Budgeting is the most critical process in every clinical activity undertaken by a hospital. The alignment of actual and standard costs is key to eliminating deviations between the organization’s focus and the set budget (Ehrman, et al., 2013). However, the real performances of the hospital differ leading to a lack of budget alignment with its cost versus income management strategies. Below is a report about the budget and revenue to the actual performance of a Hospital.
Budget and Income
There is a direct relationship between an organization's income level in that it influences the setting of a budget decision. The income of the hospital results from:
- Operational revenue- This results from health care services offered directly to patients.
- Research grants and donations
- Investment earnings
- Insurance Billings
The setting of the budget must conform to the income levels. The income received is estimated to meet labor expenses, diagnostic costs, medical care costs, and drugs supply expenditures (Plowman & Smith, 2013). While the organization is dedicated to providing quality patient care services, it is concerned with incomes and costs which affect budgeting decisions just like any other business.
The actual and standard costs for medical care and clinical activities differ. Clinical budget analysis depends on cost variations per department, changes in resource costs, and case-mix variations. Budgeted variance shows a description of the predicted revenue and cost from the actual one. The hospital experiences several cost variances which include:
- Diagnostic procedures costs
- Nursing care expenditures
- Therapeutic procedures costs
- Drugs and medicine costs
- Labor costs
Tactics to Align Actual to Budget
The accountants must ensure clarity in the hospital’s strategy by translating business tactics and departmental actions to conform with the set budget (Stimpson, Li, Shiyanbola, & Jacobson, 2014). The people who forecast the financial budget for the organization must be responsible for company strategy.
Long range plan inclusion in the budget cycle
Budget is designed to run for one financial year. However, the initiatives of the hospital exceed one year to achieve the set targets, and thus the annual budget set offers an incomplete picture. Thus, the organization should ensure that the annual budget is a subset of a 3-5 year business plan.
Revisit planning and strategy
The use of driver based planning, rolling forecasts, and budget planning software would assist the organization aligns budgeting with its strategy. The periodical review of strategy and plans with respect to the company's set budget offers a managerial solution to aligning the organizational budget with strategy (Soltes & Gavurova, 2014).
Measure and communicate critical metrics to budget success
Before budget preparation, the identification of the main performance indicators that measure the success of the firm's budget and strategy must be made. Identifying financial and nonfinancial metrics helps in aligning budget to the set strategy.
Aligning budget with company strategy plays a critical role in designing excellent tactics that conform to the current income level of the organization. The actual performance of an organization depends on its ability to design a budget that suits its income level. Therefore, setting annual budget requires hospitals to identify the cost variances so as to propose the right strategies of aligning actual costs to the budgeted expenditures.
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Plowman, S. A., & Smith, D. L. (2013). Exercise physiology for health fitness and performance. Lippincott Williams & Wilkins.
Soltes, V., & Gavurova, B. (2014). The functionality comparison of the health care systems by the analytical hierarchy process method.
Stimpson, J. P., Li, T., Shiyanbola, O. O., & Jacobson, J. J. (2014). Financial sustainability of academic health centers: identifying challenges and strategic responses. Academic Medicine, 89(6), 853-857.