Operating Budget Proposal Essay Discussion Paper
Describe the environmental forces that will affect or are likely to affect the budget for the next year. (Consider things such as compliance changes, changes in how insurance claims are processed, changes in laws and regulations, and so on.)
A budget refers to a document that lists the financial aspects of an operation/activity. Typically, a budget is affected by environmental forces that could be listed as internal and external forces. The internal forces refer to the factors that affect financial features on a daily basis. In fact, the affect the budget development on a regular basis. These factors include purchase of office supplies and medical equipment, maintenance and repair of equipment, salaries and wages for both temporary and permanent staff, and staffing (Gallagher & Hodge, 2012)Operating Budget Proposal Essay Discussion Paper. Dunham-Taylor and Pinczuk (2015) explains this understanding by noting that operating budgets are simply the best estimates of the daily costs that a unit is likely to incur, thus representing the most informed guess of expenses within an incoming financial period that could be quarterly or annually. The most important factor when considering the internal forces that influence budget development is staffing costs. Medical personnel salaries and wages (in most cases) represent the largest recurrent cost for any operating budget. That is because the health care provided by medical personnel representing the most essential element of any medical facility. It is important to note that staffing costs are typically prioritized based on immediate staffing needs (Dunham-Taylor & Pinczuk, 2015).
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For instance, expenditure on overtime and hiring temporary staff would only occur when the need arises in terms of increases in number of patients and their medical needs. This implies a high acuity need would require the use of more medical personnel that directly relates to increased expenditure on wages and salaries. An example of this can be seen in emergency care where higher staff-patient ratio would be required when compared to other medical units, thus incurring high staffing expenses when compared to other units. Other than staffing expenses, another internal force that could affect the budget is leadership that is concerned with making budget decisions to include expenses, marketing and human resource. Through having a strong leadership, the medical organization is able to present a clear plan for the future to include well-structured objectives and quantifiable approaches for measuring success. Also, a strong leadership would empower personnel to meet their expectations. The third internal force is the organization’s mission, vision and values statements. These statements explain the ‘why’ of the organization rather than the ‘what’, thus determining how the budget items are identified and prioritized (Gourdreau & Smolenski, 2014; Hamric et al., 2014) Operating Budget Proposal Essay Discussion Paper. In this respect, internal forces have an influence on budget decisions.
Other than the internal factors, budget decisions are also influenced by external factors. The external factors include third party payors (such as health insurance companies), reimbursement method, effect of government regulations, effect of medical organizations on competition, and credentialing and licensing requirements (Gallagher & Hodge, 2012). Firstly, competition is a source of concern in budgeting since they must be understood in order to identify budget items that would help the organization to distinguish itself from the competition and even help it in marketing activities. Although the organization cannot control its competition, it can identify their weaknesses that would then be leveraged through budget items and investment. Secondly, patients (customers) would influence the budget through their unpredictable and flaky nature. Even though the organization cannot control how the customers behave, they can be studies and adaptive behaviors applied to improve their loyalty. When the patients indicated that they require something (as is the case with the need for the MRI services), the organization listened and decided to invest in setting up MRI services within the facility. Thirdly, the economy can influence the budget through upward and downward trend indicators. Should the forecast indicate a downward trend that includes a recession, then the organization would be forced to present a smaller budget even as it eliminated some items and placed other items on hold until the economic situation improved. Also, when the economy improves then interest rates would reduce thus allowing the organization to access cheaper loans to fund more budget activities (Getzen, 2013). Fourthly reimbursement influences budget activities through determining practice standards. Reimbursement rules require that medical personnel meet specified care standards and protocols to be eligible for reimbursement. This is particularly true with regards to preventing ‘never events’ and hospital readmission. Finally, credentialing and licensing processes influence budgeting through demanding higher standards of care quality and safety measures. These processes demand high competency and education levels that would in turn demand high salary and wage allocations (Dunham-Taylor & Pinczuk, 2015) Operating Budget Proposal Essay Discussion Paper. In this respect, internal and external processes affect the budgeting process.
