NUR5113 Module 3 budget variance analysis example

Fewer Patients, More Hours, Higher Pay: One October's Registered Nurse Labor Overrun on a Behavioral Health Unit, Taken Apart

Student Name

American College of Education

NUR5113: Management of Financial Resources in Nursing

Module 3 Assignment

Instructor Name

May 18, 2027

The Month in Question

The operating budget built in Module 2 for the composite 20-bed adult behavioral health unit planned an average daily census of 18.0, a registered nurse standard of 6.0 worked hours per patient day, nonproductive time of 12% and an average registered nurse rate of $46.50 an hour. For October, a 31-day month, that budget allowed 558 patient days and 3,804.5 paid registered nurse hours, which at the budgeted rate come to $176,911.

The unit's October report showed 527 patient days, an average census of 17.0, and 3,760 paid registered nurse hours at an average rate of $48.90, a total of $183,864. The registered nurse labor line was therefore $6,953 over budget in a month when the unit cared for 31 fewer patient days than planned. The chief nursing officer asked for an explanation. Penner (2017) points out that a total variance on its own says almost nothing about its cause, because a line can be over budget for reasons that have opposite meanings: more patients, slower work or higher pay. The analysis below separates them.

The Flexible Budget and Three Variances

A flexible budget restates the original budget at the volume that actually occurred. At 6.0 worked hours per patient day and 12% nonproductive time, each patient day requires 6.818 paid registered nurse hours. For 527 patient days, the flexible budget allows 3,593.2 paid hours, which at $46.50 an hour would cost $167,083.

Comparing the original budget with the flexible one isolates the effect of volume: the 31 fewer patient days multiplied by 6.818 hours and $46.50, or $9,828 favorable. Because the census fell, the unit should have spent less. The efficiency variance, sometimes called the quantity or use variance, is the difference between the hours actually paid and the hours the flexible budget allowed, priced at the budgeted rate: 3,760 minus 3,593.2 is 166.8 hours, which at $46.50 is $7,756 unfavorable. The unit used more registered nurse hours per patient day than its standard, 7.13 paid hours instead of 6.82. The rate variance prices the pay gap, taking the $2.40 by which the average hourly rate exceeded the budget and applying it to every hour actually paid: 3,760 hours at $2.40, or $9,024 unfavorable.

The three variances add to the total: $9,828 favorable, less $7,756 and $9,024 unfavorable, leaves $6,952 unfavorable, matching the total variance to within a dollar of rounding. The favorable volume variance hid two unfavorable ones; without the split, the month would have looked like a small overrun instead of a unit working more hours at higher pay for fewer patients.

Causes

The unit's staffing records explain the efficiency variance. During the second and third weeks of October, two patients admitted with psychosis and repeated assaults on staff required a registered nurse assigned with a mental health technician during meals and medication times, beyond the one-to-one observation already provided by technicians. The charge nurse also kept a fifth registered nurse on the night shift for nine nights after an assault on the unit, a decision that was reasonable for safety but was not reversed when the census fell.

The rate variance came from how those hours were filled. Of the 3,760 paid hours, 412 were overtime paid at time and a half, and 96 were worked by an agency nurse at $92 an hour. Both were used because two registered nurse positions have been vacant since August.

Two other lines also missed budget. Observation hours worked by mental health technicians were 912 against a monthly budget of 667, driven by the same two patients. And denied days rose to 33, or 6.3% of patient days, against the budgeted 4%, which at the blended rate meant about $29,500 of care with no payment, roughly $10,700 more than the budgeted denial rate allowed; 21 of the denied days were for a single commercial insurer whose reviewer changed in September.

None of these causes was visible in the monthly report itself, which showed only totals. They came from the staffing office's daily sheets, the observation log kept by the charge nurses and the utilization review nurse's denial list. Assembling those three sources took the nurse manager about two hours. The unit will now keep a short monthly log in which the charge nurses record each added position, each observation order longer than 72 hours and each denial with its reason, so that next month's explanation can be written from one document rather than reconstructed from several.

Responses

Each unfavorable variance needs a response the unit can control. For the efficiency variance, the charge nurse's decision to add a registered nurse after the assault was sound, but the unit had no rule for when to stop. The nurse manager will add a daily staffing review at 1400 in which any added position is either renewed with a reason or released, and will ask the psychiatrists to review the two long observation orders each day, as the budget assumed. The broader problem is aggression. In a cluster randomized trial on acute psychiatric wards, the Safewards model, a set of ten simple interventions aimed at staff and patient relationships, reduced conflict events by 15% and containment events such as special observation and restraint by 23.2% compared with a staff wellness program (Bowers et al., 2015). The unit will propose adopting Safewards, and Module 5 will examine its costs and outcomes.

For the rate variance, the answer is filling the two vacancies. Overtime is also a safety and retention issue: a systematic review found strong evidence that long working hours harm nurses themselves, although evidence of harm to patients was less conclusive (Bae & Fabry, 2014). The manager has requested approval to post the positions with a sign-on incentive, which at $5,000 each would cost less than two months of the current overtime and agency premium. For denied days, the unit's utilization review nurse will meet the new commercial reviewer, and the documentation training planned after Module 1 will start with the charge nurses in November.

The favorable volume variance needs a response too. The census fell because the emergency department held three patients for a week while their insurers searched for beds closer to home, not because demand fell, so the budget's volume forecast stands.

Reporting the Month

The explanation sent to the chief nursing officer fits on one page: the unit spent $6,952 more than budget on registered nurse labor while caring for fewer patients, because it used 166.8 more hours than its standard to manage two assaultive patients and paid $2.40 an hour more than planned because of overtime and agency use caused by two vacancies. Both causes are identified, both have responses under way, and the November report will show whether they worked. Reporting variances this way, cause first and number second, is what makes a budget useful to the people who manage the unit rather than a monthly verdict they learn to ignore.

References

Bae, S.-H., & Fabry, D. (2014). Assessing the relationships between nurse work hours/overtime and nurse and patient outcomes: Systematic literature review. Nursing Outlook, 62(2), 138-156. https://doi.org/10.1016/j.outlook.2013.10.009

Bowers, L., James, K., Quirk, A., Simpson, A., Stewart, D., & Hodsoll, J. (2015). Reducing conflict and containment rates on acute psychiatric wards: The Safewards cluster randomised controlled trial. International Journal of Nursing Studies, 52(9), 1412-1422. https://doi.org/10.1016/j.ijnurstu.2015.05.001

Penner, S. J. (2017). Economics and financial management for nurses and nurse leaders (3rd ed.). Springer Publishing.