Develop a 2-4 page review on the importance of the budgeting process to a health care organization, as well as demonstrate an understanding regarding the differences between an operational budget and a capital budget. Additionally, prepare an operational budget for the medical-surgical department at the St. Anthony Medical Center.
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Introduction
Note: This assessment uses Vila Health: Developing an Operating Budget media as the context for developing your budget. Please make sure you have reviewed this multimedia before you complete your assessment submission.
Financial management is something that touches us all. We are each responsible for our own personal and family budgets, and many of us are also responsible for budgets at work. Regardless of your experience with financial management, it is a critical skill to have, and it will be necessary to master this skill as you move forward in your health care administration career. Almost all health care administrators will be responsible for a budget at some point in their careers. Administrators must also know how to read basic financial statements and reports to assess the performance of their organization, other organizations, or their department.
Budgeting is an important consideration in strategic planning for any health care organization. The most basic definition of budget is a plan that identifies expected financial inputs and outputs. A budget should be closely aligned with a strategic plan, which is a strategy used by an organization to achieve its mission. Organizations may use different types of budgets, such as master budgets, statistics budgets, operating budgets, revenue budgets, expense budgets, and capital budgets (Reiter & Song, 2021). We will explore each at a high level.
For this assessment, you will be asked to consider the different types of budgets that are used in the health care field. By researching other organizations that use budgets, you will apply the course materials to a real-world situation. The assessment will further refine those skills as you navigate the St. Anthony Medical Center medical-surgical department budget (from the Vila Health multimedia). You will prepare a paper and a basic budget to demonstrate the knowledge that you acquired in this assessment.
Many learners enter the field with limited exposure to finances. Depending on your current knowledge and comfort level with the subject, it may be necessary to conduct additional research and spend extra time addressing some of the basics. In other words, the resources in this course will help to provide a foundation for you to complete the assessments, but it is possible that you will need to do your own research in the Capella University Library to fully address all scoring guide criteria.
ReferencesReiter, K. L., & Song, P. H. (2021). Gapenski’s healthcare finance: An introduction to accounting and financial management(7th ed.). Health Administration Press.
Nowicki, M. (2024). Introduction to the financial management of healthcare organizations (9th ed.). Health Administration Press.
Instructions
The assessment has two distinct parts:
Part 1: Medical-Surgical Department Operating Budget
Relevant scoring guide criteria:
Provide this year’s correct revenue and expenses.
Estimate the correct revenue, expenses, and net revenue/expenses for the next fiscal year.
For Part 1 of this assessment, use the information presented in the Vila Health: Developing an Operating Budget multimedia as context to create your operating budget. Using the data provided in the first three columns, develop an operating budget for the medical-surgical department at the St. Anthony Medical Center for the next fiscal year, as well as estimate the revenue and expenses for the remainder of the current fiscal year. (Assume that next year’s revenue will be unchanged from the current year’s revenue; however, the department will need to cut operating expenses by 5 percent for next fiscal year.)
You may download and use the Excel spreadsheet from the multimedia as your template for this part, or use the Excel spreadsheet Medical-Surgical Department Budget [XLSX].
Print
Developing an Operating Budget
Introduction
Your Office
Board Meeting
Conclusion
Introduction
In health care as in other industries, a budget is a statement of expected financial inputs and outputs. But a budget is affected by more than revenues and expenses. It’s integrated with the organization’s strategic plan. In order to understand an organization’s financial health, not just in the present but in the future, it’s essential to understand its budget and the relationship between that budget and the strategic plan that guides the organization’s actions.
After completing the activity, you should be able to:
Analyze a hospital budget and recognize red flags based on budget variances.
Discuss the hospital budgeting process.
Calculate next year’s budget based on current-year data and directives from senior leadership based on a strategic plan.
Your Office
You are the administrator of the Medical-Surgical Department at St. Anthony Medical Center, the third largest hospital in the Twin Cities metro area. You will be creating the budget for your department. To prepare, you have to go to a budget meeting for the overall hospital, where you’ll hear about the current fiscal year — and how reality is corresponding to the assumptions in the budget.
You have a voicemail from Owen Welch, CFO.
