Good day, Financial Aspects of Health care services assignment. Please check carefully and make sure you fully understand before you send for me to accept.

Good day, Financial Aspects of Health care services assignment. Please check carefully and make sure you fully understand before you send for me to accept.
Chapter 15 Notes Operating Budgets Overview Understand the difference between operating budgets and capital expenditure budgets Understand what budget expenses will most likely be identifiable versus allocated expenses Understand how to build an operating budget Understand the difference between static and flexible budgets A budget is an organization-wide instrument. It takes into account projected revenue flow and spending outflows. This is in conjunction with the organizations objectives. The budget is the instrument through which activities are quantified in financial terms. Objectives for the Budgeting Process The four objectives of budgeting as outlined by the American Hospital Association are: To provide a written expression, in quantitative terms, of a health care organizations policies and plans. To provide a basis for the evaluation of financial performance in accordance with a healthcare organizations policies and plans. To provide a useful tool for the control of costs. To create cost awareness throughout the organization. Operating Budget vs Capital Budget Operating budgets deal with the short term, usually 12 months, of an organizations revenue and expenses necessary to operate the facility. It deals with day to day operations and is a projection of what the financial picture will look like. Capital expenditure budgets may cover the next year but may also project a futuristic view going out as far as 10 years. Budget Viewpoints Responsibility Centers In a responsibility center, the managers are responsible for a particular set of activities. In a budgeting sense, there are two common responsibility centers, cost centers and profit centers. In cost centers, the manager is responsible for controlling costs. In a profit center, the manager is responsible for both costs and revenue. Transactions outside the Operating Budget Certain transactions are outside of the budget process. These costs will be related to restricted programs such as grants received for special programs not directly related to the daily operation. The funds received through grants are restricted to specific needs of the organization. These monies cannot be commingled with operating funds. Foundation transactions are also outside the operating budgeting. Foundations are legally separate organizations that require separate accounting and reporting of their funds. Therefore, their costs are not included with the operating budget. Budget Basics – A Review Identifiable vs Allocated Costs Within a departmental budget, certain costs will be specifically identifiable while others will be allocated. Direct patient care and supporting patient care should be mostly identifiable. General Administrative expense and patient related expense will probably be mostly allocated costs. Financial related expense, such as interest expense, may not be included at all in the manager’s budget. See Figure 15 -3 on Page 167. Fixed vs Variable Costs As previously discussed, fixed costs do not change in total, even though volume rises or falls. Variable costs rise and fall in proportion to a change in volume. This can mean a change in number of procedures, change in census or perhaps prescriptions filled. See Figure 15 – 1 on Page 166. Building an Operating Budget: Preparation Appropriate preparation is an important stage in building an operating budget. Even though a manager is responsible for direct department duties, the budget process is integral in an organizations success. Construction Stages Construction stages include: Plan Gather information Prepare input Construct and submit draft version Make required revisions to draft Present preliminary budget Make required revisions to preliminary budget Submit final budget Input includes both assumptions and calculations; required revisions to the draft version would occur after upper-level management has reviewed the draft. Additional revisions will be typically required after the preliminary budget has been presented. Construction Elements The budget is a useful tool to efficiently run your department. As part of the budget process, the following should be determined: Format to be used – will templates be used? Budget scope – will your budget be a segment of a larger budget? Available resources – can include certain reports or staff allocated to assist Levels of review – who is ultimately reviewing and making final decisions? Time frame – when is each level due Building an Operating Budget: Construction Budget Information Sources – See Figure 15 – 5 on Page 170. Three primary sources of operating budget information include: Operating Revenue Forecast Staffing Plan or Forecast Other Operating Expense Forecast Budget Assumptions and Computations Assumptions Building a budget means making a series of assumptions. The first step is to review strategy and objectives. Hours report needs more detail to include hours by job title. Another critical assumption in building a budget is whether or not special projects are going to use resources during the new budget period. Computations Computations should be supported by their assumptions and should be replicable. Any other person should be able to reach the same conclusions by looking at your assumptions. Previously, preparation of staffing forecasts was discussed when we calculated FTE’s and annual paid days off. Now costs must be attached to the staffing forecasts for budget purposes. When projecting staffing costs, gross salaries and benefit costs should be calculated the same in each department in order to have comparable figures. Finalize and Implement the Budget The final budget is approved after multiple reviews and adjustments of previous drafts. Now the budget must be implemented. The contents of the budget must be explained to all involved personnel. Working with Static Budgets and Flexible Budgets Static Budget Is essentially based on a single level of operation. That single level of operation which is the volume, is never adjusted. Budgets are measured by how they differ from actual results. Thus, a variance is the difference between an actual result and a budgeted amount when the budgeted amount is a financial variable reported by the accounting system. The computation of a static budget variance is: Actual Results minus Static Budget Amount = Static Budget Variance Static budgeted expense amounts never change, even if volume changes. If volume changes, the original projected revenues and expenses remain the same. These original volume projections were a goal. See Table 15 – 2 on Page 172. Flexible Budget A flexible budget is created using budgeted revenue and budgeted costs. A flexible budget is adjusted to the actual level of output achieved during the budget period. A flexible budget looks towards a range of activities or volume versus only one level of activity. The concept of flexible budget addresses workloads, control and planning. In completing a flexible budget, you must: Look at the outer limits of fluctuations by defining the relevant range Analyze the patterns of the costs expected to occur during the budget period. Separate the costs by behavior (fixed or variable) See Table 15 – 3 on Page 173. See Table 15 – 4 on Page 174 and 15 – 5 on Page 175. Review Exhibits 15 -2 and 15 – 3 on Pages 175 and 176 respectively.
