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Responsibility 
Budgeting 
Chapter 11
Learning Objectives 
• Defining decentralization and its advantages and 
disadvantages 
• Identify the major types of resp...
Decentralization 
• Degree of dispersion of responsibility within an organization 
• Advantages-More efficient use of time...
Responsibility Center 
• An organizational unit formally given the responsibility to carry 
out one or more tasks or achie...
Types of Responsibility Centers
Types of Responsibility Centers
Example 1
Example 2
Solution
Measuring Performance 
Basic Attributes: 
• Responsibility-Duties and obligations of a responsibility 
center 
• Authority...
Budget Variances 
Difference between what is budgeted and what actually occurred. 
• Revenue variances-positive called fav...
Example 3
Example 4
Solution:
Beyond Variances 
• Revenue Attainment 
• Cost Containment 
• Revenue Enhancement 
• Cost Avoidance
Beyond Variances
Other Financial Measures 
• Compensation Systems 
• Salary Based Compensation System 
• At Risk Compensation System 
• Mix...
Summary 
• Decentralization a growing trend 
• Advantages and disadvantages to decentralization 
• Responsibilities center...
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
Chapter 11: Responsibility Budgeting
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Chapter 11: Responsibility Budgeting

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

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Chapter 11: Responsibility Budgeting

  1. 1. Responsibility Budgeting Chapter 11
  2. 2. Learning Objectives • Defining decentralization and its advantages and disadvantages • Identify the major types of responsibility centers in health care organizations • Explain the relationships of responsibility, authority and accountability • Compute volume and rate variances for revenue • Compute volume and cost variances for expenses
  3. 3. Decentralization • Degree of dispersion of responsibility within an organization • Advantages-More efficient use of time, more relevant info, higher quality decisions, greater speed, better use of talent, increased motivation and allegiance • Disadvantages-loss of control, decreased goal congruence, increased need for coordination and formal communication, lack of managerial talent
  4. 4. Responsibility Center • An organizational unit formally given the responsibility to carry out one or more tasks or achieve one or more outcomes, or both. • Types of responsibility centers: 1. Service centers 2. Cost centers 3. Profit centers 4. Investment centers
  5. 5. Types of Responsibility Centers
  6. 6. Types of Responsibility Centers
  7. 7. Example 1
  8. 8. Example 2
  9. 9. Solution
  10. 10. Measuring Performance Basic Attributes: • Responsibility-Duties and obligations of a responsibility center • Authority-Power to carry out a given responsibility • Accountability-Extent to which there are consequences, positive and negative attached to carrying out responsibilities
  11. 11. Budget Variances Difference between what is budgeted and what actually occurred. • Revenue variances-positive called favorable • Develop a Flexible Budget Estimate for Revenues • Calculate the Revenue Variance Due to Changes in Volume Rate • Expense variances- • Identify the Amount of Variance Due to fixed costs • Develop a flexible Expense Budget • Calculate the Expense Variance due to Volume
  12. 12. Example 3
  13. 13. Example 4
  14. 14. Solution:
  15. 15. Beyond Variances • Revenue Attainment • Cost Containment • Revenue Enhancement • Cost Avoidance
  16. 16. Beyond Variances
  17. 17. Other Financial Measures • Compensation Systems • Salary Based Compensation System • At Risk Compensation System • Mixed Compensation System • Compensation System Design
  18. 18. Summary • Decentralization a growing trend • Advantages and disadvantages to decentralization • Responsibilities centers include: service, cost, profit and investment • Variances must be tracked and cause determined • Compensation systems must be reviewed

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

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