BHA FPX 3008 Assessment 1 Developing an Operating Budget

Developing an Operating Budget

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BHA-FPX3008: Health Care Budgeting and Reporting

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Abstract

Financial planning is a key component in assisting healthcare organizations to deliver quality healthcare while keeping a good eye on the resources they have, thereby ensuring that these resources are used in a responsible manner. For this paper, the operating budget for St. Anthony Medical Center’s Medical-Surgical Department will be examined, and the financial information for this department is found within the financial data in the Capella University (2024) budget scenario. The analysis focuses on the department’s expected revenues and operating expenses within the current fiscal year, pinpoints budget differences, and reports on financial adjustments that are anticipated to enhance overall performance. This shows a figure of about $3.75million below the budgeted revenue and shows that the operating expenses have been almost $4million above the approved budget. This highlights the need for good cost management.

In an attempt to meet the challenges, a projected reduction of 5% of operating expenses is included in the projected operating budget for the upcoming fiscal year, which still includes $50 million in revenue. These changes will take out about $42.6 million in total operating costs and enhance the department’s projected operating margin. Besides reviewing the financial projections, this paper illustrates the use of operating budgets, their difference from capital and project budgets, and why a balanced budget enables an organization to remain stable, to utilize resources efficiently, and to provide high-quality patient services.

Developing an Operating Budget

A major key to financial planning for healthcare organizations is to make sure they are able to continue providing the best possible care for patients, given their financial resources. An operating budget acts as a financial blueprint that lists the estimated cash flows both in and out, helping healthcare executives make decisions about resource allocation, measure departmental performance, and more. For the Medical-Surgical Department at St. Anthony Medical Center, budget planning is particularly crucial, as shifts in income and expenditure go hand-in-hand with impacts on financial sustainability and patient care provision (Capella University, 2024).

In this paper, the department’s financial position for the current year is analyzed, including a comparison of actual and expected revenues and actual and expected financings, as well as a review of significant budget deviations. It also puts together a budget for the next financial year, keeping in mind specific cost measures to enhance the financial position of the department while at the same time retaining key services. Further, the idea that budgeting is essential at healthcare organizations, the distinctions between operating, capital, and project budgets, and how a balanced operating budget leads to good financial management, increased efficiency, and success of the organization are explained.

Provide the correct revenue and Expenses for This Year

The scenario from Capella University (2024), which provided the data for “Estimate Current Year’s Actuals”, indicates that St. Anthony Medical Center will have an operating revenue of $46,247,032 during the current fiscal year for the Medical-Surgical Department. This is below the original revenue goal of $50million and suggests that there is a strong negative revenue variance, which will demand close monitoring and control of the finances. Tracking the gaps between estimated and actual revenue helps healthcare administrators discover financial issues ahead of time and take the necessary action.

Operating expenses are even more of a challenge. The estimated expenses of the department are $44,867,130, which is $3,972,130 over the approved operating budget of $40,895,000. Based on the budget scenario, this increase is mostly related to a rise in salaries and wages ($24.3 million projected versus $23 million budgeted); medical supplies ($11.77 million projected versus $10 million budgeted); and employee benefits ($6.08 million projected versus $5.75 million budgeted) (Capella University, 2024). These are signs that the department has had increased operating needs from what was originally planned.

As a result of managing to reduce the projected operating expenses by 5%, as a strategy for enhancing financial performance, the total estimated costs are reduced to around $42.62 million as opposed to the $44.87 million previously treated in the scope of costs. This change creates an expected net operating revenue of $1,379,902 (Capella University, 2024) in this department. This will have to rely on ongoing efforts to create effective cost-management policies—a team scheduling tool that optimizes workers and hours, better supplier management, and periodic contract audits with suppliers, to name a few. These activities can aid in managing these expenses and maintaining excellent patient care.

Estimate the Correct Revenue and Expenses for Next Year

The proposed operating budget of the next financial year will help to improve the financial activities of the Medical-Surgical Department and offer continuous services to the patients. The department is currently estimated at have revenue of 50,000,000 the same as that of last year. This projection is calculated on the assumption of sustaining the number of patients, the reimbursement rate, and continued financial recovery (Capella University, 2024).To improve the financial position of the department, the department has reduced all estimated operating costs by 5% to get the total estimated budget to about $42,623,774, compared to the current year’s estimate of 44,867,130 (Capella University, 2024). This reduction is a proactively managed financial aspect in which the efficiency opportunities sought do not interfere with the quality healthcare services.

These estimations have been left scaled in such a way that the efficiency of the organization is maintained and responsible resource management and usage, without compromising the patient experience (Capella University, 2024). In that way, the department will have a net operating revenue of $7,376,226, which is indeed a lot higher than the net operating revenue it is projected to have this fiscal year. This budget portrays an overall financial approach which will be balanced in nature, which will ensure long-term sustainability of the organization, responsible stewardship of the resources and ensure that the department will be in a position to meet the needs of patient care in the long term.

Why Budgets Are Important

One of the major management tasks that enable planning, coordination and appraisal of financial activities of health care organizations is budgeting. Budgets establish spending and revenue anticipations, support a decision-making foundation, are effective in resource distribution, and help to monitor performance (Suwarno et al., 2023). In a healthcare context where patient needs and workflows rapidly change, an appealing expenditure plan enables healthcare organizations to consistently set funds aside to provide safe and quality care, as well as restrain discretionary spending.

