Brief Summary: 

Suppose that the nurse manager has the following information on the
monthly variance report:

Nursing Labor: Actual Budgeted Variance

  $57,560 $53,320 $4240

1.      What components of revenue and expenses went into developing the budgeted
amount for nursing labor?

A budget is a monthly or annual plan that incorporates the goals and objectives of an
organization. It also lists all revenues and expenses and provides a guideline to the
organization when it comes to the utilization of material and human resources. The
budgetary planning results in the best ways to achieve the best objectives and at the same
time, ensuring cost-effective and high quality services (Bailey, 2018). Revenue and expenses
projections are reviewed and compared during planning. The component of revenue that
went into developing the budgeted amount of labor was based on charges. Revenues are
the funds that the organization receives from patients’ visits, Medicare inpatient
hospitalization, procedures, Medicaid private insurers as well as individual patients (Finkler
& McHugh, 2007). Some of the charges are paid in parts as they may be discounted
depending on the individual paying. The budgeted revenues are usually projected as per the
average number of days spent by the patient in the unit, or from the daily census within the
facility.

The expenses incorporated in the budget include the cost of nursing staff, suppliers, and
activities, among other items that can be used for the operation of the organization. There
are two main types of expenses used in budgeting. These costs include non-salary costs and
employment costs (Issel & Wells, 2017). The employment cost includes wages, salaries,
overtime shift differentials, holidays, orientation, service, education, plus other benefits.
Wages and salaries comprise the non-productive and productive time. The actual hours that
each staff member work is mainly referred to as productive time. The period is mostly 2080
hours. It is computed as the exact time worked less vacations, orientations, and educative
hours in the year. The other component of expenses used in the budget computation
include:

Contract labor-The contact labor refers to the amount that other parties or individuals who
are not part of the organization pay (Harrington, 2019). The payment can also be regarded
as agency nursing.

Orientation/educative-The nursing manager must include when making the budget, the
period of orientation, education as well as in-service spent by the employee.
Benefits-Some of the benefits in a nursing organization include holidays, vacation and sick
time. Since vacation and holidays are earned, the organization considers to make the bonus.
The manager can control the vacation and monitor the vacation time. However, various
organizations have clear procedures as well as policies to handle vacation time. Such
organizations, in most cases, do not allow more than two staff members to go on a vacation
at the same time. This category also includes health insurance premiums as well as
employment taxes and retirement contributions.

Medical supplies-The Medical suppliers are always present in a healthcare organization.

The staff members caring for patients would, in most cases, use catheter trays, IV tubing,
bandages, thermometer covers, among others. The equipment is included in the patient
charges. The central supply personnel stocks and restocks inventory of medical supplies for
each nursing units daily.

Office Supplies-The office supplies include products like pencils, pens, folders, paper clips,
and forms, among others. These supplies must be bought for daily operations of the
healthcare organization.

Equipment lease/rental-Any equipment that is either rented or leased must be budgeted.

The material might take the form of respirators, IV pumps and specialty beds.

Repair and maintenance-Any items requiring repair and maintenance fall under this
category. Examples of this category include repair of telemetry unit. Fixes of up to $500 are
included in the operating budget while those above $500 forms part of capital budgeting.
The cost of maintenance is charged internally from the departments within the organization.

Travel-The travel category includes trips attended by employees for educational purpose.
The travel and other expenses related to the journey are covered in the budget.

Pharmacy and central supply-The pharmacy category incorporate the stock of

medications for each unit of the organization. The pharmacy departments restock the items
once they are used and charged. Primary supply mainly stock supplies like glucometer, IV
kits, irrigation solution, among others. The items are used and cost as well. They are
incorporated in the monthly budget.

2.      What should the nurse manager consider to justify the variance between what
was predicted in the budget and what actually happened?