Voicemail
Caller ID: Owen Welch, CFO
Voicemail Transcript Hi, it’s Owen. I hear you’re working on a budget for the Med-Surg department. I’d like you to come to the budget meeting this afternoon, because I’m going to be sharing some numbers that are likely to have an impact on your budget. I’ve sent you the year-to-date statements through December, the overall budget for the year, and the year-to-date budget variance for your department. Take a look at them, and bring them with you to the meeting. See you later!
St. Anthony Medical Center Financial Statements
Please download the Excel file for financial data.
Leadership Meeting
It’s time to head over to the meeting with hospital leadership to talk about the budget for the coming fiscal year.
Budget Meeting Conversation
Owen Welch, CFO: Hi, everyone. Thanks for coming. We’ve got some important numbers to go through and a big challenge to respond to, so I think we better get started.
Carla Neustadt, Vice President of Operations: That sounds ominous.
Owen Welch: Not really, Carla. Well…let’s get started. Okay, everybody take a look at the budget for the current year. We’ll get to the year-to-date numbers in a minute, but for now I want to focus on the whole-year budget.
Christopher Hewitt, Vice President of Medical Support: Well, can we at least get an idea of how we’re doing year-to-date before you go to the 40,000-foot level?
Owen Welch: I think you might need to hear this first. Here’s the situation: The hospital has to cut operating expenses by 5 percent for next fiscal year.
George Fink, Director of Clinical Operations: I’m sorry, did you say 5 percent? Operating expenses?
Owen Welch: That’s right.
George Fink: That’s a big ask. We’re already operating awfully lean.
Owen Welch: Agreed. But it’s the situation we’re in. I’ll get to the reasons, but based on what I’m going to go over, I just want everyone to keep in mind that we can’t make assumptions we were making before. So let me give you an overview of the budget and the year-to-date numbers, and I think you’ll see why we’re going to have to make those cuts.
Now, last year, for the entire hospital, we assumed that we would see $1,225,000,000 in total patient revenue. But as you can see, for half the year, we’ve only hit $607,538,746. By this point in the year, we should be at $612,500,000. So already in terms of total patient revenue, we’ve got a deficit of $4,961,254 that we didn’t expect. The problem is made worse when we see that other operating revenue is also under budget by $1,500,000.
Our operating expenses are fairly close to target so far this year, but given the situation with declining revenue, we will need to try to find some additional cost savings opportunities.
Christopher Hewitt: Wow. Well, okay, so that’s the reality. What’s the timeline? How long do we have to make these cuts?
Owen Welch: Well, implementation is obviously by June 30 since the next fiscal year starts July 1. The board will approve the new budget probably by mid-June, but all the negotiation at the unit and department level will be going on in April. Our first official budget committee meeting is in February. So I’d suggest getting your ducks in a row by then.
Conclusion
You have completed the Vila Health: Developing an Operating Budget.
In this activity, you learned about some budget realities at St. Anthony Medical Center, and some trends to keep in mind as you develop your budget for the Medical-Surgical Unit.
Part 2: Types of Budgets and Their Importance
In the second part of the assessment, demonstrate your understanding of the importance of budgets within the context of financial and strategic planning for health care organizations. A comprehensive analysis of the budget consists of your interpretation of the numbers: What are the numbers telling you? Use the readings from your textbooks, Gapenski’s Healthcare Finance: An Introduction to Accounting and Financial Management and Introduction to the Financial Management of Healthcare Organizations, as well as the independent research you conducted to fully develop a 2–4 page (excluding cover and references pages) response to the relevant scoring guide criteria:
Explain why budgets are an important part of the planning process.Explain means to make something (an idea, a situation, or a problem) clear to someone by describing it in more detail or revealing relevant facts or ideas.
Explain the difference between operating, project, and capital budgets.
Analyze the impact of the budget on the operations of the organization.Analyze means to examine methodically and in detail the constitution or structure of something (especially information), typically for purposes of explanation and interpretation.
Adhere to the rules of grammar, usage, and mechanics.Grammar refers to the basic rules for how sentences are constructed and how words combine to make sentences (for example, word order, case, and tense).
Usage refers to correct word choice and phrasing, particularly with regard to the meanings of words and phrases.
Mechanics refers to correct use of capitalization, punctuation, and spelling.
Apply APA formatting to in-text citations and references.Be sure to include a separate References page.
You may use the Developing an Operating Budget [DOCX] template to complete this part of the assessment.
