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Chapter 10: Budgeting

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Financial Management of Health Care Organizations An Introduction 4th edition, Zelman

Published in: Economy & Finance
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Chapter 10: Budgeting

  1. 1. Budgeting Chapter 10
  2. 2. 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
  3. 3. Budgeting Serves as a plan and control document • 4 major components 1. Strategic Planning 2. Planning 3. Implementation 4. Controlling
  4. 4. 1. Strategic Planning • Identifying an organization’s mission, goal, and strategy to best position itself for the future • Assess the organization’s external and internal environments • Mission Statement
  5. 5. 2. Planning To identify: • Goals • Objectives • Tasks • Activities • Resources needed
  6. 6. 3. Implementing • Once defined and approved budgets are created • Implementing activities are the process of creating these individual budgets, which roll up to service line budgets which feed into the overall organizational budget • For revenue gathering cost centers materials used-historical trends, market projections, revised fee schedules, gross revenues expected
  7. 7. Controlling Activities • These provide guidance and feedback to keep the organization within its approved budget • Tools vary • Monthly Reports • Expenditures against budgets
  8. 8. Five Approaches to Budgeting
  9. 9. 1. Participation
  10. 10. 2. BudgetModels
  11. 11. 3. Budget Detail
  12. 12. 4. Budget Forecast
  13. 13. 5. Budget Modification • Controlled • Latitude
  14. 14. Types of Budgets
  15. 15. Types of Budgets • Statistics Budget-identifies the amount of services that will be provided • Operating Budget-combination of 2 budgets developed using the accrual basis of accounting of revenue and expenses • Cash Budget- organization’s cash inflows and outflows • Capital Budget-summarizes anticipated major purchases for the year • Variances both positive and negative are monitored
  16. 16. 1. Statistical Budget: example
  17. 17. Solution:
  18. 18. Example 2: Statistical Budget changing RVU weight
  19. 19. Solution:
  20. 20. Example 3
  21. 21. Example 4:
  22. 22. Example 5:
  23. 23. Example 6
  24. 24. Example 7
  25. 25. Group Purchasing Organizations • All organizations purchase and consume supplies as part of daily operations • Transfer of supplies through a middleman to the health care organization’s central distribution is called supply chain • Oversight of this process is called supply chain Management • A network of health care organizations all contracting with the same third party vendor
  26. 26. Example
  27. 27. Summary • Budget is a focus for health care organizations • The planning and control cycle has 4 major components-strategic planning, 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

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