The difference between what was expected and what happened creates a variation. To bring
back the planned amount, the nurse manager must always justify the reasons for the
variance (Shirley, 2016). There are various considerations when explaining the difference.
One of them is the volume. One of the primary justifications for the difference is the volume.
The budgeted amount may be either lower or more than the actual volume. That can lead to
more expenditure than was predicted, resulting in the variance. Weather can also be milder
than expected. This can result in less stress to the population, resulting in a decrease in
volume. The new technology or medical advances can bring about the variance (Stichler,
2015). Something new can be bought, or new supply was done in the month, resulting from
increasing in cost. Age and physical condition of the patients can also result from a variance
as it can result in either higher or lower consumption levels of services and supplies.
Competition can also result in variation because another facility can be developed and start
consuming some volume. (Joseph, & Fowler, 2016) Change of practice and protocols can
lead to change in supplies or even the cost of supplies, leading to variance. The contracts
can change in the month, leading to a change in the price of the suppliers. This may result
in a reasonable difference between what was expected and what has happened. 

Bailey, D. (2018). The NHS Budget Holder's Survival Guide. CRC Press.

Finkler, S. A., & McHugh, M. (2007). Budgeting concepts for nurse managers. Elsevier Health
Sciences.

Harrington, M. K. (2019). Health Care Finance and the Mechanics of Insurance and

Reimbursement. Jones & Bartlett Publishers.

Issel, L. M., & Wells, R. (2017). Health program planning and evaluation. Jones & Bartlett
Learning.

Joseph, M. L., & Fowler, D. (2016). Innovating traditional nursing administration

challenges. JONA: The Journal of Nursing Administration, 46(3), 120-121.

Below is the response from my partner. I need you to reply to

it. Thank you.
I enjoyed reading your post and think you did a great job breaking down and addressing
each of the expenses that might be included in a unit budget.

Nurse managers are often directly involved in fiscal planning of personnel, operating and
capital costs. Naturally, the personnel budget is the largest expenditure because healthcare
is labor intensive (Marquis & Huston, 2017). Furthermore, nursing is typically the largest
professional group in a hospital (Sherman, 2012). As such, nurse managers play a huge role
in managing costs.

In terms of budgeting for nursing labor, there are a number of things a nurse manager
needs to consider to minimize variance. In your response, you touched on a lot of them.
Indeed, you specifically mentioned personal costs such as wages, salaries, overtime shift
differentials, holiday pay, personnel orientation services, personnel education costs and
other miscellaneous benefits. The nurse manager must also consider fluctuations in patient
census and acuity. Fluctuations can be predicted through careful evaluation of historical
censuses (Marquis & Huston, 2017). As patient stays and volume change so should
personnel costs. The nurse manager also needs to be aware of staffing mix. Staffing mix
represents the amount of licensed registered nurses, vocational nurses and unlicensed
assistive personal who are working at any given time (Marquis & Huston, 2017). Staffing mix
should change based on patient acuity to provide for the highest quality and most
economic nursing care (Marquis & Huston, 2017).

As you indicated in your response, the nurse manager needs to justify the variance related
to personnel costs which might include patient volume, technological improvements that
influence patient acuity or length of stay and/or unanticipated competition from other units
or healthcare facilities. The variance issue in this instance might be explained by an
inadequate predetermined standard wherein the standard is not an accurate prediction of
the needs. For instance, this could be seen if the unit begins to perform a new procedure
that unexpectedly increases patient acuity or length of stay. Alternatively, the variance might
be due to a huge fluctuation in patient census or number of visits that were impossible for
the nurse manager to predict. Such would be the case in the event of an emergency where
census and, potentially, acuity reaches a maximum that historically has never occurred.
Perhaps a final take-away might be that nurse staffing is critical for the financial and safety
performance of hospitals in competitive markets (Everhart et al. 2013). As such the nurse
manager should determine whether or not the reason for this variance requires additional
evaluation to ensure that the budget adequately reflects unit needs moving forward.

Everhart, D., Neff, D., Al-Amin, M., Nogle, J., & Weech-Maldonado, R. (2013). The effects of
nurse staffing on hospital financial performance: competitive versus less competitive
markets. Health care management review, 38(2), 146–155.
doi:10.1097/HMR.0b013e318257292b

Marquis, B. L., & Huston, C. J. (2017). Leadership Roles and Management Functions in

Nursing (9th ed.). Philadelphia, PA: Wolters Kluwer.
Sherman, R. (2012). The business of caring: What every nurse should know about cutting
costs. American Nurse Today 7(11).