Complete a 2017 operating budget that includes the purchase of new billing software and a new MRI machine. (This is where you use the sample operating budget.) Keep in mind that there will be costs beyond the purchase price, such as training for staff, the addition of more staff, and maintenance. You may want to refer to Assessment 3 and the cost-benefit analysis you completed.
Table 1. Operating budget
| 2015 Actual | 2016 Budget | 2017 Projected | |
| SALARIES & BENEFITS: | |||
| Salaries | $ 762,348 | $ 838,583 | $ 1,125,000 |
| Overtime | $ 48,245 | $ 53,070 | $ 60,000 |
| Shift Differential | $ 92,456 | $ 101,702 | $ 120,000 |
| FICA | $ 68,125 | $ 74,938 | $ 82,000 |
| Health Insurance | $ 58,463 | $ 64,309 | $ 72,000 |
| Pension | $ 43,572 | $ 47,929 | $ 52,000 |
| SUB-TOTAL | $ 1,073,209 | $ 1,180,530 | $ 1,511,000 |
| OPERATING EXPENSES: | |||
| Office Supplies | $ 10,214 | $ 11,235 | $ 13,000 |
| Patient Care Supplies | $ 45,215 | $ 49,737 | $ 53,000 |
| Travel & Training | $ 8,456 | $ 9,302 | $ 10,100 |
| Memberships | $ 1,512 | $ 1,663 | $ 1,800 |
| Equipment Repair | $ 10,215 | $ 11,237 | $ 12,000 |
| Rentals & Leases | $ 2,572 | $ 2,829 | $ 3,000 |
| Miscellaneous | $ 450 | $ 495 | $ 600 |
| Staff training | $ 3,000 | ||
| Purchase MRI machine | $ 1,200,000 | ||
| MRI suite | $ 150,000 | ||
| Patient support area | $ 50,000 | ||
| MRI machine installation | $ 80,000 | ||
| MRI reagents and consumable | $ 15,000 | ||
| MRI contrast (gadolinium) | $ 15,000 | ||
| Utilities | $ 12,000 | ||
| Purchase and install new billing software | $ 5,000 | ||
| SUB-TOTAL | $ 78,634 | $ 86,497 | $ 1,623,500 |
| TOTAL COSTS | $ 1,151,843 | $ 1,267,027 | $ 3,134,500 |
Explain how this proposed budget aligns with the target profit margin.
The target profit margin refers to the profit amount expected to be received at the end of the designated accounting period. In the present case, the budget aligns with the target profit margin since the margin is derived from the budget while acknowledging that some level of uncertainty exists as the projected budget could be inaccurate to either exceed or become less than the expectation. To be more precise, the target profit margin helps in planning for cash flow and for revealing the expected incomes to both lenders and investors. Should there be a large variance between the actual and target profit, then the organization would have to derive a more conservative budgeting approach. An unfavorable result would ensue if the target profit margin is excessively optimistic and exceeds the actual profit. Overall, the proposed budget helps mapping to keep the organization to keep in the right track even as it determines whether the financial objectives are within reach, and whether other alternatives would be realistic and achieve the desired financial results (Dunham-Taylor & Pinczuk, 2015) Operating Budget Proposal Essay Discussion Paper. In this respect, the proposed budget aligns with the targeted profit margin by presenting anticipated costs that would then be used to determine prices and income levels to achieve the profit margin.
Explain the measures you will implement to track financial performance over the next year. How will you evaluate financial performance?
The organization’s financial performance would be evaluated using financial analysis and reporting tools. The first tool is the current ratio that reviews its financial health in terms of whether or not it can been the current obligations with regards to the liabilities and assets. The second measure is the acid test ratio that determines whether the short-term liabilities can cover the immediate liabilities without having an effect on inventory. The third tool is inventory turnover that determines whether the present inventory can cover the expected customers. The fourth tool is operating return on assets that determines the organization’s profitability before deducting the taxes and interests. The fifth tool is operating profit margin that evaluates the organizations pricing and operating strategies. The sixth tool is total asset turnover that evaluates asset deployment efficiency to generate income. The seventh tool is debt ratio that looks at how much of the organization is leveraged. The final tool is DuPont analysis that reviews the aspects that drive profitability (Madura, 2014) Operating Budget Proposal Essay Discussion Paper. The listed tools are expected to provide a better understanding of the organization’s financial performance.
