Cascade Mental Health Clinic Variance Analysis

1. What is the aggregate profit (total) variance for 2013 for the business as a whole? Interpret
your results.
The Aggregate Variance was ($329,366) showing that their forecasted profit was 79%
less than profits realized. The hospital should be extremely concerned by such a large variance.

2. What is the total profit variance for each of the four Product lines?
Profit (Total) Variance: Variance:
PC Commercial $ (73,682) -26% $ (73,682)
PC Medicare (36,652) -206% (36,652)
SH Commercial (124,826) -132% (124,826)
SH Medicare (94,206) -490% (94,206)

Both managed care providers struggled to control Medicare reimbursement and suffered 200%
+ in what they originally had forecasted. Pacific Care’s Commercial patients were the
closest projection the budget made with a -26% variance compared to Seattle Health’s -132%
Variance. Both providers suffered poorly in the year 2013 proving that Cascades needs to
improve their budgeting process in the years to come.

3. Decompose the profit variance for the aggregate organization and for each product line into
revenue and cost variances.

Revenue Variance:
PC Commercial $ (50,650) -2% $ (50,650)
PC Medicare 13,600 3% 13,600
SH Commercial 61,184 16% 61,184
SH Medicare 33,600 20% 33,600
Aggregate $ 57,734 2% $ 57,734

Cost Variance:
PC Commercial (23,032)
PC Medicare (50,251)
SH Commercial (186,010)
SH Medicare (127,806)
Aggregate (387,100)

4. Decompose the revenue variances into enrollment and rate variances.

Enrollment Variance:
PC Commercial (204,307) (91%)
PC Medicare ($13,600) (103%)
SH Commercial ($33,828) (109%)
SH Medicare ($33,600) (120%)

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 Rate Variance:
PC Commercial ($153,013)
PC Medicare ($0)
SH Commercial ($27,356)
SH Medicare ($0)

5. Decompose the cost variances into volume and management variances.

Volume Variance:
PC Commercial ($115,070)
PC Medicare ($81,951)
SH Commercial ($177,227)
SH Medicare ($45,853)

Management Variance:
PC Commercial $92,037
PC Medicare $31,699
SH Commercial ($8,782)
SH Medicare ($81,953)

6. Now, focus on the volume variances. Break these down into enrollment and utilization
variances, both in the aggregate for the four product lines.

Enrollment Variance:
PC Commercial $179,371
PC Medicare ($12,995)
SH Commercial ($25,311)
SH Medicare ($29,844)
Aggregate $179,371

Utilization Variance:
PC Commercial ($294,435)
PC Medicare ($69,230)
SH Commercial ($151,914)
SH Medicare ($16,011)
Aggregate ($513,590)

7. Now focus on the management (staffing) variances. Break down the staffing variance into
rate and efficiency variance for each product line.

Rate Variance
PC Commercial ($165,854)
PC Medicare ($34,107)
SH Commercial $28,233
SH Medicare $16,947

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 Aggregate ($154,781)

Efficiency Variance:
PC Commercial $257,578
PC Medicare $65,807
SH Commercial ($37,040)
SH Medicare ($98,897)
Aggregate $187,448

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.

Volume utilization had the worst projection on each variance. Total cost of operating
exceeds the total revenue.

9. What are your recommendations for management action to counter the adverse financial
trends in 2013?

Reduce Utilization
Increase Revenue
Control Wages
Reduce Length of Stay

10. In your opinion, what are three key learning points from this case?

The variance analysis can identify root causes for under-performing.

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