Blog
12 Vila Health: Developing a Capital Budget Introduction Locations Medical Unit Office
12
Vila Health: Developing a Capital Budget
Introduction
Locations
Medical Unit Office
SAMC Budget
Anna Jiang’s Office
Pediatrics Department Capital Budget Adjustments – Proposed
Adjusted Budget
Conclusion
Credits
Introduction
Vila Health: Developing a Capital Budget
The budgeting process includes two components – operating and capital. While the operating budget is grounded in an organization’s day-to-day reality, the capital budget must be in tune with long-term concerns. You have already looked at the situation with St. Anthony Medical Center’s operating budget as the hospital deals with a revenue shortfall; now it is time to take the same look at the hospital’s capital budget.
SAMC Office Visits.
Another day of work at St. Anthony Medical Center. First, you should stop by the Medical Unit Office and check in. After that, it would be a good idea to head to Anna Jiang’s office and talk to her.
SAMC Medical Unit Office
It looks like you have an email!
From: Owen Welch, CFO
Subject: Budget Forecast
Hi, this is Owen Welch again. First off, I wanted to say thanks for your suggestions with the operating budget. Nobody likes this situation, but I really appreciate the way you and everyone else have been cooperating.
I’m sure you knew this part was coming. We’d hoped to contain the damage to operating budgets, but as we move forward, it’s become clear that we’re going to need to look at cuts to capital budgets as well. Hate to say it, but we’re looking at the same range – 6 percent.
Once again, I’d like you to take a look at your existing budget, just so that you can start thinking about where you’re at. Again, Anna in Pediatrics is working on her recommendations for how she’s going to handle this. You might stop over and see what she’s thinking.
Thanks again. I’ll be in touch.
—Owen
SAMC Budget
Capital Line Items – St. Anthony Medical Center
FY 2017 Budget
Land
$15,239,201
Land Improvements
$981,929
Buildings
$114,791,925
Fixed Equipment – Building Service
$977,950
Fixed Equipment – Other
$7,243,962
Equipment
$56,465,517
Leasehold Improvements
$360,086
Construction in Progress
$129,971
TOTAL
$196,190,541
Less Accumulated Depreciation
$53,467,581
NET PROPERTY, PLANT & EQUIPMENT
$142,722,960
Capital Line Items – Med/Surg Unit
FY 2017 Budget
Building
$75,377,922
Fixed Equipment – Building Service
$466,210
Fixed Equipment – Other
$2,446,209
Equipment
$28,877,239
Leasehold Improvements
$109,870
Construction in Progress
$72,236
TOTAL
$107,349,686
Less Accumulated Depreciation
$19,388,472
NET PROPERTY, PLANT & EQUIPMENT
$87,961,214
Pediatric Department Capital Budget
FY 2017 Budget
Building
$48,558,097
Fixed Equipment – Building Service
$502,463
Fixed Equipment – Other
$2,117,194
Equipment
$27,503,197
Leasehold Improvements
$79,457
Construction in Progress
$36,976
TOTAL
$78,797,384
Less Accumulated Depreciation
$17,466,231
NET PROPERTY, PLANT & EQUIPMENT
$61,331,153
What are your initial thoughts, upon looking at the budget?
What concerns exist for adjusting a capital budget that do not for an operating budget?
Anna Jiang’s Office
This is the office of your colleague, Anna Jiang, from Pediatrics. She’s working on her adjustments to their section of the capital budget, and preparing her presentation to explain these adjustments. She’d like your opinion of her work in progress.
Comments from Anna Jiang
Well, this is a lot of fun, isn’t it?
I still feel terrible about having to do reductions through staff attrition for the operating budget. My staff feels like we’re balancing the budget on their backs, and it’s hard for me to convince them otherwise.
That’s what bothers me so much about the capital side – I don’t see any way out of this that’s not going to make things worse for them. This is the same sort of thing; there are a lot of line items where I just can’t cut anything because the costs are close to fixed.
I guess I can make some room on equipment. But boy, are they not going to like that on the floor. As a practical matter, I think this is going to mean not buying new bedside monitors. They were scheduled for replacement this year, and they need replacing really badly – those things are way past their primes, and they’re glitchy as heck. If we defer the replacement for another year, that frees up 4 percent. But I really don’t love the tradeoffs – we already lose a lot of efficiency as staff deal with the junky old monitors, and I think there’s some risk that a couple of them just outright break down. And, well, this leaves us less flexible for next year’s cap budget, because now there’s another thing that’ll absolutely have to be in it.
