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

1. Budgeting
Chapter 10

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. Budgeting
Serves as a plan and control document
• 4 major components
1. Strategic Planning
2. Planning
3. Implementation
4. Controlling

5. 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

6. 2. Planning
To identify:
• Goals
• Objectives
• Tasks
• Activities
• Resources needed

7. 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

8. Controlling Activities
• These provide guidance and feedback to keep the
organization within its approved budget
• Tools vary
• Monthly Reports
• Expenditures against budgets

9. Five Approaches to Budgeting

10. 1. Participation

11. 2. BudgetModels

12. 3. Budget Detail

13. 4. Budget Forecast

14. 5. Budget Modification
• Controlled
• Latitude

15. Types of Budgets

16. 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

17. 1. Statistical Budget: example

18. Solution:

19. Example 2: Statistical Budget changing RVU weight

20. Solution:

21. Example 3

22. Example 4:

23. Example 5:

24. Example 6

26. Example 7

28. 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

29. Example

30. 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