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1 Week 4: Staffing Budgets/FTEs/ Variance Analysis Student’s Name Affiliation Course Name Instructor Date

2 Week 4: Staffing Budgets/FTEs/ Variance Analysis Section One—Staffing Budget and FTEs Personnel Budget Case Study Sandra Chambers has recently accepted the position of assistant administrator for the department of nursing at Potter Regional Medical Center where she will oversee the operations of five medical units. As she evaluates the budgets for the different cost centers, she finds that all are being used at near or full capacity. The activity in four of the five has remained steady over the past 2 years. A fifth unit has realized a steady increase in patient volume during that time and is currently at 88% capacity. It has been projected that within the next 12 months the volume of patients moving through that unit will increase by 20%. Sandra needs to determine if the current FTEs for the unit will be sufficient to ensure quality and safe care continues to be provided, and if not, what is the number of FTEs that will be needed to cover a 20% increase in volume. 1. Suggest all the information Sandra needs to collect in order to project the FTEs needed for the next fiscal year accounting for the projected increased capacity. Remember, she is new to her position so be sure to include background data on the unit itself as it relates to previous budgets, nursing staff, and the organization. In other words, summarize your approach to this Case Study. Sandra's first duty in her new position is to understand about the unit's expenditure as well as how to calculate the employees to patient proportion (personnel combination) needed to achieve the Potter Regional Medical Center objectives of working to improve patient outcomes, involving patients in all aspects of their therapies, and reducing institution as well as patient expenses. Considering these concerns, information on the population of clients received

3 and treated on the unit, as well as their degree of severity, is needed. For this assessment, Sandra will require patient days, length of stay, and occupancy percentage. Nursing shortages affect patient medical care services, diminish nurse’s enthusiasm, and result in carelessness, aggravation, weariness, heavy workloads, undue responsibility, anxiety, and exhaustion (Tuna & Kahraman, 2021). 2. Sandra has collected the following census information on all five units for the last month, in addition to what was asked in question number one. Calculate the ADC and Occupancy Rate for each unit using the Daily Census/Occupancy Rate table to determine which unit is currently at 88% occupancy rate and projected to increase over the next year. Unit Beds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Total Patient Da A 35 31 30 31 30 29 30 31 30 31 29 29 32 31 33 31 31 33 34 34 34 34 32 30 32 31 30 30 33 31 34 0 941 B 15 15 14 11 9 7 12 12 15 13 13 16 15 15 15 16 16 15 14 15 16 15 13 13 17 16 15 16 16 14 15 0 424 C 13 10 12 11 11 11 13 13 13 12 13 12 12 12 13 13 13 13 13 13 13 13 13 13 12 12 12 12 13 13 13 0 372 D 32 30 27 27 24 26 23 27 29 28 28 25 27 30 26 31 31 30 30 30 32 32 32 26 25 25 25 23 31 31 30 0 841 E 6 6 3 3 3 3 5 5 5 2 2 2 2 4 4 3 3 0 0 0 6 5 5 3 3 3 2 5 4 3 3 0 97 (adapted from…..Healthcare Financial Management Association (2012). Managing fiscal resources: A budget and productivity case study. Retrieved from hfmamd.org Workings and formulae ADC = Total Days of Inpatient Services divided by Total Days in the time of stay Occupancy percentage = Overall number of inpatient days expressed in percentage divided by Available beds multiplied by the total number of days in the time

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4 Average Daily Census/Occupancy Rate Unit ADC Occupancy (%) A (941/30) = 31 (941*100/35*30) = 89.6% B (424/30) = 14 (424*100/15*30) = 94.2% C (372/30) = 12 (372*100/138*30) = 95.4% D (841/30) = 28 (840*100/32*30) = 87.6% E (97/30) = 3 (97*100/6*30) = 53.9% The Unit with an 88% occupancy rate is ___D__. 3. Using data contained in the first questions, complete the table below and determine the Average Length of Stay (ALOS) for the following three units. Show your work. Unit # Beds Patient Days # Discharges Average Length of Stay (ALOS) A 35 941 110 (941/110) = 9 C 13 372 96 (372/96) = 4 D 32 841 85 (841/85) = 10 What is the ALOS for the unit you identified earlier at an 88% occupancy rate? _ 1 week and 3 days____ You have determined the Unit for which Sandra must make FTE projections. For the remaining questions in this section, refer to the figures used and or obtained related to the Unit identified in Question 1.

5 Additional information includes  the budgeted hours of care per patient day (HPPD-budgeted) is 7.5; and  each employee receives 300 paid non-productive hours/year. 4. Calculate the number of FTEs needed for the Unit. Show the formulas used and all calculations. Include the reference used for your calculations at the beginning of your work. FTES Workers works 7.5 hours a day They also work 5 days in a week 52 weeks in a year (Leger & Sharron, 2021) 7.5 * 5 * 52= 1,950 Total Patient Days ADC X 365 (Leger & Sharron, 2021). 28 x 365 = 10,220 Total hours of care provided. Total patient days for a year multiplied by hours of care each day. 10,220 x 7.5 = 76,650 (Rundio, 2022) Compute the number of FTEs required Total annual hours of care to be provided / annual hours performed by one FTE = required FTE (Rundio, 2022) 76,650 / 1,950 = 39.31 So, 39.3 FTE will be required

