Budgeting in Health Care Organizations - Essay Example

There are numerous other types of budgets such as annual statistics budget and revenue budget and they vary according to their purposes (Gapenski). These budgets can vary across different health care institutions. The reason for this is the diversity of the financial structures, organizational culture and reporting systems of organizations (Finkler and McHugh, 2008, p.171). The process by which health care organizations design and implement budget based on such organizational structure, culture and reporting system determines whether they will achieve budgeted operating margin targets.

This is demonstrated in the experience of University of Utah Hospitals and Clinics (UUHC). It was found that the institution's personnel are not knowledgeable on budgeting and finance and that there is no organizational mechanism or aspect of the organizational culture that encourage the education of the staff. As a result, expenses always exceed the budget and what is worse, the extra expenditures are found to be unnecessary (Clark, 2005, p.79). Budgeting, or correct budgeting, is important because it supports the operation of the health care organization. . lth care institutions and it needs budgeting in order to maintain positive performance and deal with problems, such as "shrinking revenues and rising expenses" (Schwieters and Harper, p.76). The benefit of budgeting is aligned with the importance of cost information.

As managers and hospital personnel are informed about budgeting and cost, a sound operating budgeting process can finally be implemented in order to achieve financial health. This point was explained by the intervention introduced at UUHC in 2004 to improve budgeting results. The organization pursued an aggressive education drive for its staff about budget and finance, "offering incentives to stay within budgets, holding budget variance meetings with managers, and requesting corrective action plans from managers".

The result was improved budgeting performance. The intervention model highlighted by the case of UUHC included an important tool in budgeting: variance analysis. It is a method that focuses on comparisons of actual results and budgeted expectations for each line in the budget of each cost center in the health care organization (Finkler, Ward and Baker, 2007, p.200). The flexible budgeting variance analysis is one of its types that is widely used in health care organizations. The methodology follows a framework of gathering information the comprehensively cover the composition of departmental expenses.

This could lead UUHC, for instance, to subdivide total variance (the difference between standard prices and quantities and actual prices and quantities) into three: price, quantity and volume (Baker, 1998, p.128). Baker explained these three in detail: Price variance pertains to the proportion of the overall variance caused by the differences between actual and expected price input; Quantity