Components of operating budgets paper


Type of care provided


Question 1

Question 2

Question 3

A hospital is an acute care short-term stay and emergency medical center that also includes medical departments such as, surgical, obstetrics, infectious disease, radiology, laboratory and mental health.

What is your role as an administrator in creating an operational budget?

What are the components of operating budgets for a hospital of this kind?

What role does variance reporting have on building an operational budget?

The acute hospital has several organizational types. The lowest level organization, Acute Level 1, fo- cuses on assessing trauma cases and also on general health, womens health, and community-based care. Any cases that require advanced assessment and trauma are referred to the Level 1 facility, which will have the most specialty care options and associated diagnostic equipment. These facilities may be nonprofit, such as a hospital started by a charitable organization, or they may be for-profit organizations managed by an investment corporation or individual group of physicians or investors.

You have just begun a new position at a 250-bed hospital that is a Level 1 trauma center, it is a for-prof- it hospital, holds several accreditations by the Joint Commission (JC), and is recognized as a leader in trauma care. You know that most of the cases that the hospital brings in are through the Emergency Room by ambulance. You know that multiple traumas are frequently treated at the hospital. Treatment plans can range from x-rays to major surgeries, and the average hospital stay post-surgery is 5-7 days. You have begun your new role as the hospital administrator. Your first responsibility is to build an opera- tional budget to present to the CEO/president of the organization. For this exercise, building an operation budget is not required. Instead, provide an explanation of how you would begin the process of building an operational budget. Make sure to take time to critically think about how you would handle this task. This is an opportunity for you to begin truly putting yourself in the mindset of an administrator.



Budget Considerations

Operational Budget This budget focuses on a broader view of the total operations of the organization in which all departments are reviewed for both their income potential and the costs associated with the work activities used to generate projected revenues. Each department will have its own budget for the managers to follow and on which to base the activities of the department in order to meet its contribution to the total revenues and the asso- ciated costs of the organization.

Dietary Services This is a departmental budget focused on the costs and potential reimbursement for the organization. The operation is overseen by a dietitian or nutritionist who is responsible for supplying the nutritional needs of the patients within their care. This department may utilize the services of several consultants or contract this service to an outside organization.

Medical Supplies This budget is focused specifically on the requirement-based services being delivered by the hospital professional, which are often referred to as nondurable disposable items. This budget includes specific items for the surgeon or professional performing the services. These may include such things as oxygen supplies, diabetic supplies, ostomy supplies, bandages, and related supportive items. These items are generally manu- factured for one-time use. They are not reused due the inability to sterilize them. The items that are reusable are classified under capital assets and have a use-time identified with the specific piece of equipment.

Human Resources This budget indicates the finances needed to support the organizations objectives, from a personnel perspective. Full-time equivalent (FTE) calculations are used to project the personnel budget. These individuals could include nonskilled labors to professional licensed physicians and various job descriptions within the categories. In addition to listing the FTEs, the associated benefits of the FTEs would be projected within this department for each FTE within the organization. This will generally include line items for consultants and tempo- rary positions based on the needs of the organization.

Departmental Costs This budget focuses on the specific department and its overall needs, costs, and po- tential revenue in relation to the overall goals of the organizations strategic plan. The managers primary responsi- bility is to monitor the operational efficiency of the department, including all areas that directly impact and support the generating of revenue for the organization. Managers may be required to present an analysis of the weekly or monthly operational analysis to the Chief Financial Officer of the organization or a lead manager.

Vendor/External Suppliers Health service organizations have special needs and may require certain exter- nal items and/or services. Most organizations have projected budgets to include the purchase of supplies and services for outside contractors (vendors) who specialize in installation, monitoring, and the repair of specialized equipment or technology being utilized by the specific health care delivery system.

Maintenance/Facility Operations This departmental budget focuses on the overall upkeep of the building and the related equipment and machines to provide a safe and comfortable environment for both the patients and workers. This budget includes all FTEs and may also include line items for consultants and outside sources based on needs of the facility.



Statement of Operations Data: 2011 2012 2013 Net Revenue 2,250,000 3,220,000 3,115,740 Cost of Care 2,000,150 1,987,000 1,988,700 Operating Expenses 452,100 557,000 518,000 Depreciation and Amorization 37,000 52,000 64,000 Interest Expense 2,050 2,370 2,850 Interest Income -8,150 -7,575 -8,080 Income Before Income Taxes 187,600 256,400 263,350 Provision for Income Taxes 33,500 53,400 64,050 Net Income 4,954,250 6,120,595 6,008,610

Balance Sheet Data: 2011 2012 2013 Current Assets 714,045 908,300 855,750 Current Liabilities 429,000 466,250 500,700 Property and Equipment, Net 109,000 118,000 127,400 Total Assets 1,928,000 2,658,000 1,734,000 Total Debt and Capital Lease 0 800 0 Stockholders Equity 1,400,000 1,700,000 988,000

Budget Spreadsheet

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