Management Analysis: Alberta Health Services Hospital

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Table of Contents

Introduction
Budget Actual Variance Analysis
Benchmarking techniques in addressing budget variances
Conclusion
References

Introduction

Creating a budget is a prudent way of managing and accounting for finances. Hospitals control large amounts of money. To maintain accountability, budgeting is vital since it ensures financial sustainability. This paper seeks to analyze the Alberta Health Services hospital to determine its budget variances and find out whether its budget variances are positive or negative.

Budget Actual Variance Analysis

This is an Actual Variance Analysis of the budgetary report prepared by Alberta Health Services. There are two types of budget variances, favorable and unfavorable variances. When the actual revenue surpasses the budget, the condition is considered favorable (Eagle, 2011). This analysis will be based on the budgetary report of five financial years.

AHS received a boost funding from the government. This boost was an increment of about 6% for that particular fiscal year (Eagle, 2011). This was part of a five-year commitment of the government. In the following two years, the hospital continued to receive a 4.5% increment in financial support for two successive years (Eagle, 2011).

The financial boost has greatly enabled the hospital to plan for its long-term goals and at the same time to have budgetary control. However, the hospital has been recording a 10-11% increase in spending in every financial year (Eagle, 2011). With such an increment, the hospital needed to be careful with its spending even with the financial boost granted by the government. The hospital had to take deliberate actions to enhance maintenance and accountability to have a sustainable financial baseline. It is however important to acknowledge the fact that the volume of services increases spending (Eagle, 2011).

Other aspects that influence the rise of spending include changes in technology, contract rates, and inflammatory pressure (Eagle, 2011). The hospital has reduced its cost from an average of 10% to 6% and this is envisaged to continue in a downward trend. This has been achieved through the company’s strategy of saving and avoiding costs (Eagle, 2011). The hospital has always focused its energy to improve its financial sustainability. Unlike most hospitals, AHS is committed to living within its means by avoiding unnecessary spending and cost as mentioned earlier.

The following is a spend analysis of the hospital in the financial year 2009 to 2014 (Eagle, 2011).

Expense 1- 10,300,000 10,000,000 -300,000 positive variance
Expense 2 – 10,500,000 12,000,000 -1,500,000 positive variance
Expense 3- 14,000,000 10,800,000 -3,200,000 positive variance
Expense 4- 14,500,000 12,000,000 -2,500,000 positive variance
Expense 5- 16,200,000 12,200,000 -4,000,000 positive variance

These variances are positive since the actual spending is less than the amount of budget allocation.

Benchmarking techniques in addressing budget variances

Budget management is a vital process in any organization. Lack of effective budgetary procedures can lead to negative budgetary variances, which is an undesirable consequence. To avoid this, AHS has to implement several good practices concerning budget management to be sure of a sustainable financial future. Benchmarking is the continuous practice of comparing one’s performance against the performance of others (Benjamin, 2014). Techniques that can help AHS in addressing budgeting variances include implementing new strategies, conducting surveys, and developing key performance measures (Benjamin, 2014).

Implementing new strategies

The hospital has been using the cost-avoidance strategy to keep its spending at the lowest levels possible. However, this strategy has been undermined by other factors that influence spending. These factors include technology and the growth of the organization. While these impacts remain constant, the cost avoidance strategy may not be viable in the future.

Copying strategies used by the competitors can help AHS to foster and anticipate a better future in its budgetary variances. It is not enough to learn from other hospitals. Instead, AHS should learn and develop its strategies with the acquired knowledge. A good budget should be progressive (Benjamin, 2014).

Conducting surveys

By conducting internal and external surveys, the hospital can be able to identify areas where changes are required. This includes conducting research and interviewing staff to gather the needed information that can help to influence changes. This involves comparing the organization’s potential and strengths by monitoring its current performance. This exposes the areas where changes can be done to improve future performance (Benjamin, 2014). AHS can survey its spending concerning its services to prepare a better budget.

Developing key performance measures

Identifying key areas where improvement is required is vital for benchmarking and for a better budget. Through this, the organization can know where the problem is. However, identifying the shortcomings of a budgetary process is not enough to deal with unfavorable variances. The organization has to develop performance measures aimed at improving the budget process. This can be copied from other players in the same industry who are performing better than AHS.

This includes being accustomed to the business environment to develop accurate budgeting formulas (Benjamin, 2014). To achieve this, one has to look at the external factors that affect the organization’s budget. The ease of data gathering is vital at this stage.

Improving budget forecasting

Through these three techniques, it is possible to improve budget accuracy and forecasting. This is simply because the knowledge and data collected enable one to study the trends of failure or success. This helps in identifying errors affecting budgetary variances (Centage, 2014). Through surveys, it is possible to learn the strategies that can work effectively for the organization and identify those that cannot work. This includes surveying external factors that hamper effective budgeting and they may include the competition (Centage, 2014).

After learning, one has to implement and put the knowledge acquired into practice. Having better strategies will help in improving the organization’s budgeting variance, which currently seems to be very impressive. Nonetheless, there is always room for improvement and rampant technology has over-emphasized this fact.

Conclusion

This is an analysis of the ASH hospital budget plan. The paper has analyzed the financial budgeting between the years 2011-2015. The paper seeks to identify whether or not the budget variances in AHS’s spending are positive or negative. Based on the evidence from the calculation of its spending, the budget variances were found to be positive.

The paper also gives an in-depth insight into various ways or techniques of benchmarking in an attempt to improve and enhance budget variances. These techniques include implementing new strategies, conducting surveys, and developing key performance measures. In the end, the paper suggests ways that these techniques can help in budgeting and improve the level of budget variances. Change of business practices is considered the most effective technique.

References

Benjamin, T. (2014). How to Use Benchmarking Techniques Effectively. Web.

Centage: Improve Budget Accuracy. (2014). Web.

Eagle, C. (2011). Operating Budget and Business Plan. Alberta Health Services, 1(1), 7-8.

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