Good day, Financial Aspects of Health care services assignment. Please check carefully and make sure you fully understand before you send for me to accept.
Chapter 16 Notes Capital Budgets Overview Recognize the reason that a capital budget expenditure budget is necessary Review the cash flow and the startup cost concept Understand differences between cash flow reporting methods Recognize types of capital expenditure budget proposals Understand about evaluating capital expenditure proposals Capital expenditures involve the acquisition of assets that are long lasting, such as equipment, buildings and land. Capital expenditure budgets are usually intended to plan, monitor and control long term financial issues. Capital budgets are usually for extended periods of time. Usually three, five or ten years. Capital budget is usually the responsibility of upper level management. Creating the Capital Expenditure Budget Consists of two parts. The first part represents spending for capital assets that have already been acquired and put in place. This part protects existing assets. You’re actually spending to protect that which you already have. The second part of the budget represents spending for new assets. The “existing asset” part of the budget forces planning questions about whether existing equipment and buildings should be kept in their present condition, renovated or replaced. The new asset part forces more planning questions. The reasons for new asset spending may involve: Expansion of capacity in a department or program. Creation of a new facility, department or program. New equipment to improve productivity. New equipment or space to comply with federal or state requirements. Budget Construction Tools Usually the construction of a capital budget is determined by the organizations requirements. There may be a template that the manager must follow. If not, the manager must select the tool that best works for their needs. One important tool is net cash flow reporting. Cash Flow Concept is when cash flow analysis illustrates how the project’s cash will flow over a period of time. Analysis is usually concentrated on cash expenditure, but cash receipt must also be considered. When the replacement of old equipment generates cash from the sale, we would look at net cash flow. The Cash Flow Reporting Methods are: Payback Method – recognizes the cash flows that are necessary to recover the initial cash investment Accounting Rate of Return – based on profitability, does not take time value of money into account Net Present Value – discounted cash flow method based on cash flows in that it takes all the cash into account over the life of the equipment, takes profitability and time value of money into account Internal Rate of Return – also discounted cash flow, similar to NPV These methods were discussed in detail in Chapter 12. Budget Inputs Capital Expenditure budget inputs may have to be taken into account if the operating budget requires additional capital equipment or space renovations. See Figure 16 – 1. Startup Cash Concept If the proposal for capital expenditures incorporates operational expenses, management believes the cost of starting up a new service line or program should be included as part of the original investment. Funding Requests Discusses the process of requesting capital expenditure funds and the types of proposals. The Process of Requesting Capital Expenditure Funds Due to reduced funding sources, departments often must compete with one another for the available capital funds. The various request for funding are collected from all departments and subjected to a review by upper management in order to make decisions about where, and to whom, the available capital expenditure funds will go. Types of Capital Expenditure Proposals The type of proposal affects its size and scope. Proposal types are as follows: Acquiring new equipment – reason new equipment is needed, acquisition cost must be reasonable, number of years of useful life must be known Upgrading existing equipment – reason upgrade is necessary, impact of upgrade, outcome of upgrades, costs must be reasonable, will upgrade extend the life. Replacing existing equipment with new equipment – rationale for replacing existing equipment, comparison between replacing and new equipment, will new equipment increase productivity/outcomes Funding new programs – take startup costs into account, more extensive proposal because it involves new program without prior history Funding expansion of existing programs – utilize statistics from previous program, startup costs should be negligible Acquiring capital assets for future use – most difficult to accomplish. Proposals usually postponed due to lack of cash. Evaluating Capital Expenditure Proposals Due to the lack of available resources, organizations must ration the available capital funds. Most organizations will consider the following factors in making their decisions: Necessity of the request Cost of Capital to the organization Return that can realized on alternative investments