Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • May 2022
  • Article
  • Issues in Accounting Education

Variance Analysis: New Insights from Health Care Applications

By: Robert S. Kaplan and Susanna Gallani
  • Format:Print
ShareBar

Abstract

We use a health care application to illustrate how variance analysis can be used to benchmark costs across similar service delivery sites. Variances for personnel costs, typically the largest cost component in service organizations, are calculated for price, quantity, and skill mix components. Skill mix is important since employees with different compensation often work together to produce service outputs. We find that the joint variance, which arises when both prices and quantities differ, has more managerial implications when assigned to the quantity variance, rather than its traditional allocation to the price variance. Using time-driven activity-based costing also leads to a new variance that reflects the impact of personnel capacity differences between sites. Finally, we introduce two new visualization tools to display the variances. Educators can teach students how variance analysis reveals opportunities to reduce personnel costs by identifying and transferring best practices across sites.

Keywords

Variance Analysis; Benchmarking; Time-Driven Activity-Based Costing; Health Care; Activity Based Costing and Management; Health Care and Treatment; Service Delivery; Service Industry

Citation

Kaplan, Robert S., and Susanna Gallani. "Variance Analysis: New Insights from Health Care Applications." Issues in Accounting Education 37, no. 2 (May 2022): 27–36.
  • Find it at Harvard
  • Register to Read

About The Authors

Robert S. Kaplan

Accounting and Management
→More Publications

Susanna Gallani

Accounting and Management
→More Publications

More from the Authors

    • February 2025
    • NEJM Catalyst Innovations in Care Delivery

    Innovations in Evaluating Ambulatory Costs of Cystic Fibrosis Care: A Comparative Study Across Multidisciplinary Care Centers in Ireland and the United States

    By: Emma Brady, Ryan C. Perkins, Kate Cullen, Gregory S. Sawicki, Robert S. Kaplan and Gerardine Doyle
    • October 2024 (Revised February 2025)
    • Faculty Research

    Lanco Medical Group: Fostering Happiness for Growth

    By: Susanna Gallani, Jenyfeer Martínez Buitrago and Katherine Sonnefeldt
    • October 16, 2024
    • Harvard Business Review Digital Articles

    Physicians Can Help Cut Costs. They Just Need the Right Incentives.

    By: Susanna Gallani and Derek A. Haas
More from the Authors
  • Innovations in Evaluating Ambulatory Costs of Cystic Fibrosis Care: A Comparative Study Across Multidisciplinary Care Centers in Ireland and the United States By: Emma Brady, Ryan C. Perkins, Kate Cullen, Gregory S. Sawicki, Robert S. Kaplan and Gerardine Doyle
  • Lanco Medical Group: Fostering Happiness for Growth By: Susanna Gallani, Jenyfeer Martínez Buitrago and Katherine Sonnefeldt
  • Physicians Can Help Cut Costs. They Just Need the Right Incentives. By: Susanna Gallani and Derek A. Haas
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.