Budget planning in a medical-surgical unit assists managers in anticipating the staffing requirements, estimating the cost of medical supplies and be ready to cater the routine operating expenses. Proactive decisions based on financial predictions will enable managers to adequately respond to the changing patient numbers or the NHS resources to decrease the chances of budget deficits and patient service interruptions. The progressive approach also runs in parallel with strategic planning, as it allows leaders to provide an optimal investment allocation to promote performance in both clinical and operational aspects.

Accountability can also be a tool of accountability as it assists in making comparisons between the actual financial performance of a business and the expected performance. Variance analysis is a method that will enable managers to know where they are incurring higher or less money than they should and whether any action should be taken accordingly. An example of this is the St. Anthony Medical Center, where a budget analysis of this year reveals that the supply cost this year was higher than it was expected. In its turn, department leaders could work on the management of their department inventories better, either renegotiate the prices at which they obtain the products or explore the offerings of other suppliers to ensure that they maintain control of costs without affecting patient care. 

Difference Between Operating, Project, and Capital Budget

Healthcare budgets differ in type and purpose and organizations use different kinds of healthcare budgets to assist them in managing their cash in a useful manner. Capital budgets, operating and project budgets offer a clear picture of the image to the healthcare leaders and allow them to make well-informed decisions concerning resource allocation.

The income and recurrent costs of a healthcare department in a given fiscal year would be found in an operating budget Khajavi et al., 2024). It also entails the expenses that are being incurred on a regular basis such as paying the salaries and wages of the staff and the staff benefits, medical supplies, utilities and other regular operational costs. This is because the Medical-Surgical Department of the St. Anthony Medical Center needs the operating budget to have funds available to ensure that it can offer sufficient patient care and departmental operations on a yearly basis.

A capital budget, however, is one which has been set up to finance major capital expenditures which will be beneficial to the organization in long term. They can be high-value investments such as capital equipment that will be employed over an extended period and contrast with the operational expenditure (Khajavi et al., 2024). They may include investments in a Magnetic Resonance Imaging (MRI) machine, refurbishing a surgical suite, building out healthcare facilities to the most simple such as improving the electronic health record system. Although these investments can prove to be expensive, they raise the capacity of the organization to offer health services effectively and of high quality in the long run.

Project budget is developed to draw the focus into the objectives, duration and expenses of a given project. A project budget does not mean an operating budget, which is used to fund ongoing activities. The project budget is temporary and only lasts as long as the project takes. These budgets may be included in the capital budget and followed up on expenditure on projects such as the implementation of a new patient monitoring system or establishing a telehealth program (Vesta et al., 2022). This information also assists health institutions in maintaining a watch on the costs of the projects, and in controlling them in accordance with achieving the targeted goals and objectives within the limited budget.

The uses of each budget vary, yet they all serve as adjuncts in good financial management. Operating budgets are meant to run the day-to-day activities of the clinical services, capital budgets are meant to deal with investments in the infrastructure or technology of such an organization and project budgets are meant to deal with a particular project that is seen to add value to the organization or to give it a strategic growth.

Impact of the Balanced Budget on Operations for the Next Fiscal Year

To achieve financial sustainability of the Medical-Surgical Department of the St. Anthony Medical Center in the long run, it is essential to have a balanced operating budget. The next fiscal year budget is offered in such a way that it would show the strategic system of managing the resources since the operating expenses are expected to be 5 per cent lower, and the revenues are not supposed to vary. The balance assists the department in delivering quality patient care without incurring unwarranted financial costs.

Having a budget that’s financially balanced also increases the ability of the department to allocate resources where they are most needed. Such cost reductions allow the leadership to control the operating costs, staffing, make the necessary medical supplies available and deliver essential clinical care without affecting the patient outcomes. 

The other significant benefit of a balanced budget would be the increased financial flexibility. When there is stability in financial performance, departments will be in a better position to fail at short notice in the area of their services like a reduction in the number of patients, a rise in supply prices, or unforeseen situations in operations. Good financial planning also helps boost employee confidence when you are making staff hiring choices and are less likely to take steps that require cutting back on staff, which could have a negative impact on staff morale or services to patients. Providing support to the work context as identified by Vries et al. (2023) is an important factor in the retention of health care professionals. Overall, a balanced operating budget assists in ensuring the organizational resilience and allows the department to achieve its strategic and financial targets without neglecting its patients.

Conclusion

Healthcare leaders should put together a working budget that can be useful in making financial decisions as well as in utilizing resources in an efficient manner. A good example of how the gaps and the corrective actions that should be made must be dictated by a well-considered report of the anticipated incomes and expected expenses in the St. Anthony Medical Center, the Medical-Surgical Department is a good example.

This budget proposal, in which the operating expenses have been reduced by around $1.2 million (or a 5 percent reduction in the estimated operating costs), improves the financial condition of the department and provides the possibility of maintaining the department in the long run. In addition to finance, a good operating budget can be utilized to make healthcare organizations responsible, make the allocation of resources more effective, and retain providing high-quality care to their patients.