QUESTIONS
CASCADES MENTAL HEALTH CLINIC
Variance Analysis
Hint: Because of the large number of variances involved, this case can quickly become unmanageable. The best way to deal with this problem is to focus on the variance structure provided in Exhibit 7.5 of the case. The spreadsheet model for this case uses this structure, which divides the variances into two general categories: revenues and costs. Most of the analysis focuses on costs, and the variance definitions used in the model are such that a negative variance means costs are greater than expected.
1. What is the aggregate profit (total) variance for 2013 for the business as a whole? Interpret your results.
2. What is the profit (total) variance for each of the four product lines? Interpret your results.
3. Decompose the profit (total) variance for the aggregate organization and for each product line into revenue and cost variances. Interpret your results.
4. Decompose the revenue variances into enrollment and rate variances. Interpret your results.
5. Decompose the cost variances into volume and management variances. Interpret your results.
6. Now focus on the volume variances. Break these down into enrollment and utilization variances, both in the aggregate and for the four product lines. Interpret your results.
7. Now focus on the management variances. Note that the case does not contain data related to supplies costs or fixed costs, so the management variances are, in reality, staffing variances. Break down the staffing variances into rate and efficiency variances both for each product line and, within each product line, by inpatient and outpatient services. Interpret your results.
8. Summarize the results of your variance analysis. In this summary, focus on the underlying meaning of the numbers as opposed to the numbers themselves.
9. Finally, what are your recommendations for management action to counter the adverse financial trends experienced in 2013?
10. In your opinion, what are three key learning points from this case?