Developing an Operating Budget In Healthcare Essay Paper

Developing an Operating Budget In Healthcare Essay Paper

Abstract

Healthcare administrators play a critical role in the budgeting process of their respective institutions. Healthcare administrators need to have at least a basic understanding of the budgeting process. This paper examines the importance of budgeting in healthcare, the two common types of budgets involved, and the importance of budgeting in the planning process. It provides the current year’s revenues and expenditures and the following year’s budget estimate for a medical-surgical department.

Introduction

A hospital or healthcare facility budget estimates the income and costs for a given period. Health systems determine how much funds must be allocated for specific areas, such as operating expenditures and capital equipment, through the healthcare budgeting process. Leaders must consider essential planning elements in healthcare during the budgeting process, such as volume growth projections, feedback and input from important stakeholders, and the capacity to modify when inputs and conditions change. In the end, a well-planned budget enables health systems to make proper plans to deliver high-quality care Developing an Operating Budget In Healthcare Essay Paper.

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Why Budgets Are Important

Healthcare is a sector undergoing rapid change and requires constant adaptation as new patient requirements, treatments, and technologies emerge. Leaders can set goals for care and clinical departments and prepare for the future with the help of a robust healthcare budgeting process. A healthcare budget is crucial for determining the optimal use of finances and how to distribute funding across various departments and initiatives. This makes it possible for healthcare institutions to provide patients with better treatment more quickly and effectively. For example, an institution facing a nursing shortage and needs to upgrade some laboratory equipment can use the budgeting process to determine its priorities and achieve optimal resource allocation.

Numerous factors demonstrate how critical strategic planning is. It is frequently the most crucial element in deciding how successfully the organization achieves its objectives. Budgeting, among other things, aids in the formulation of a company’s actions, enabling it to understand priorities better, determine how resources might be distributed, and identify which areas require reevaluation. The capacity to define attainable goals is another significant aspect of the planning process. Knowing your finances and budget can help you manage resources effectively and give you an accurate idea of how long it might take to complete various tasks. For instance, if the hospital wants to reduce operating costs, the budgeting process sets estimates on identified target areas and provides a pathway for comparing actual performance to targets Developing an Operating Budget In Healthcare Essay Paper.

Difference Between Operating, Project, & Capital Budget

Businesses that comprehend operating and capital budgets can track, project, and modify their costs more successfully. Capital budgets can assist companies in making financial plans for the future, while operational budgets assist firms in creating financial plans for their everyday operations.

The process of figuring out the cash allocated for facility operating costs and people costs, such as staffing and training, is known as operational budgeting in the healthcare industry. Typically, the biggest expense in a healthcare operational budget is labor, including fixed expenditures like wages and variable costs like overtime hours and potential overstaffing. Hospitals and healthcare systems can track and balance their income and expenses using an operational budget for the industry.

In the healthcare industry, capital budgeting refers to allocating money to purchase durable commodities like beds, equipment, or upgrades to infrastructure or buildings. The expenditures from this pool of funds can directly affect a health system’s capacity to offer better care to more patients, making a hospital’s capital budget crucial. The hospital’s or health system’s overarching strategic goal for the company is typically connected to capital budgeting in the healthcare industry Developing an Operating Budget In Healthcare Essay Paper.

A capital budget is the lifeblood of a project. The total anticipated costs required to accomplish a task over a specified time frame make up a project budget. It is employed to forecast the project’s costs for each process stage. A crucial step in the project planning process is developing the project budget. The project budget will cover labor, material acquisition, and operating costs.

It’s crucial to remember that while an operational budget and a capital budget are two independent things, they impact one another. Capital expenditures like new facilities or upgraded technology may impact future personnel and operating costs. Additionally, the finances for funding a capital budget may need to come from the operating budget. Leaders must learn the art of balancing the effect of one budget on the other.

Provide Correct Revenue & Expenses

The total year’s inpatient revenue has missed the budget estimates by $ 3,752,968 to settle at $ 46,247,032. The figures are calculated by multiplying the YTD’s revenue amount by two, assuming that revenues will spread evenly throughout the year. The operating expenses are distributed evenly throughout the year by multiplying the half-year expenses by two, giving us a total net revenue of $ 1,379,902. The net revenue falls short of the budget estimate by $ 7,725,098. Though the actual inpatient revenue is sufficient to cover the operating expenses and produce a positive balance, the net revenue has fallen short of the budgeted amount by a significant margin. The implication is that the department and the organization will experience challenges meeting obligations such as planned capital expenditures based on the estimated net revenue Developing an Operating Budget In Healthcare Essay Paper.

Estimate the Correct Revenue & Expenses

Next years inpatient revenue will be $ 46,247,032, total operating expenses will be $42,623,774, and the net revenue $3,623,259. The revenue estimate for the next year is based on the assumption that it remains unchanged from the current year’s actual figures. The total operating expenses for the next fiscal year are calculated by reducing this year’s amounts by 5 percent. The estimated reduction in operating expenses by 5 percent increases the next year’s net revenue by more than twice the current year’s figures.

Balanced Budget for the Next Fiscal Year

A balanced budget is based on measurable and realistic assumptions and has several implications for the organization. First, it means the organization will strive to provide similar or higher services in the next financial year compared to the current period. Second, the organization must develop strategies to achieve a 5 percent cost reduction for each operating expense. The organization can also reduce costs in some cost centers that are large enough to achieve an overall 5 percent or higher cost reduction. A balanced budget will help the organization achieve proper budgetary control, which helps reduce costs and achieve its goals Developing an Operating Budget In Healthcare Essay Paper.

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Conclusion

Budgeting is a critical aspect of any healthcare organization. It helps to define the revenue sources, cost centers, and the relevant controls needed to achieve the set financial goals. The paper has examined the importance of budget in a healthcare setting, the difference between operational and capital budgeting, and the implications of a budget to an organization. The paper also includes an analysis of the Medical-Surgical Department Operating Budget. Developing an Operating Budget In Healthcare Essay Paper