Reflect on the types of budgets you have created, whether for your personal finances or in a professional role. How did the budgets help you (or your department) plan for the future? What insights did the actual results provide about the budgeting process?

Budgeting is an important activity within any health care organization. The particular challenges encountered, however, can vary depending on the type of organization. A state or federally funded organization, for example, will likely have a budget that is allocated to it, and it needs to follow specific guidelines on how the money can be used. A for-profit organization, by contrast, will typically have more influence and flexibility in setting up its budget and making choices on matters such as how much to spend on marketing, patient care, or incentives for employees.

Variance analysis relates to the difference between what was projected in a budget and what the actual results were, and helps managers identify the sources of such differences.

Question:

• Describe one or more key dimensions along which health care organizations vary with regard to budgeting.

• Identify a health care organization with which you are familiar, and indicate whether it is for-profit, not-for-profit, state, federal, or military. Discuss the purpose of budgeting in your selected health care organization. Why is this important to this particular health care organization?

• Briefly define variance analysis and explain how it would likely be used by the management in this organization. Provide an example (actual or hypothetical) of how it might subdivide variances.