a variance analysis is a part of an organizations cost-control process also.

Cost Variances of Actual VS Budgeted Expectations

According to Cleverley and Cameron (2007) a cost variance analysis is the comparison of the actual amount spent on an expense for a specified period and a standard. For the purposes of looking at VMC’s operating expenses, the standard will be the budgeted amount and the amount spent in the previous...