Budget Management Analysis

Budget Management Analysis

Budget management is not an easy task for any organization. A budget is a plan that details how the organization will receive and use the resources for a specific length of time. Most budgets in health care are for a period of a year. With the severe economic problems budgeting has become a major issue for health care organizations. Difficult decisions must be made in order for the organization to be financially stable.

This paper will identify how operating budgets are developed. In addition several expense results with budget exceptions will be compared and the possible reasons for the variance described. Three benchmarking techniques will be recommended along with identifying those benchmarks that could improve budget accuracy in future forecasts.

Development of operating budgets

The development of operating budgets is complicated. The budget could be developed quarterly, semi-annually or yearly. A budget committee is formed. Managers from different departments are on the committee, depending on the type of originations would determine if physicians may be included on the committee.

"Budgeting systems have five primary purposes: planning, facilitating communication and coordination, allocating resources, managing financial and operational performance, and evaluating performance and providing incentives" (Hilton, 2006, p. 52).

Planning is the first step of preparing a budget. There are two steps to this stage. The first one is to focus on the resources used by the organization. This is a detailed accounting of the organizations working environment. The second step is to look in-depth at the organizations resources that will achieve the objectives of the organization.

Communication and coordination is a very important step to achieving the best possible budget possible. Every manager within the organization must be aware of the plans for every area. This is needed to be effective. The development if the operating business is a combination of the plans from every manager.

Allocation of resources is a difficult part of the development of the budget. Resources are normally limited for the entire organization. Allocating of limited resources is a where compromise may come into play. It is the expectation of the budget committee to allocate appropriately.

Managing financial and operational performance occurs when the organization defines objectives for each department. Some areas of performance that can be focused on are patient outcomes, patient and nursing satisfaction as well as innovation and productivity. Next the committee must identify budget costs for the organization; these costs will include salaries, education, and cost of supplies and equipment.

The last step will be to evaluate performance and provide incentives. "Comparing actual results with budgeted results also helps managers to evaluate the performance of individuals, departments, divisions, or entire companies. Since budgets are used to evaluate performance they also can be used to provide incentives for people to perform well" (Hilton, 2006, p. 4).

Compare expense results with budget exceptions

Five expense line items within the budget will be compared. The budgeted amount will be compared to the actual amount spent. The reason for the variance and the possible reasons for the variance will be described.

The first expense line item is Registered nurses salary expenses. The monthly actual was $100,061; however, the monthly fixed budget was only $91,945 giving a variance of $8,116. There are many causes that could explain this negative variance. One being increased census or increase in acuity of the patient may be the cause. In order to truly understand what the cause is further investigation is needed.

Next surgical supplies had a positive variance. This variance may not be typical for other months. The variance was not that positive that investigation is needed to make changes to the budget.

IV solutions have an unfavorable variance. There are several possible reasons for the variance. There may have been an increase in patients needing IV fluids, increased operations for the month. Another reason may be waste. More information would be needed to narrow down the cause of the variance.

Medical supplies had an unfavorable variance also. With the results for this monthly budget would indicate increased use of medical supplies as other expenses were unfavorable also.

However, when reviewing laundry services there was a positive variance. Many factors could explain the favorable variance. The laundry service may have made some changes to the service which could be the cause for decreased cost.

Describe reasons for variance

Budget results are compared to actual results in what is called variance analysis. Managers must be able to know the reason