Budgeting Chapter 10

Learning Objectives

• State the purpose of budgeting

• Describe the planning and control cycle and the 5 key dimensions of budgeting

• List the major budgets

• Construct each of the major budgets

Budgeting

Serves as a plan and control document

• 4 major components

1. Strategic Planning

2. Planning

3. Implementation

4. Controlling

1. Strategic Planning

• Identifying an organization’s mission, goal, and strategy to bestposition itself for the future

• Assess the organization’s external and internal environments

• Mission Statement

2. Planning

To identify:

• Goals

• Objectives

• Tasks

• Activities

• Resources needed

3. Implementing

• Once defined and approved budgets are created

• Implementing activities are the process of creating theseindividual budgets, which roll up to service line budgetswhich feed into the overall organizational budget

• For revenue gathering cost centers materials used-historicaltrends, market projections, revised fee schedules, grossrevenues expected

Controlling Activities

• These provide guidance and feedback to keep theorganization within its approved budget

• Tools vary

• Monthly Reports

• Expenditures against budgets

Five Approaches to Budgeting

1. Participation

2. Budget Models

3. Budget Detail

4. Budget Forecast

5. Budget Modification

• Controlled

• Latitude

Types of Budgets

Types of Budgets

• Statistics Budget-identifies the amount of services that willbe provided

• Operating Budget-combination of 2 budgets developed usingthe accrual basis of accounting of revenue and expenses

• Cash Budget- organization’s cash inflows and outflows

• Capital Budget-summarizes anticipated major purchases forthe year

• Variances both positive and negative are monitored

1. Statistical Budget: example

Solution:

Example 2: Statistical Budget changing RVU weight

Solution:

Example 3

Example 4:

Example 5:

Example 6

Example 7

Group Purchasing Organizations

• All organizations purchase and consume supplies as part ofdaily operations

• Transfer of supplies through a middleman to the health careorganization’s central distribution is called supply chain

• Oversight of this process is called supply chain Management

• A network of health care organizations all contracting withthe same third party vendor

Example

Summary• Budget is a focus for health care organizations

• The planning and control cycle has 4 major components-strategicplanning, planning, implementation and control

• 5 key dimensions vary according to the organization-participation,budget models, details, forecasts, and modifications

• 4 interrelated budgets-statistics, operating, cash, capital