Evaluation of Budget and Department Expansion
Evaluation of Budget and Department Expansion
REED HEALTH SYSTEM MEMORANDUM
CFO HENRY MASON
FROM:
MS. GONZALEZ
SUBJECT:
EVALUATION OF BUDGET AND DEPARTMENT EXPANSION
DATE:
5/5/10
HUMAN RESOURCE DEPT.
This memo is to address the criticism on whether the $1,530,000 spent to reduce turnover had been a good use of funds. After many calculations, cash savings were $1,230,648.00 and cash savings including productivity were $2,231,247. The funds spent on the program have been beneficial to the Reed Health System and the savings exceed the budget expense.
The expenditure of $1,530,000 is used to reduce turnover. Exhibit 4 shows decrease in turnover in 3 years. To evaluate if savings exceeds expense, we will calculate cash saving only, and cash and productivity saving. The difference between cash savings only and cash and productivity savings is how comfortable we are with the two numbers in terms of accuracy. Looking at cash savings only, one can say we are confident to a certain degree that the number is accurate due to the costs associated with employee turnover. In terms of productivity savings, more realistically productivity saving decreases overtime, so we are not confident enough to assume that the productivity savings portray the actual amount of savings. When cash only and cash and productivity are combined, the amount exceeds the budget.
Exhibit 1 shows our departments budget for Year 1 which is our base year (the year prior to my arrival) as well as the three years since my arrival. The board has calculated “extra” costs of the Human Resources Department over the past three years (using Year I as the base year) to be $1,530,000. The use of Year I as the base allows us to benchmark the success of reduced turnover rate in the proceeding years. This allows us to find the difference in subsequent years minus the base (Year 1). Exhibit 2 gives percentage number of turnover for each personal category in each of the four years. We can take the percentages and multiply with total amount of personnel to retrieve the number of people turned over; this is shown in Exhibit 4. We then multiply employee turnover amount by the average personnel category shown in Exhibit 3. In Exhibit 5, the total turn over cost is shown for each year including all personnel categories combined. Exhibit 6 demonstrates the cash, and productivity saving calculations when Year 1 is the base year minus subsequent year total found in Exhibit 5.
Following the above calculations, the cash savings only, and cash and productivity savings are respectively $1,229,298 and $2,229,897. Cash