*sigh*
I wish this was easier. What do you think?
Pediatrics Department Capital Budget Adjustments – Proposed
Decrease of approximately $5.8M in Equipment line item to achieve requested 6% reduction.
Building
FY 2017 Budget: $48,558,097
FY 2017 Adjusted Line Items: $48,558,097
Fixed Equipment – Building Service
FY 2017 Budget: $502,463
FY 2017 Adjusted Line Items: $502,463
Fixed Equipment – Other
FY 2017 Budget: $2,117,194
FY 2017 Adjusted Line Items: $2,117,194
Equipment
FY 2017 Budget: $27,503,197
FY 2017 Adjusted Line Items: $21,702,155
Leasehold Improvements
FY 2017 Budget: $79,457
FY 2017 Adjusted Line Items: $79,457
Construction in Progress
FY 2017 Budget: $36,976
FY 2017 Adjusted Line Items: $36,976
TOTAL
FY 2017 Budget: $78,797,384
FY 2017 Adjusted Line Items: $72,996,342
Less Accumulated Depreciation
FY 2017 Budget: $17,466,231
FY 2017 Adjusted Line Items: $17,466,231
NET PROPERTY, PLANT & EQUIPMENT
FY 2017 Budget: $61,331,153
FY 2017 Adjusted Line Items: $55,530,111
Adjusted Budget
Pediatric Department Capital Budget
FY 2017 Budget
Adjustments
Building
$48,558,097
$36,192
Fixed Equipment-Building Service
$502,463
$502,463
Fixed Equipment-Other
$2,117,194
$2,117,194
Equipment
$27,503,197
$21,702,155
Leasehold Improvements
$79,457
$79,457
Construction in Progress
$36,976
$36,976
TOTAL
$78,797,384
$72,996,342
Less Accumulated Depreciation
$17,466,231
$17,466,231
NET PROPERTY, PLANT & EQUIPMENT
$61,131,153
$55,530,111
Conclusion
You have completed the Developing a Capital Budget activity. In this activity, you learned about the factors and long-term trends that must be kept in mind as one considers a capital budget.
Credits
Subject Matter Expert:
Georgann Weissman
Interactive Design:
Lori Olson
Instructional Design:
Stephen Sorenson
Media Instructional Design:
Keith Pille, Felicity Pearson
Project Management:
Nakeela Hall
Preparing and Managing an Operating Budget for a 35-bed Hospital Unit
Introduction
Financial responsibility is of pivotal importance for the state of financially solved healthcare facilities. Optimizing staffing and other resources constitutes a considerable challenge for nurse leaders to achieve high-quality care within operating budgets (Anderson et al., 2020). This document explains how to prepare and control an operating budget for a 35-bed hospital unit with 20 full time employees. Budgeting is identifying potential income sources and developing and implementing realistic forecasts and controls for expenditure to optimize the use of money within a unit. Therefore, the nurse leaders will be in an excellent position to compound the organization’s financial capacity and enhance the treatment’s quality.
Preparing the Budget
Major Sections of the Budget
When presenting the operating budget for the hospital unit, the organization’s responsibility budget is distributed into categories to eliminate misunderstandings and maximize efficiency. The significant sections of the budget will be:
Revenue entails all sources of operational income, mainly from rendered patient services, and all other operational revenues, such as inpatient and outpatient revenues.
Salaries and wages, including the payment of all the employees in the hospital unit under consideration, including nurses, secretaries, and any other subordinates.
Employee benefits given to the staff, including medical care, pensions, and incentives.
Professional fees associated with outside employment and outsourcing of services.
Supplies required for proper functioning encompass medical and general sundries used by the hospital unit in caring for patients.
Purchased services entailing costs associated with electricity, water, telephone bills, other related services, and contracted services required to run the hospital unit.
Insurance to manage different financial exposures the hospital unit may have incurred while operating.
License and taxes including regulatory fees, licenses, and taxes, on the hospital unit’s operations.
Other direct expenses that the hospital can incur in patient care and other hospital needs not specified in the previous categories.