6 5. Calculate the TOTAL FTEs needed accounting for nonproductive time. Include the reference used for your calculations at the beginning of your work. To calculate non-productive hours, Sandra need to subtract the 300 non-productive hours annually allocated to each worker. A complete equivalency (FTE) is 1,950 hours per year. 1,950 which is FTE – 300 which is non-productive hours = 1,650 The total number of hours of care provided (76,650) divided by 1,650 equals 46.45. So, 46.45 FTE will be required. 6. Sharon now knows how many total FTEs are currently needed on the unit to provide safe, quality care to the patients on the unit. However, with a 20% projected increase in occupancy rate and average length of stay remaining steady on the unit, how will the required FTEs be affected? 10,220 * 20/100 = 2,044 10,220 + 2,044 = 12,264 12,264 * 7.5 = 91,980 91,980 / 1,950= 47.17 47.20 – 46.45 = 0.30

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7 Sharon requires 0.75 equivalent to 1 FTE staff which is an increase of 20 percent in the number of full-time equivalents (FTEs) in the unit. 7. Calculate the TOTAL FTEs required to reflect an increased patient volume of 20% (don’t forget to account for nonproductive time). Include the reference used for your calculations at the beginning of your work. Sharon has to account for 300 hours of non-productive time per worker annually. 91,980 / 1,650 = 55.75 55.75 – 46.45 = 9.30 Sharon will require an increase of 9.30 employees to the unit, with an expected increase of 20 percent when non-productive yearly hours are factored in. 8. When Sharon calculated the number of FTEs budgeted currently in this unit and compared it to the number of actual FTEs being paid for, she found she was under budget by three FTEs. Explain how that could have happened and how this information affects her FTE budget request for the next year. Because non-productive hours was not considered into Sharon's original workforce demands, her first FTE computations were inaccurate. This would not compensate for the need to cover shifts due to academic or holiday commitments. A discrepancy report that demonstrates the computation will help in the acquisition of the necessary FTEs.

8 ______________________________________________________________________________ _ Section Two—Variance Analysis Variance Analysis Case Study During the month of February, an outpatient surgery clinic has incurred a significant unfavorable variance. The director of the clinic is quite concerned, as this has never occurred before. The director gathers information on total nursing care hours, average hourly rate of the employees, and total patient visits to determine what caused the variance. In addition, the director receives the patient acuity levels for the month of February. Budget Actual Budget Variance Patient Days 450 520 70 Nursing Care Hours 2250 2912 662 HPPD 5.0 5.6 0.6 Average Hourly Pay $35.00 $45.00 $10.00 Total Payroll Costs $78,750 $131,040 $52,290

9 (Table adapted from: Rundio, A. (2022). The nurse manager’s guide to budgeting and finance (3rd ed.). Sigma Theta Tau International.) 1. Complete the monthly personnel report for the surgical unit. 2. Calculate each of the following. Include the formulas used with reference. Remember, as this monthly report deals with payroll, the variances should be in dollars. Total hours of care delivered = Total patient days for a month x Hours of care per day Extra patient day = Actual patient days – budgeted patient days 2,912 – 2,250 = 662 (Rundio, 2022) a. Volume (efficiency) variance: Patient Days / Nursing Care Hours = HPPD Budgeted 2,250 / 450 = 5.0 Actual 2,912 / 520 = 5.6 Average Nursing Care: Actual HPPD – Budgeted HPPD = Average Nursing Care 5.6 – 5.0 = 0.6 Total number of hours spent providing extra nursing care: Total Nursing Care Hours = Average Nursing Care Hours * Actual Patient Days Total nursing care hours 0.6 x 520 = 312 Calculating the Efficiency Variance: Efficiency Variance = Total Extra Nursing Care * Budgeted Hourly Wage The Efficiency Variance 312 x 35 = 10,920 (Rundio, 2022)

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10 b. Quantity (volume) variance: Extra Patient Days: Extra Patient Days = Actual Patient Days – Budgeted Patient Days 520 – 450 = 70 Extra Patient Days Nursing Care Hours Provided: Nursing Care Hours Provided = Extra Patient Days * Budgeted HPPD 70 * 5.0 = 350 Calculating Volume Variance: Calculating Volume Variance = Extra Nursing Care Hours Provided x Budgeted Hourly Pay Rate 350 * $35 = $12,250 (Rundio, 2022) c. Cost (price) variance: Computing Cost Difference: Computing Cost Difference = Actual average hourly rate paid – budgeted hourly rate paid $45 - $35 = $10 Cost Variance = Cost difference * Actual hours worked $10 * 2,912 = $29,120 (Rundio, 2022) 3. What is the total variance in personnel budget for this month? Total Variance = Volume Variance + Quantity Variance + Cost Variance 10,920 + 12,250 + 29,120 $52,290

11 4. Analyze all the factors that made the differences and why the variances occurred. How can this variance be justified? The cost variance is the most considerable variation identified. The error is due to a significant difference between the budgeted and actual hourly pay. It could be attributed to a misuse of contractual employees in short employment circumstances, or extra pay because non- productive hours are not really included into employment ratios standards. 5. In what ways might these variances inform the current or future budgets? Variances are useful for forecasting future labor patterns and evaluating impending budgeting. This also facilitates in the study of demographic variations caused by increasing health-care utilization throughout specific periods and seasons.

12 References Leger, J. M., & Sharron Forest, D. N. P. (2021). The Role of Quality: Providing Patient Value While Achieving Quality, Safety, and Cost-Effectiveness. Financial Management for Nurse Managers: Merging the Heart with the Dollar , 39. Rundio, A. (2022). The nurse manager’s guide to budgeting and finance (3rd ed.). Sigma Theta Tau International. Tuna, R., & Kahraman, B. (2020). Nursing Manpower Planning in a Surgical Unit. International Journal of Caring Sciences , 13 (3), 2180.

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