References
Dunham-Taylor, J. & Pinczuk, J. (2015). Financial management for nurse managers: merging the heart with the dollar (3rd ed.). Burlington, MA: Jones & Bartlett.
Gallagher, A. & Hodge, S. (2012). Ethics, law and professional issues: a practice-based approach for health professionals. London: Palgrave Macmillan.
Getzen, T. (2013). Health economics and financing (5th ed.). Hoboken, NJ: John Wiley & Sons.
Gourdreau, K. & Smolenski, M. (2014). Health policy and advanced practice nursing: impact and implications. New York, NY: Springer Publishing Company.
Hamric, A., Hanson, C., Tracy, M. & O'Grady, E. (2014). Advanced practice nursing: an integrative approach (5th ed.). Amsterdam: Elsevier.
Madura, J. (2014). International financial management (12th ed.). Boston, MA: Cengage Learning.
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Assessment Instructions Preparation Use the Sample Operating Budget located in the Required Resources section to help you complete this assessment. The information represents the clinic\'s operating budget for 2015 and 2016. You have been asked to prepare a budget proposal for 2017 for the group of physicians who own the clinic. Because you know the clinic needs new billing software and there is a request for a new MRI machine, you will need to factor these expenses into your proposal. You will also need to explain environmental forces that may affect the budget and how your proposal addresses those forces. There is no specific format you must follow for this assessment. This is a budget proposal and should be organized in a clear and logical manner. Support your work with references to at least two professional resources, and follow the APA guidelines for in-text citations and references. Requirements Complete the sample operating budget by filling in the 2017 column. Include this information as a table inserted into your budget proposal, or attach separately in the assessment submission area. In your proposal, be sure you do the following: Describe the environmental forces that will affect or are likely to affect the budget for the next year. (Consider things such as compliance changes, changes in how insurance claims are processed, changes in laws and regulations, and so on.) Complete a 2017 operating budget that includes the purchase of new billing software and a new MRI machine. (This is where you use the sample operating budget.) Keep in mind that there will be costs beyond the purchase price, such as training for staff, the addition of more staff, and maintenance. You may want to refer to Assessment 3 and the cost-benefit analysis you completed. Explain how this proposed budget aligns with the target profit margin. Explain the measures you will implement to track financial performance over the next year. How will you evaluate financial performance? Additional Requirements Include a title page and reference page. Number of pages: 4–5 pages, not including the title page or reference page. At least two current scholarly or professional resources. APA format for in-text citations and references. Times New Roman font, 12 point. Double-spaced Operating Budget Proposal Essay Discussion Paper.
| Proficient | Distinguished |
| Describes the environmental forces that affect health care operating budgets.. | Describes the environmental forces that affect health care operating budgets and explains how the environmental forces affect operating budgets. |
| Proposes an operating budget that includes organizational improvements. | Proposes a detailed operating budget that includes organizational improvements and factors in related costs such as training, maintenance, and additional staff. |
| Explains how an operating budget aligns with an organizational target profit margin. | Explains how an operating budget aligns with an organizational target profit margin and strategic direction. |
| Explains how financial performance will be measured. | Explains how financial performance will be measured, including the use of a scorecard of qualitative and quantitative measures to compare organizational effectiveness and quality to customer perception and market position. |
| Writes content clearly and logically with the correct use of grammar, punctuation, and mechanics. | Writes clearly and logically with the correct use of spelling, grammar, punctuation, and mechanics; uses relevant evidence to support a central idea. |
| Formats citations and references using the APA style with few errors. | Formats citations and references with no errors. |
Operating Budget Proposal Essay Discussion Paper