FMW2A

1. What are the major sources of financing for the federal government, state governments, the health sector, and the not-for-profit sector?

2. How large is total federal, state, and local government spending compared to the U.S. GDP?

The response to each question should be must be at least 200 words in length in APA format.

Reference

Financial Management for Public Health and Not-for-Profit Organizations (4th edition)

Assignment reading attached!

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1. Describe key methodologies for the practical application of financial management in healthcare
organizations.
1.1 Explain how the budget provides the detailed plan for accomplishing the objectives defined in

the long-range plan.
1.2 Discuss flexible, performance, and zero-based budgeting techniques.
1.3 Explain the budgeting process, including budget preparation, review and adoption,

implementation, and evaluation of results.

Reading Assignment

Chapter 2:
Planning for Success: Budgeting

Chapter 3:
Additional Budgeting Concepts

Unit Lesson

In Unit II, you will begin to explore how to get the most out of your healthcare organization, whether you are
the chief executive officer (CEO), the chief financial officer (CFO), or a department director. Obviously, you
want a positive bottom line on your income statement; you want the best financial performance, the strongest
balance sheet, and excellent stability for the future.

Chapter 2 provides essential background on this topic, managing your service or your entire organization from
a budgetary standpoint. As you might guess, a lot of planning is essential for making this happen. Planning is
accomplished by establishing the mission for the organization, defining a strategy to accomplish the mission,
developing a long-range plan which defines the organization’s objectives, and then preparing specific detailed
budgets which define the resources needed to accomplish these objectives.

A healthcare organization without solid planning is like a ship adrift at sea: headed nowhere in particular,
getting nowhere fast, but when the healthcare facility’s strategic plan ties to its budget and everyone in the
organization buys into the plan, then big things can happen. It is especially crucial that all parts of the
healthcare facility be involved in strategic planning and budgetary planning. For example, the medical staff of
the hospital (the physicians) will have very important input to the planning process. Failure to include the
doctors in planning can spell disaster for any healthcare facility. Also, nurses are absolutely crucial to the
facility’s success in so many ways. They must be consulted on the budget. They will have knowledge of
certain aspects which will lead to a positive patient experience, things that the CEO and CFO would likely
overlook. Nurses spend the entire day with our patients, and we must listen up when they speak about what is
important for quality care and patient satisfaction. Every department—plant operations, housekeeping,
business office, laboratory, radiology, respiratory care, and rehabilitation—must be involved because they
have important knowledge that might not otherwise come to light for inclusion in the budget.

Taking just one example: What if the medical staff has big plans for a new magnetic resonance imaging (MRI)
system and new computerized tomography (CT) scanner in the next year (perhaps five million dollars total),
but the plant operations director knows that the hospital’s roof is completely shot and must be replaced very
soon or lead to serious problems for the whole facility (perhaps two million dollars total)?. The CEO will need

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to listen to the director and take care of essentials before spending his entire capital budget on new
technology which could very well wind up in standing water from a leaky roof!

In this unit, you will learn that a budget is simply a plan, but one of the most important plans you will ever be
involved with. The plan shows how management expects to obtain and utilize resources to achieve the
organization’s objectives. It provides a detailed action plan. There is no magic in budgeting, but it requires
thought and careful consideration of factors which will impact the organization’s finances over the years
ahead. Budgeting requires estimating all the likely receipts and all the likely payments for the organization
over the years ahead. The process usually requires a number of preliminary drafts and revisions before a
feasible plan is developed and accepted by all parties. Input from every department of the hospital is essential
for a successful budget process.

Typically, healthcare organizations will budget for three years into the future. Beyond that timeframe, the
crystal ball gets pretty fuzzy, and it is just too difficult to predict further than three years downstream. Much
can change over longer periods of time. Once approved, efforts must be made to keep actual organizational
performance as close to the budgeted plan as possible.

Although some budgeting is done on an ad hoc basis, most budgeting is done at regular intervals. The master
budget incorporates and summarizes all of the budget elements for the coming year. The main elements of
the master budget, sometimes called the comprehensive budget, are the operating budget and the financial
budget. The operating budget presents a plan for revenues and expenses for the fiscal year. The financial
budget includes a cash budget and a capital budget. While the cash budget focuses on cash flows for the
fiscal year, the capital budget considers outlays for resources that will provide service for a number of years
into the future.

The process of developing a budget is highly politicized. If allowed to happen, the budget can become an
organization-wide competition for funding; however, effective healthcare leaders do not let that happen, and
they do not play favorites. They keep the budgetary process objective and fact-based. Department managers
should use an objective budget process which focuses on the accomplishment of the organization’s mission,
goals, and objectives. All organizations seek to accomplish some end. Hospitals exist to provide health care
services to their communities. The budget becomes a tool to facilitate the accomplishment of this mission.

Unit II then continues with Chapter 3, which builds on the basic budgeting concepts of Chapter 2. Budgets
may be organized to provide information in many different ways. They can be line-item budgets, focusing on
the amounts spent on various types of resources, such as labor or supplies. Or, they can be organized to
present the budget for responsibility centers, programs, or functions. Often there is a combination of
approaches used within the same budget. Most responsibility center, program, or functional budgets will
generally show line-item information.

The budgeting process at some organizations is highly centralized. Other organizations take less of a top-
down approach, giving managers throughout the organization more say in the development of budgets for
their responsibility centers. There are advantages and disadvantages to both top-down and bottom-up
budgeting. As a result, most organizations use an approach that incorporates both direction from above and
detailed input from below.

A number of specialized budgeting techniques can be very helpful for managers: flexible budgeting,
performance budgeting, zero-based budgeting, and forecasting are some of the more prominent techniques.
Flexible budgeting is an approach that provides budgets at different volume levels. This helps managers plan
actions that will be necessary if actual volume exceeds or falls short of expectations. Performance budgeting
is an approach that helps organize budget information so that managers can see the cost of achieving
different outcomes, instead of focusing primarily on inputs. Zero-based budgeting is a technique that requires
budget justification of all costs in a budget, rather than just justification of the increase in costs from one
budget year to the next. Forecasting focuses on how managers make predictions of expenses, revenues, and
other items in the budget.

Once the budget exists, a very important document is produced each month which compares actual revenues
and expenses with budgeted revenues and expenses. This document is called the variance report, and it is
an extremely important monitoring tool for departmental and overall organizational performance. Variances
from budget tell the department manager and the CFO about changes which may be taking place in the
department, some of those may be positive changes for the organization, and others may be negative. For

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example, a 20% upward variance from budget in payroll expense is a major problem which will need to be
explained and addressed immediately. Is there too much overtime being approved? Is there too much agency
staffing being utilized? Just what is happening to cause such an overage in payroll cost? Meanwhile, a 20%
upward variance from budget in service revenue is a very good thing; it means that business is up, more
patients are utilizing our facility, and we are actually collecting for services provided.

Conclusion

Effectively budgeting is honestly a lot of work, but it is so important for the success of the organization.
Taking time up front to prepare a valid and realistic budget will make everything else easier and better as
you move through the fiscal year. You are encouraged to learn as much as possible about the budget
process during this unit!