An examination of variance analysis as a managerial tool in Nigerian hospitals: A case study of Lagos University Teaching Hospital (LUTH)
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Background of the Study
Variance analysis is an essential managerial tool used to evaluate the differences between planned financial outcomes and the actual results. In the context of hospitals, especially in developing economies such as Nigeria, managing healthcare finances is crucial to ensuring quality service delivery while optimizing resources. Variance analysis helps hospital managers to detect financial inefficiencies, identify the causes of cost overruns, and take corrective measures. In Nigeria, where healthcare is often underfunded, variance analysis is vital for making informed decisions on resource allocation, cost control, and budgeting. Lagos University Teaching Hospital (LUTH) serves as one of the leading public hospitals in Nigeria and presents a unique case to explore how variance analysis is applied in managing hospital finances. The effectiveness of variance analysis within the hospital can reveal the financial sustainability of healthcare services and its contribution to the overall management practices in Nigerian healthcare facilities. Previous studies have emphasized the importance of financial management tools in healthcare systems globally (Mabert et al., 2023; Olayemi, 2024). However, the application of these tools within the Nigerian healthcare system, particularly in public hospitals, has not been adequately studied. There remains a gap in understanding how variance analysis impacts decision-making, cost management, and performance in hospitals like LUTH. Given that Nigerian hospitals face challenges such as fluctuating funding, high operational costs, and limited resources, variance analysis could be pivotal in bridging the gap between planning and execution, thereby improving hospital financial performance and patient care.
Statement of the Problem
Despite the theoretical and practical importance of variance analysis in the healthcare sector, its application in Nigerian hospitals is limited, and its impact remains largely unexplored. Lagos University Teaching Hospital (LUTH), being a major healthcare provider in Nigeria, serves as a significant case study to explore how variance analysis can be utilized as an effective managerial tool in this context. There are indications that financial inefficiencies and budgetary deviations have persisted in LUTH, which may hinder the hospital’s ability to deliver optimal healthcare services. Factors such as inadequate healthcare funding, ineffective budget execution, and mismanagement of resources contribute to financial instability and operational inefficiencies. The lack of a systematic approach to variance analysis may further exacerbate these issues. Thus, it is necessary to examine how variance analysis can help LUTH identify the causes of these discrepancies, monitor financial performance, and improve overall decision-making processes. A thorough investigation will provide a comprehensive understanding of the application of variance analysis and its potential role in enhancing financial management within Nigerian hospitals.
Objectives of the Study
- To examine the effectiveness of variance analysis in managing the financial performance of Lagos University Teaching Hospital (LUTH).
- To identify the causes of financial discrepancies at LUTH using variance analysis.
- To assess how variance analysis influences managerial decisions and resource allocation at LUTH.
Research Questions
- How effective is variance analysis in managing financial performance at Lagos University Teaching Hospital (LUTH)?
- What are the major causes of financial discrepancies observed in LUTH, and how can variance analysis address them?
- In what ways does variance analysis influence managerial decisions and resource allocation at LUTH?
Research Hypotheses
- Variance analysis significantly enhances the financial performance management at Lagos University Teaching Hospital (LUTH).
- Financial discrepancies at LUTH are primarily caused by inefficiencies in resource allocation and poor budget execution, which can be identified through variance analysis.
- Variance analysis positively influences managerial decisions and helps improve resource allocation at LUTH.
Scope and Limitations of the Study
This study focuses on Lagos University Teaching Hospital (LUTH), located in Lagos, Nigeria, with a specific emphasis on the application of variance analysis in the hospital's financial management practices. The research will primarily involve financial data from LUTH over the past five years (2020-2025). Limitations include access to detailed financial records due to institutional restrictions, potential biases in self-reported data, and the generalizability of the findings to other hospitals in Nigeria.
Definitions of Terms
- Variance Analysis: A tool used in financial management to analyze the difference between actual and budgeted financial outcomes, helping managers identify discrepancies and areas for improvement.
- Managerial Tool: A method or technique employed by managers to make informed decisions and improve operational efficiency.
- Financial Performance: A measure of a hospital's financial health, typically evaluated using indicators such as profit margins, cost control, and budget adherence.
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