A Budget Is a Comprehensive Financial Plan - Assignment Example

? Budgeting Introduction A budget is a comprehensive financial plan used to determine the source of revenues and expenditures (Brookson, 2000). A budget is one of the most important financial tools used by corporates, individuals and the government to determine sources of revenues and how the available revenue may be spent without wastage (Brookson, 2000). The common types of budget are performance budget, cash budget and budget fore cast. Performance budget is based on anticipated revenues and expenses that are anticipated to be incurred in the future (Millett, 2011). Cash budget predicts how the available revenues will be utilized to accomplish a project (Millett, 2011). This type of budget helps corporate to have an insight on whether the available income will suffice to finance the anticipated expenditure (Millett, 2011). On the other hand, budget forecast, utilizes financial figures for previous period to come up with figures for the current period (Brookson, 2000). Therefore, it can be scrutinize that budget is a very important tool that can help to monitor revenues and avoid unnecessary spending (Millett, 2011). This assignment will focus on determining strategies for managing budget within forecast by comparing expenses with the budget and determining the possible reasons for a variance. Additionally, bench marking techniques will be identified and how they can help to improve future budgetary forecast within a hospital. Determine specific strategies to manage budgets within forecasts. Corporate financial managers and senior clinical financial officers may utilize different strategies for managing budgets within forecast. Among the suggested strategies that may be used include; cost variance strategy, performance based strategy, zero based strategy, bench marking strategy and activity based strategy (Brookson, 2000). The cost variance strategy, focuses on finding the difference between the budgeted cost and the actual cost .When a negative variance is obtain, it is an indication that the actual cost were more than budgeted cost (Finkler & McHugh, 2008). Therefore, clinical financial officers should find out the reason for a negative variance and employ necessary measures to prevent such discrepancies in the future. Clinical financial officers may use performance based strategy. This strategy employs performance based dashboard and matrices to determine the proximate cause for a variance and look on necessary measures that can be employed to remedy the situation (Brookson, 2000). Additionally, clinical financial officers may apply zero based strategy to control budget. In this strategy, each expense incurred is assessed and necessary recommendations are made thereafter (Finkler & McHugh, 2008). Bench marking strategy may be used whereby; information of the best performing hospitals may be gathered and analyzed. The information gathered may be used by clinical financial officers and hospital managers to make future budgetary improvements in their respective hospitals. The improvements may be carried out by emulating the best practices from a benchmarked hospital (Finkler & McHugh, 2008). Connectively, clinical financial officers may apply activity based strategy to control budget. In this strategy, hospital operating cost data may be gathered and allotted to specific activities in the hospital (Finkler & McHugh, 2008). Compare five to seven expense results with budget expectations, and describe possible reasons for variance. The following expenses were selected for comparison purposes and the possible reasons for the variances have been explained under each expense: Supplies 8,418 6,693 (1,725) -25.8% 89,456 84,283 (5,173) -6.1% 79,183 -13.0% The supply expenses were higher than the budgeted cost based on above figures. This indicates that the difference between budgeted cost and actual supply cost provided a negative variance (Millett, 2011).The possible reason for a negative supply variance may be attributed to higher demand for medical tools used to attend to higher number of patient admitted in hospital during this period. Interest Expense 639 718 79 11.0% 7,841 8,622 781 9.1% 7,893 0.7% It can be scrutinized that, the budgeted interest expenses provided a positive variance. The possible reason for this variance could be attribute to a decrease in cost of borrowing due to lower demand for loans used to finance expansion of clinics causing interest expense to be lower than the budgeted cost. Contract Services 1,930 1,676 (254) -15.2% 19,958 20,165 207 1.0% 19,130 -4.3% Based on the above figures it can be scrutinize that budgeted contract services expenses were less than the actual. The above variance may be attributed to an increase in cost of contract services when providing medical services that were not factored in during financial planning. Insurance Coverage 346 356 10 2.8% 4,490 4,259 (231) -5.4% 3,976 -12.9% Insurance expenses above provided a negative variance. The possible reason for this variance may have been brought out by an increase in number of patients with critical ailments who were not anticipated during financial planning. Rent & Leased Equipment 837 637 (200) -31.4% 7,544 6,880 (664) -9.7% 6,819 -10.6% It can be scrutinized that the variance for rent and lease equipment continued to increase from one period to the other. This increase could be attributed to increase in rental fees and other rental conservancies as a result of an increase in number of units that were leased to accommodate an alarming number of patients that admitted during this period. Bad Debts Net of Recoveries 4,949 3,916 (1,033) -26.4% 56,207 45,755 (10,452) -22.8% 45,523 -23.5% A negative variance for bad debts was obtained. This is an indication that, the current period had more patient who were unable to pay their medical bills as compared to the previous period causing the hospital to experience a negative cost variance. Recommend three benchmarking techniques and identify those that might improve budget accuracy in future forecasts. Justify your choices. Hospital or clinic budgets The hospital should employ the following three budgeting techniques namely; strategic planning technique, expenses management technique and accountability culture technique (Cleverly, Song & Cleverly, 2011). Strategic planning technique focuses at ensuring that the set budget is in line with the hospital strategic goals and objectives (Cleverly, Song & Cleverly, 2011). This is achieved by first setting income a side and looking for ways in which cost can be reduced so that set revenue can suffice to meet the expenses. The expense management technique focuses at ensuring each department within a hospital works towards minimizing its expenses and maximizing its revenues (Cleverly, Song & Cleverly, 2011). The third technique involve accountability culture whereby, both employees and managers should be responsible of there deeds. They should ensure that expenses managed diligently without subjecting the hospital to any extra overheads which are not within the financial plan (Finkler, Kovner & Jones, 2007). Conclusion It can be scrutinized that several strategies may be applied to manage budget within forecast. Among the strategies discussed above include; activity based strategy, zero based, cost variance strategy, benchmarking and performance based strategies to mention just but a few. Additionally, some budget expenses have been identified and possible causes of variance in those for those expenses have been discussed in detail. Among the selected expenses include; supplies expenses, interest expenses, contract service expenses, insurance coverage expenses, rent and lease expenses and bad debt expenses respectively, Conclusively, three bench marking techniques have been put forth and how they may help to increase the budget accuracy within a hospital setting. Among the identified techniques include; cultural accountability technique which requires hospital managers and their employees to be responsible for each expense, Strategic planning and expense management have also been put forth. References Brookson, S. (2000). Managing Budgets. London: Dorling Kindersley.P-7.2 Cleverly, W. O., Song, P. H., & Cleverly, J. O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett Learning. Finkler, S. A., & McHugh, M. L. (2008). Budgeting concepts for nurse managers. St. Louis, Mo: Saunders/Elsevier. Finkler, S. A., Kovner, C. T., & Jones, C. B. (2007). Financial management for nurse managers and executives. (3rd ed.) St. Louis, MO: Saunders Elsevier. Millett, S. M. (2011). Managing the future: A guide to forecasting and strategic planning in the 21st century. Axminster: Triarchy. Read More