Additional Requirements
Your assessment should also meet the following requirements:
Structure: Include a title page and reference page. You will submit two documents for your assessment:Excel spreadsheet (Part 1: Medical-Surgical Department Budget [XLSX]).
Word document (Part 2: Developing an Operating Budget Assessment Template [DOC]).
Length: Part 2 should be 2–4 double-spaced pages in length, excluding the title and reference pages.
References: Cite at least four current scholarly or professional resources.Your textbook can be one of the four resources.
APA formatting: You may wish to refer to the following APA resources to help with your structure, formatting, and style:Evidence and APA.
APA Style Paper Tutorial [DOCX].
Font and font size: Times New Roman, 12 point, for narrative portions only.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and scoring guide criteria:
Competency 1: Explain the importance of reporting in health care.Explain why budgets are an important part of the planning process.
Explain the difference between operating, project, and capital budgets.
Analyze the impact of the budget on the operations of the organization.
Competency 2: Develop a departmental budget.Provide this year’s correct revenue and expenses.
Estimate the correct revenue, expenses, and net revenue/expenses for the next fiscal year.
Competency 3: Communicate in a manner that is scholarly, professional, and respectful of the diversity, dignity, and integrity of others and consistent with the expectations for health care professionals.Adhere to the rules of grammar, usage, and mechanics.
Apply APA formatting to in-text citations and references.
Scoring Guide
Use the scoring guide to understand how your assessment will be evaluated.
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Criterion 1
Provide this year’s correct revenue and expenses.Distinguished
Provides this year’s correct revenue and expenses and provides a comprehensive analysis.
Proficient
Provides this year’s correct revenue and expenses.
Basic
Attempts to provide this year’s revenue and expenses, but does so incorrectly.
Non Performance
Does not provide this year’s revenue and expenses.
Criterion 2
Estimate the correct revenue, expenses, and net revenue/expenses for the next fiscal year.
Distinguished
Estimates the correct revenue, expenses, and net revenue/expenses for the next fiscal year, and provides a comprehensive analysis.
Proficient
Estimates the correct revenue, expenses, and net revenue/expenses for the next fiscal year.
Basic
Estimates incorrect revenue and expenses for the next fiscal year.
Non Performance
Does not estimate the revenue and expenses for the next current fiscal year.
Criterion 3
Explain why budgets are an important part of the planning process.
Distinguished
Explains why budgets are an important part of the planning process, provides specific examples of how they are used, and cites professional literature for each example.
Proficient
Explains why budgets are an important part of the planning process.
Basic
Explains budgets in general, but does not explain why they are an important part of the planning process.
Non Performance
Does not explain why budgets are an important part of the planning process.
Criterion 4
Explain the difference between operating, project, and capital budgets.
Distinguished
Explains the difference between operating, project, and capital budgets; provides examples of each; and cites professional literature for each example.
Proficient
Explains the difference between operating, project, and capital budgets.
Basic
Defines operating, project, and capital budgets in general, but not the differences between the three types of budgets.
Non Performance
Does not define operating, project, and capital budgets.
Criterion 5
Analyze the impact of the budget on the operations of the organization.
Distinguished
Analyzes the impact of the budget on the operations of the organization, and provides recommendations, supported by literature.
Proficient
Analyzes the impact of the budget on the operations of the organization.
Basic
Attempts to consider the impact of the budget on the operations of the organization, but the suggested impact is incorrect.
Non Performance
Does not consider the impact of the budget on the operations of the organization.
Criterion 6
Adhere to the rules of grammar, usage, and mechanics.
Distinguished
Exhibits strict and nearly flawless adherence to the rules of grammar, usage, and mechanics.
Proficient
Adheres to the rules of grammar, usage, and mechanics.
Basic
Errors in grammar, usage, and mechanics inhibit readability and comprehension and detract from good scholarship.
Non Performance
Does not adhere to the rules of grammar, usage, and mechanics.
Criterion 7
Apply APA formatting to in-text citations and references.
Distinguished
Exhibits strict and nearly flawless adherence to APA formatting of in-text citations and references.
Proficient
Applies APA formatting to in-text citations and references.
Basic
Applies APA formatting to in-text citations and references incorrectly and/or inconsistently, detracting noticeably from good scholarship.
Non Performance
Does not apply APA formatting to in-text citations and references.