How well do hospitals budget operating results? The relationship between budget variances and operating margin

• Main Author: Slyter, Mark F.
• Language: EN
• Published: The University of Alabama at Birmingham 2016
• Subjects: Accounting|Business administration|Health care management
• Online Access: http://pqdtopen.proquest.com/#viewpdf?dispub=10246287

<p> There is a near-universal assumption in both practice and literature that greater accuracy and management to the budget improves profitability (Libby &amp; Lindsay, 2010; Umapathy, 1987). Prior to this study, this assumption has gone untested and we know little about the wisdom of such an assumption. </p><p> The results of this study indicate greater accuracy in forecasting and/or tighter management to the budget, or favorably exceeding it, leads to improved profitability. More specifically, smaller unfavorable budget variances are associated with greater operating margins while greater favorable budget variances are associated with greater operating margins. A single standard deviation reduction in unfavorable revenue and expense increases operating margin by 5.2% and 6.3%, respectively. An equivalent favorable deviation in revenue and expense increases operating margin by 3.2% and 2.7%, respectively. Managers can improve hospitals&rsquo; operating margins by first prioritizing the reduction and/or eliminating unfavorable variances, and second increasing favorable variances.</p>