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Index - Same Level Subject

Introduction
Inventory
Cost Acccounting
Chart of Accounts
Budget Formation
Standard Unit Costing
Managerial Accounting
Auditing
 

Index - Child Subjects

Introduction

Managerial accounting provides information to administrators in such a way that they are able to use this information to “manage”. 

Managerial accounting focuses on performance indicators, budget formation,  variance analysis, standard costing, and strategic plan formation.

Indicators

Today the busy executive needs a quick and easily guide to look at the fast pace changes that are occurring in the organization. For this reason performance indicators have been developed.

These performance indicators can appear each morning, for example, as a single page on the executive's desktop computer. By simply clicking on a icon, the executive can "drill down," and "cut and dice" his way down into the very detail transactions of the organization. 

(see Indicators for description of Health Care Indicators)

Budget Formation

Planning and management begins with the development of a budget. A budget is the proposed expenditures and measures to evaluated. Generally, in businesses, a budget is developed for monthly analysis.  In public health this is almost never the case. Donor organizations do not normally require month-to-month budgets and most health care organizations do not take the time or have the accounting skills to provide this information to management. However, without a month-to-month budget, cash flow analysis cannot be performed, inconsistencies cannot be discovered, problems cannot be recognized, and managers cannot manage.

Each expenditure that is either over or under budget should be investigated as to determine  "why." For examples, explanations for the differences between budget and expenditures for drugs may be either:

• Prescribing drugs unnecessarily (to clients that do not need drugs)

• Prescribing in larger dosage than necessary

• High wastage rate because of obsolescent or mis-management

• Prescribing drugs that are most expensive in cost than necessary

• A greater number of clients needed to be treated than budgeted.

• The price of drugs were more expensive than budgeted.

Each of these reasons why calls for a different solution. Just knowing that you were over or under budget is NOT MANAGEMENT.

Example

With the development of Budgets, and by using a system of management called "Management by Exception" managers have more overall time to concentrate on the two key functions of management, planning and problem solving. 

Variance Analysis

Just how does a budget help a manager to manage?  Managers make comparisons against what should happen against what has happened. If what has happen does not agree with what was planned to happened, if there is a variance, then that process needs the management's attention. This is "Management by Exception." 

Management do not need to concentrate on the day-to-day occurrences in the organization but rather only those items that need his attention. This brings to the attention of management not only what may not be working well but also those items that are working especially well. By using this information, he can capitalize on it and disseminate that information to others.

The key to management is the analysis of variance. It is a comparison of what should have been and what was planned, against what has actually occurred. From the analysis above, we can “drill down” to the problem or problems. By knowing the problem, we can manage the problem.

Example

Let’s take the previous example. If it cost $3.00 per unit and 150 units are to be implemented, then the cost to the project should be $450.00 for that month. If the actual expenditures are not $450, lets say, it is $500, then there is an inconsistence. Management now begins. Management must determine why what has happen has happened. Either or all of the following have occurred

• More than 100 units were given

• The cost of the nursing expense were higher than calculated

• The amount of time spend on the client by the nurse was higher than expected

• The cost of the injections were higher than calculated

• The overhead was incorrectly calculated

• Thief

However, as we see from above, even if the total cost of the service is about right, as in February above, there are still inconsistencies that should be managed; the number of injections “used” are more than the number of injections budgeted. If an investigate is made immediately, then the number of injections used per unit could be corrected (errors in administration of medication, errors in original budget estimates, thief).  If we wait until after the first six months, we are already too late.

As see we can also see from the data, although the number of units when up from 100 to 150 the second month, after that there was a steady decline in the number of units serviced. Is this from the of hours the nurses are spending in service or is there some other cause. But wait….by “drilling down” we find even more interesting data

We see from this drill down, by clinic (district, physician, nurse), the total units serviced looks very good for the first three months. However, if we had only total units to “manage” by the time that the total numbers started to decline, as in this example, it would be too late. We see that we had a real problem with clinic B from the start and if we had the drill down available we would have been able to immediacy correct the situation. Resources could have been immediately moved to this clinic to help.

By knowing the services given by location, supplies could be moved immediately to those areas that needed them. It would also keep the supplies from becoming outdated where they were not needed. By re-stocking immediately those areas that had the highest use, it would continue the ability of those clinics to provide their outstanding service. Once a clinic is out-of-stock on a service, clients may not come back.

By having the ability to drill down by physician or nurse, by time, better staffing of clinics is possible. Exact times that a particular physician spent with a particular client can be determined. Exact times and days that service demands are highest can be determined. Since physicians and nurses must enter their security code into the system before entering information, a complete record of the staff’s work schedule can be determined.

Strategic Plan formation

Although the above examples are limited to internal data, there is no reason that external data cannot be included into these data.

Tables for inflation rates, unemployment rates, and currency conversion rates are easily added. Other NGO’s or health care organizations can contribute their information. Expert opinion can be included for budgeting purposes. Construction plans of the government and other agencies may be included.

Based on the data that is collected, management can make decisions to add, decrease, or even change an intervention entirely. The manager may make adjustments and determine from these outcomes the best mix of resources in order to obtain the best results.

By having he ability to drill down to any level, upper level manages can view the details from any location. It is impossible to evaluate or manage from summaries.

With detail information available, individual managers can be rewarded for their work and they can be held responsible for any deficiencies …immediately.

Resources could be more effectively and efficiently used by moving them to the locations that most need them. Inventories will be update immediately and staff adjustments made where appropriate. 

Training would be more effective because, problem areas could be pinpointed more accurately and help given. .

By having actual detail costs, budgets can be better prepared and funding can be used more efficiently.

With realistic usage patterns, financial officials are in a better position to approach donors and to plan for construction projects.

Comparisons and IMPACT ANALYSIS can be more accurate.

THIS IS AN EXAMPLE OF WHY EVALUATIONS CAN NOT BE MADE AT THE NATIONAL LEVELS

Even though the “numbers” may look good/bad at national levels, without the ability to drill down to the individual units for “management,” the numbers mean absolutely nothing. On-Line-Analytical Processing (OLAP) makes this very simple and can be performed in real time. (More details on OLAP will be given in that section)

Problem

If this intervention is a controlled experiment, by making changes, it changes the conditions of the experiment and makes it invalid. Is this a reason not to use good management?

By making changes, a real solution can be discovered more quickly and with less cost. Isn’t this what it is all about? 

Discussion

This discussion is only to be a general introduction to managerial accounting. IT IS A STANDARD and has been used for a long time. It separates the “bookkeeper” from the financial manager.  For more details check out Cost Accounting for Health Care Organizations (Finkler, Steven A.,1999) 

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