A variance is the difference between standard and standard and actual prices, costs, quantities, and so on. In terms of budgeting, variance analysis explains why these differences exist and how it affects the financial performance of the healthcare organization. Sensitivity analysis asks "what if." It answers questions about what may happen if major assumptions change or if certain predicted events do not occur.

1. What are the three types of flexible budget variances?

2. What is the difference between two-variance and three-variance analysis?

3. Why is a sensitivity analysis essential for healthcare organizations that rely heavily on third-party reimbursements?