Table 1
Operating Budget Table
Category
Monthly Cost
Annual Cost
Staffing
Nurses (20 FTE)
$19,520
$234,240
Ancillary Staff (3 FTE)
$8,700
$104,400
Overtime
$5,026.20
$60,314.40
Support Staff (1:12 ratio)
$7,100
$85,200
Miscellaneous
Miscellaneous Expenses
$1,005.22
$12,062.64
Medical Supplies
$1,350.56
$16,206.72
Total Operating Expenses
Monthly Total
$42,702.98
Annual Total
$512,424.76
One-Year Time Period
The one-year budget period will serve as a detailed financial roadmap for the hospital unit over the upcoming fiscal year. This time frame helps formulate plans and properly distribute resources in all the hospital’s departments and activities (Clarke, 2018). It also allows for consideration of changes in cyclical factors such as seasonal aspects, business activity, patient volume variation, and healthcare requirements (Weiskirchner-Merten, 2019). In addition, the budget will need regular checking and modifying as the financial goals and the real needs of the operation change. It will include revenue estimates, expenditure estimates, and capital expenditure plans for the fiscal year with objectives of achieving and sustaining excellent patient care in the face of available finances. A one-year budget plan means the hospital unit can look at its future and identify any hurdles or beneficial changes it will encounter in the long run, following an effective strategic plan.
Standard Formatting Conventions
The budget will bear formatting characteristics typical for healthcare budgets to enhance the coherence and comparability of the financial data. For example, incorporating budgeting structures and frameworks familiar to the healthcare sector. Central areas, like projected revenues and necessary expense breakdowns subdivided into salaries, supplies, utilities, and capital requirements, will be highlighted and laid down in a way that gives a quick look at the differences.
Designing and Creating the Budget
Assumptions
When designing and creating the budget for the healthcare organization, several assumptions are of immense importance for planning the financial resources form and accounting for the organization in the next fiscal year. First, there must be consistency in the number of patients receiving treatment from the clinic. The organization expects a constant patient turnover over the year, tributary to the data aggregated and the trends surmised when writing the business plan (Zhang & Bohlen, 2023). The assumption is critical when predicting the revenue generated from patient care since this is one of the vital cost categories under operating costs. For example, if they expect the volume of patients to be 1000 per month in the past, the budget will assume that demand for service will remain at the same level (Figueroa et al., 2019).
Secondly, staffing assumptions include staff turnover rates, which consider workers who may retire or resign due to average department turnover rates. For instance, if the annual turnover rate stands at an average of 10%, this implies that attrition will be included in the staffing budget as part of the necessary recruitment and training expenses. The third assumption is cost inflation, whereby the cost of producing goods will likely increase. For the fixed expenses, comprising drinks and food items, the organization has estimated a general inflation rate of 2% throughout the budgeting period. This general inflation rate is expected to capture future cost changes in the organization’s goods and services.
These are assumptions based on records and projections on excise data, industry patterns, and business forecasts. They offer a method of creating realistic cash flow forecasts and balance sheets, which act as a reference point in the decision-making of any process budget (Clarke, 2018). They are declared to ensure accountability and venues of assertions by the budgeting team, which facilitates stakeholders’ understanding of revenue expectation, staffing, and expected expenses.
Process for Determining Line Items and Cost Center Codes
Decisions on online items and corresponding cost center codes required a systematic approach with the help of past financial data, current department requests, and legislation requirements. Historical financial data provided the information that was necessary to begin with (Weiskirchner-Merten, 2019). Understanding the previous spending plans and past financial performances allowed the budgeting team to determine the recognizable costs and budget history.
The other important step was needs assessment, especially about the organization’s departments. The necessity of hiring more staff, acquiring additional equipment, procuring services, and all present and future needs of each department were considered (Figueroa et al., 2019). This procedure meant to dialogue with department heads and key stakeholders to identify new programs that might help estimate future needs (Zhang & Bohlen, 2023). For instance, a future increase in geriatric patients may cause a change in the staffing and the types of supplies needed within the geriatrics department.
Some of the observations made by the participants were as follows: Legal and regulatory constraints greatly influenced the line items and cost center codes. The regulatory aspect of healthcare shaped the budgeting of insurance, licenses, and other regulatory requirements outlay. For example, insurers help avoid the risk of failure to provide coverage for liabilities and property that can conflict with legal requirements (Weiskirchner-Merten, 2019). These factors are incorporated into the budgeting process to systematically manage the organization’s finances.
Allocation of Funding
Within the budget, funds are allocated to critical areas like expenses related to people and tools. Operating expenses, which include salary and wages paid to employees and contractors and the costs of providing employee benefits and allowances, account for about 60 % of funding. Medical equipment customer costs represent at least 25% of the direct and indirect expenses associated with purchasing equipment and materials and repair and maintenance costs. These funds include capital outlay on medical equipment for diagnosing, treating, and managing patients and other monies set aside for routine servicing, maintenance, reliability, and efficiency of this diagnostic imaging equipment.
