Develop the ability to interpret financial data, identify root causes of budget variances, and propose evidence-based, sustainable solutions.
The final version of the assignment will include a variance report with analysis and a memo about your findings to hospital leadership (see format below) about your findings. Follow along with the questions below to work through the assessment of finances and use the information to write your variance report and memo. Please keep in mind that you are the Director of Foodservice speaking to the Chief Financial Officer of the hospital. Be professional, detailed, and solution-driven in your writing.
Defining the Scenario
You are the Foodservice Manager at Sacred Heart Medical Center, a 250-bed nonprofit hospital in a mid-sized city. You are now six months into the fiscal year, and your department’s actual expenses have exceeded projections by 7%—a significant overage.
The projected mid-year operating budget was $880,000, but your current actual spending is $941,600, creating a $61,600 unfavorable variance. The CFO has asked for a detailed variance analysis report and a proposed corrective action plan by the end of the week.
You must analyze the causes, consider budget-neutral factors, and present an action plan and communication strategy.
Background Information
Below is a listing of the projected and actual costs of foodservice at Sacred Heart over the last 6 months.
Add the following to the table:
● Category Variance - difference between projected and actual cost
● Percent Variance - the variance divided by the projected cost x 100%
Budget Breakdown (Mid-Year, Projected vs. Actual):
Expense Category Projected (6 months) Actual (6 months) Variance % Variance
Food Costs $270,000 $315,000
Labor (Wages + OT) $430,000 $442,000
Supplies & Disposables $75,000 $72,500
Equipment Repairs $20,000 $30,500
Utilities $35,000 $35,100
Training & Development $10,000 $8,500
TOTAL $880,000 $941,600
Additional Considerations
As you gather information to explain these variances, you determine the following:
● The hospital implemented new dietary guidelines requiring higher-quality protein options and low-sodium items, leading to increased ingredient costs.
● There was a temporary food supply shortage in Q2 that led to emergency purchases from non-contracted vendors.
● Two major pieces of kitchen equipment broke down, requiring immediate repairs.
● There has been a 10% increase in patient census, leading to increased tray production—but your revenue from foodservices is capped.
● Overtime increased slightly due to unanticipated short-staffing from seasonal illnesses.
● Staff training was under budget because a scheduled team development workshop was postponed.
● Your contract with vendors remained the same and didn’t include a clause for inflation adjustments.
Hints for Success
● Don't just “cut costs”—think about improving efficiency, negotiating better contracts, or restructuring work flows.
● Remember: this is not just a math exercise—it's a leadership scenario.
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Writing a Variance Report Analysis
This section describes your findings. It can be a bulleted list but be detailed enough for the reader to understand your ideas. The information will be used to create your final memo.
A. Identify at least three major causes contributing to the budget variance.
● Use the data and context to pinpoint where and why overages occurred.
● Integrate both quantitative and qualitative reasoning.
● Identify at least one budget-neutral item to show you can isolate actual cost drivers.
B. Propose targeted corrective actions for each cause.