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15.3 A MANAGER’S VIEW OF COMPARATIVE DATA It is important for the manager to always be aware of whether the data he or she is receiving (or preparing) are appropriate for comparison. It is equally important for the manager to perform a comprehensive review, as described here.

The Manager’s Responsibility

Whether you as a manager must either review or prepare required data, your responsibility is to recall and apply the elements of consistency. Why? Because such data will typically be used for decision making. If such data are not comparable, then relying upon them can result in poor decisions, with financial consequences in the future. The actual mechanics of making a comparative review are equally important. The deconstruction of a comparative budget review follows.

Comparative Budget Review

The manager needs to know how to effectively review comparative data. To do so, the manager needs to understand, for example, how a budget report format is constructed. In general, the usual operating expense budget that is under review will have a column for actual expenditures, a column for budgeted expenditures, and a column for the difference between the two. Usually, the actual expense column and the budget column will both have a vertical analysis of percentages (as discussed in the preceding chapter). Each different line item will have a horizontal analysis (also discussed in the preceding chapter) that measures the amount of the difference against the budget.

Table 15–1 (http://content.thuzelearning.com/books/Baker.6866.18.1/sections/ch15_sect1_3#ch15_tbl1) illustrates the operating expense budget configuration just described. Notice that the “Difference” column has both positive and negative numbers in it (the negative numbers being set off with parentheses). Thus, the positive numbers indicate budget overage, such as the dietary line, which had an actual expense of $405,000 against a budget figure of $400,000, resulting in a $5,000 difference. The next line is maintenance. This department did not exceed its budget, so the difference is in parentheses; the maintenance budget amounted to $290,000, and actual expenses were only $270,000, so the $20,000 difference is in parentheses. In this case, parentheses are good (under budget) and no parentheses is bad (over budget).

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Hospital 1

Year 2 Actual Year 2 Budget Difference

General Services Expense $$ % $$ % $$ %

Dietary $405,000 45 $400,000 46 $5,000 12.5

Maintenance 270,000 30 290,000 33 (20,000) (6.9)

Laundry 45,000 5 50,000 6 (5,000) (10.0)

Housekeeping 180,000 20 130,000 15 50,000 38.5

Total GS Expense $900,000 100 $870,000 100 $30,000 3.5

Table 15–1 Comparative Analysis of Budget Versus Actual