Create a budget for the next fiscal year. Set out the details of all assumptions you needed in order to build this budget.
2. Use the Checklist for Building a Budget (Exhibit 152 see below) and critique your own budget.
Exhibit 152 Checklist for Building a Budget
1. What is the proposed volume for the new budget period?
2. What is the appropriate inflow (revenues) and outflow (cost of services delivered) relationship?
3. What will the appropriate dollar cost be? (Note: this question requires a series of assumptions about the nature of the operation for the new budget period.)
3a. Forecast service-related workload.
3b. Forecast non-service-related workload.
3c. Forecast special project workload if applicable.
3d. Coordinate assumptions for proportionate share of interdepartmental projects.
4. Will additional resources be available?
5. Will this budget accomplish the appropriate managerial objectives for the organization?
Assignment Exercise 152: Budgeting
Find an existing budget from a published source. Detail should be extensive enough to present a challenge.
1. Using the existing budget create a new budget for the next fiscal year. Set out the details of all the assumptions you needed in order to build this budget.
2. Use the Checklist for Building a Budget (Exhibit 152 shown above) and critique your own effort.
3. Use the Checklist for Reviewing a Budget (Exhibit 153 see below) and critique the existing budget.
Exhibit 153 Checklist for Reviewing a Budget
1. Is this budget static (not adjusted for volume) or flexible (adjusted for volume during the year)?
2. Are the figures designated as fixed or variable?
3. Is the budget for a defined unit of authority?
4. Are the line items within the budget all expenses (and revenues if applicable) that are controllable by the manager?
5. Is the format of the budget comparable with that of previous periods so that several reports over time can be compared if so desired?
6. Are actual and budget for the same period?
7. Are the figures annualized?
8. Test one line-item calculation. Is the math for the dollar difference computed correctly? Is the percentage properly computed based on a percentage of the budget figure?
Assignment Exercise 153: Transactions Outside the Operating Budget
Review Figure 152 (see below) and the accompanying text.
Metropolis Health System (MHS) has received a wellness grant from the charitable arm of an area electronics company. The grant will run for 24 months beginning at the first of the next fiscal year. Two therapists and two registered nurses will each be spending half of their time working on the wellness grant. All four individuals are full-time employees of MHS. The electronics company has only recently begun to operate the charitable organization that awarded the grant. While they have gained all the legal approvals necessary they have not yet provided the manuals and instructions for grant transactions that MHS usually receives when grants are awarded. Consequently guidance about separate accounting is not yet forthcoming from the grantor.
How would you handle this issue on the MHS operating budget for next year?
Assignment Exercise 154: Identified Versus Allocated Costs in Budgeting
Review Figure 153( SEE BELOW) and the accompanying text.
Metropolis Health System is preparing for a significant upgrade in both hardware and software for its information systems. As part of the project the Chief of Information Operations (CIO) has indicated that the Information Systems (IS) department can change the format of the MHS operating budgets and related reports before the operating budget is constructed for the coming fiscal year. The Chief Financial Officer (CFO) has long wanted to modify what costs are identified and what costs are allocated (along with the method of allocation). This is a golden opportunity to do so. To gain ammunition for the change the CFO is preparing to conduct a survey. The survey will obtain a variety of suggestions for potential changes in allocation methods for the new operating budget report formats. You have been selected as one of the employees who will be surveyed.
You may choose your role for this assignment as follows:
Figure 282 MHS Executive-Level Organization Chart.
Refer to the MHS Executive-Level Organization Chart (Figure 282 in the MHS Case Study SEE ABOVE CHART
(1) Either (a) choose any type of patient service that would be under the 495496direction of the Senior Vice President of Service Delivery Operations OR (b) choose any other function shown on the organization chart. (Your function could be a whole department or a division or unit of that department. For example you might choose Community Outreach or Human Resources Operations or the Emergency department etc.)
(2) Make up your own organization chart for other employee levels within the function you have chosen.
(3) Now make up another chart that indicates the operating budget costs you think would be mostly identifiable for the department or unit or division you have chosen and what other operating budget costs you think would be mostly allocated to it. (You may use Figure 153 as a rough guide but do not let it limit your imagination. Model the detail on your identifiable versus allocated costs chart after a real department if you so choose.) Use MHS hospital statistics shown in Exhibit 288 of the MHS Case Study as a basis for allocation if these statistics are helpful. If they are not make a note of what other statistics you would like to have.
Note: As an alternative approach you may choose a function from the Nursing Practice and Administration Organization Chart as shown in Figure 281 of the MHS Case Study instead of choosing from the Executive-Level Organization Chart.
Exhibit 288 Hospital Statistical Data
Metropolis Health System Schedule of Hospital Statistics for the Year Ended March 31 2___
Inpatient Indicators: Departmental Volume Indicators:
Medical and surgical 13650 Respiratory therapy treatments 51480
Obstetrics 1080 Physical therapy treatments 34050
Skilled nursing unit 4500 Laboratory workload units (in thousands) 2750
Admissions EKGs 8900
Adult acute care 3610 CT scans 2780
Newborn 315 MRI scans 910
Skilled nursing unit 440 Emergency room visits 11820
Ambulance trips 2320
Discharges Home health visits 14950
Adult acute care 3580
Newborn 315 Approximate number of employees (FTE) 510
Skilled nursing unit 445
Average Length of Stay (in days) 4.1
Figure 281 MHS Nursing Practice and Administration Organization Chart