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Budget Process within the Department/Organization
Healthcare institutions require an appropriate budget, which is increasingly becoming a crucial issue with respect to hospital administration. The fiscal cycle year within the organization starts on October 1and ends on September 30 the following year. The reason for the choice of such fiscal cycle year was made due to the need to align the organization’s budget with the US federal budget. The budgeting process within the organization involves the preparation of three types of budgets including capital, operations and labor budgets, which are developed using different processes. The organization prioritizes operational budgeting, which implies that it is done first during the budgeting process (Odhnoff, 2012). Operational budget comprises of the revenue budget and the expense budget, which means that it outlines the anticipated revenue and anticipated expenses. A key focus for the organization when developing operational budget is to be sure that the revenue budget exceeds the expenses budget, hence the need to finance capital budget using the difference. Capital budget requests are usually made following the release of the operational budget. In addition, within the organization, the labor budget depends significantly on the operational budget, which explains why labor budgets are processed last in the budgeting process. The hospital’s board of managers provides the final approval of the budget after it has been developed (Odhnoff, 2012).
The Development of the Budget, the Process and People Involved in the Budget Process
The hospital uses a participatory budgeting approach characterized by democratic decision-making and deliberation, whereby every member of the organization takes part in the budgeting process ranging from top management to low level employees. In addition, the budgeting process is characterized by a bottom-up approach, whereby the budgets are prepared at departmental level and then the various budgets combined to determine the resource needs of the hospital (Libby & Lindsay, 2010). Under such arrangement, both managers and staff play a key role in the budgeting process. Employees under the various departments usually submit their budgetary requests to the departmental manager. There is no doubt that adequate funds are needed for a program to run smoothly. After receiving requests from staff, the department manager forwards the budget request, including justifications, to the hospital administrator for review, analysis and modifications before presenting the budget to the board of managers for approval. Within the organization, a number of factors influence the capital budgeting process, including patients’ needs and existing alternatives, potential impacts associated with acquiring additional equipment on revenue and expenditure and funds availability. Based on this, the capital budgeting process comprises of a 4-step process, including identification of capital needs (whereby each department is provided with a capital budget worksheet, as well as with the guidelines for the department to list its capital budget items), prioritization of the equipment needed based on the urgency and funds availability and managing capital needs, which entails developing an action plan for the acquisition of the capital items. Inflationary rate in the operational budget is set by the Finance Officer on items such as medical supplies and traveling and training expenses (Odhnoff, 2012).
In order to ensure budget compliance, nurse managers are required to constantly monitor expenses in order to be sure that they are within the forecasted budgetary limits. For purposes of constant monitoring, nurse managers use monthly expense statements that outline the monthly budgeted amount. When the nurse manager receives feedback relating to the actual expenses, he/she compares it with the projected expenses in order to ascertain any deviations between the actual results and budgetary forecasts. The monthly report is analyzed to determine whether there are significant variances (Odhnoff, 2012). Budgets within the organization are usually developed with an allowable variance that might not require the need for remedial action. However, when such variances are significant, their causes have to be established and appropriate corrective action undertaken. According to the organization’s budgeting policies, operating below the budget is acceptable. Areas that require accountability involve instances of over budget. For the nurse manager to exercise control over the budget, he/she must be well-informed about his/her department’s expenditures.
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Type of Budgeting Used
The type of budgeting used by the department is flexible budgeting, which is characterized by the budget flexes during the year. After the approval and implementation of the budget, there is no guarantee that things will unfold as outlined in the budget. The department adopts a flexible budgeting approach because it anticipates changes in the amount of service provided (Odhnoff, 2012). There is a possibility of serving fewer or more patients than anticipated as there are times when the department operates under budget, whereas there are some instances where the department operates over budget. Instances of over budget may be accompanied by providing service to more patients. However, if more patients would imply more revenue, then over spending can be rationalized. Flexible budgeting is characterized by adopting revisions on the operating budgets in order to cater for fluctuations in expenditure that may be caused by fluctuations in the volume of patients served (Odhnoff, 2012).
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Key Areas that Need Improvement
The two key areas that need improvement with respect to the budgeting process within the organization include lack of formal action plans to offset negative variances in the budget and poor budget approval process. With regard to lack of formal action plans to deal with negative variances in the budget, the organization does not use formal action plans that can be implemented during instances of negative variances. As a result, during such instances, nurse managers are more likely to make hasty decisions that are not well-considered. In most cases, hasty decisions are more likely to result in unanticipated expenses. With regard to a poor budget process, the budget for the organization is approved by a board of managers, who are less involved in the management of the institution on a daily basis. In cases when the budget approval documents are badly organized and lack explanation and detail, it is unlikely that the process of budget approval will be smooth (Libby & Lindsay, 2010).
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