Healthcare Budget Variances: Understanding the Different Types

Favorable Variance

A favorable variance in healthcare budget refers to a situation where the actual expenses or costs incurred are lower than the budgeted or expected amount. It indicates that the healthcare organization has spent less than anticipated, resulting in cost savings.

Unfavorable Variance

An unfavorable variance in healthcare budget occurs when the actual expenses or costs incurred exceed the budgeted or expected amount. It indicates that the healthcare organization has overspent, leading to a budget deficit or increased costs.

Volume Variance

Volume variance in healthcare budget refers to the difference between the actual volume of services provided and the budgeted volume. If the actual volume is higher than budgeted, it may result in higher expenses and an unfavorable variance. Conversely, if the actual volume is lower than budgeted, it may lead to cost savings and a favorable variance.

Price Variance

Price variance in healthcare budget reflects the difference between the actual prices paid for goods or services and the budgeted prices. If the actual prices are higher than budgeted, it may result in increased expenses and an unfavorable variance. Conversely, if the actual prices are lower than budgeted, it may lead to cost savings and a favorable variance.

Efficiency Variance

Efficiency variance in healthcare budget refers to the difference between the actual resource usage and the budgeted or expected resource usage. It measures the efficiency or effectiveness of resource utilization. A favorable efficiency variance indicates that resources were utilized more efficiently than anticipated, resulting in cost savings. Conversely, an unfavorable efficiency variance suggests that resources were underutilized or not used efficiently, leading to increased costs.

Revenue Variance

Revenue variance in healthcare budget represents the difference between the actual revenue generated and the budgeted or expected revenue. It measures the deviation in revenue performance. A favorable revenue variance indicates that actual revenue exceeded the budgeted amount, resulting in increased revenue. An unfavorable revenue variance suggests that actual revenue fell short of the budgeted amount, leading to decreased revenue.

These are some common types of budget variances that healthcare organizations monitor to assess their financial performance and make necessary adjustments to their budgeting and cost management strategies.