Custom Budgetary Variance Model essay paper sample
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One way of determining whether an organization has achieved its objectives is to create a budget at the beginning of the year. A budget is an estimate of what the organisation is going to spend or the total amount of money required in a specific year for the organization to perform its duties and run smoothly. These however are not exact values as the amount of money spent could exceed or go below the estimated amount. At the end of a budget year the actual performance can be measured against the predicted performance. The difference between the two is what the judgement on whether the performance is as expected is based.
A budget variance refers to a situation where a difference occurs in the actual and predicted costs of operation. As David (2012) states there are several causes of variance in an organization. The budget variance also differs depending on the situation at hand. The variance can either be adverse or positive. A positive variance is more favourable than a negative one because this means that the estimates were higher than the actual results. In other words this translates to performance that exceeded the expectations.
In this case which is an analysis of the performance of a hospital radiology department some of the reasons could include: errors in the budget figures, errors in the actual outcome after the budget year and assumptions made in both the budget and the actual results. This budget is a static budget which means that there will be no changes made on it in between the year until the budget year ends. These types of budget are commonly used in businesses and smaller sections of a business and are drafted at the beginning of a company or department year (Chron, 2012).
An error can always occur in the budget allocations if the estimates that were made were not correct. This will translate to wrong estimates being made and by extension a wrong variance. The radiology department’s budget shows a favourable or a positive variance in the budget. This means that the actual end result exceeded the projected budget in the beginning of the year. When a variance increases the overall income of the organisation, that is, it is lower than the budgeted expenses then it is a favourable variance.
Breaking down the information into single aspects however will show that in the procedures while the estimated cost was $120,000 the end result was $100,000. This means that the department was able to save the balance of $20000 from procedures. The variable cost estimate was higher than the final outcome by $20,000. This means that the department met the costs at a lower value than had been predicted. This can be attributed to many reasons which include the manager’s effectiveness.
Evaluate the effectivenss claims of the manager using the budgetary variance mode.
Static budgets can be used to rate a managers’ performance in a work environment that does not change. In this case the radiology department is based on specified tasks and procedures and therefore it is easy to judge the manager depending on this performance. The past activities results can also be used to determine the level of competence of the manager. If the radiology department of the hospital has had past results which are closely related or lower than the current ones, then the manager might be considered effective. If the results are poorer than the past recorded outcomes however, there will be need for investigative measures to determine the cause of the drop.
The manager can claim to have been effective because the processes cost was lower which means that the workers did their work without much waste and misuse of the hospital resources. The motivating factors that led to the employees working harder than expected means that the manager was also monitoring and controlling all the activities of the organization. Other factors like improved working conditions and incentives could have also contributed. According to Thomas (2009) the work of a manager is to implement what the owners or the controllers of a business desire. This means that a manager should be able to implement decisions that will lead to a positive impact on the organization if they are to be considered as effective.
According to Dugdale & Lyne (2006) a budget can be used to determine a manager’s ability to compete and became a valuable asset for the organization. This is because most managers will work hard to ensure that the budget is not exceeded. They also want to ensure that their image is maintained within the organization. The department of radiology manager therefore shows that he is able to manage all the resources without wastage by all means. There was evidently avoidance of risks that would have led to more costs for the department. This in itself translates to accountability on the part of the manager.
A budget in itself will help managers increase their performance in so many ways. The manger is expected to seek information broadly on his department and always be aware of what the organization rules and regulations are. This information obtained when using a budget will also make a manager be aware of their job requirements and increase the quality of their decision making.
When a budget is drawn the department is setting the expectations and standards of performance on all employees including the manager. It is also demanding that commitment be observed and the results be attained. Since the employees will be aware that a feedback is expected from their office then they will ensure that they achieve good results. In a nutshell the budget shows the commitment of the manger in achieving the set goals. If there was no commitment achieving these goals would have been almost impossible (Miller B, 2006).
The manager will be more effective in the department if an analysis of the budget variance is done. This will assist in identifying where there were errors if any and also to correct the mistakes that may be causing a negative variance. Where the variance was positive then the activities that led to the same can be implemented on a day to day basis to maintain the positive trend. Doing this will have a positive impact on the mangers career.
What is your analysis of the department manager's performance?
The department manager performance can be rated to have been good. The positive variance in the budget could mean that there was an increase in the performance of the department’s activities. Apart from the procedures being favourable the average cost per unit also increased from $16 estimate to $18. This kind of variance will help the manager be informed of the abilities of the department and its financial well being.
The department manager needs to improve on some of the factors so as to increase the variance. This is because the positive variance is too minimal. To do this the manger may be forced to review the budget results to determine the link between the costs and revenue of the department and find out what can improve the performance. There is need also for the manager to compare the results with the previous years and decide whether there have been any major improvements or not. This will act as their own performance appraisal system especially if they have been in control for the said years. As stated by Jasmine (2011) evaluating line managers is not an easy process. This is because they are in control and they may become biased in their appraisals. A budget therefore may become the easiest appraisal formula for a departmental head like the radiology manager since if a negative variance occurs it will be clear that they did not perform as expected.
A budget is an important document for an organization. This is because it does not just account for the daily expenses and purchases but also keeps the employees on check. An organization that draws a budget will also be cushioned against incidences like fraud since a record will have been kept. In a health care facility for example a budget will ensure that at no point will the hospital run out of resources to meet its needs. An organization however must choose the kind of budget that is suitable for their organizational needs to avoid confusion. The manager should always monitor the progress of a budget in the course of the budget year to avoid deadlocks.