Staffing Requirements and Workload Calculations
Employee needs are determined in great detail based on patient needs so that nurse staffing is appropriately matched with the number of patients and acuity (Bae, 2022). To deal with the number of admissions and understanding level, the nurse-to-patient ratio of 1:4 is observed during the day shift and 1:6 during the night shift. This calculation ensures enough coverage for specific shifts and effective response to patient care needs.
Another sub-factor is bringing down overtime by proper scheduling and sharing of workload. For example, 10% is envisaged for overtime to support uneven demand without incurring overly high costs (Homauni et al., 2023). Besides, receptionists, secretaries, and technicians are hired based on workload estimations and operational requirements to ensure adequate staffing and orderliness in performing organizational responsibilities across the departments.
Staffing Requirements and Workload Calculations
Employee staffing at our hospital unit is meticulously planned to align with patient acuity and admission levels, ensuring optimal care delivery and operational efficiency (Bae, 2022). With a capacity of 35 beds, we employ 20 full-time equivalent (FTE) staff, maintaining a staffing ratio of 1:12 for support staff and 1:7 for nurses. We accommodate an average daily census (ADC) of 20 patients daily, necessitating an additional three ancillary staff to ensure seamless operations throughout the day. Our nurses, compensated at $30. 5 per hour, work 10 hours a day over four days each week, resulting in weekly earnings of approximately $1,220 and monthly earnings of about $4,880 per nurse. Annually, each nurse earns roughly $58,560. In comparison, our ancillary staff, such as Patient Care Associates (PCAs), earn $14. 5 per hour, working similar shifts for a weekly salary of $725 and a monthly salary of approximately $2,900, totaling about $34,800 annually per staff member.
Overtime costs are carefully managed, with nurses incurring approximately $400. 62 per day and support staff $102, totaling around $4,006. 20 and $1,020 per month, respectively. Additional expenditures for miscellaneous items, including life support activities and professional development, amount to approximately $10,087. 43 annually. Medical supplies, essential for our operations, account for 55% of our unit’s total expenditure, representing about 8% of the hospital’s overall budget, with monthly costs averaging $1,350. 56. Other operational costs encompass laundry services, medication dispensation, and equipment maintenance. Insurance expenses reflect the demographics of our patient population, particularly older patients who often require additional care services and support, impacting our operating budget significantly.
Equipment Needs and Associated Expenses
A systematic inventory review is vital to determine existing or new required equipment. This process helps to check and measure all the equipment, thus making sure that all machines are in order and working to avoid degrading patient care (Zhang & Bohlen, 2023). The other factor is service schedules, which are when the organization comes up with a calendar of times when equipment is to be serviced or when replacements are to be made. It effectively increases operation efficiency and reduces expenses because fires are incredibly costly, requiring emergency calls to repair or replace crucial medical equipment that has been compromised beyond its useful life.
Primary Sources of Budget Information
Historical financial reports provide guidelines on past budget accomplishments and expenditure patterns. These reports are indeed crucial for any organization to be able to make informed estimates of financial requirements in the future (Homauni et al., 2023). Cost comparison with similar healthcare units in the industry is valid here as it helps determine comparative cost information and other costs that might be necessary when considering cost-saving options or increasing efficiencies. Vendor quotes are a source of current and reliable price data for supplies and services that assist in budgeting by factoring in realistic costs and favorable terms.
Data Reliability
Information used in budgeting is obtained from internal accounting databases systematically and adequately so that the data is accurate and reliable. Getting information from other reliable external sources leads to enhanced accuracy of the expected budgetary amounts (Ross, 2018). This approach helps the controlling process be aware of all the variations in the predictions regarding the flow of funds and financial planning to make a wise decision regarding the distribution of resources in the healthcare organization.
Strategic Plan
The budget links well with the organizational mission of providing quality patient service by providing adequate financial means for human resources, consumables, and equipment (Ehrlich et al., 2020). This alignment of budget increases the performance of operations and ensures patients benefit, fostering efficiency in the delivery of services. The budget shines the primary light on operational factors, such as efficiency and costs, which are considered wise in resource management. These strategic imperatives simultaneously signal a dedication to compliance with financial responsibilities and remind the public of previous success in managing the organization’s undertakings.
Including nice-to-have items within the budget is approached thoughtfully, carefully considering their potential impact on patient care and staff productivity. Acquirements are geared towards optimizing organizational processes and serving the users in a way that leaves out none or is least disruptive during incidents such as power blackouts (Ehrlich et al., 2020). This selective approach somewhat balances the current operational requirement and, at the same time, keeps on improving how the service is delivered.
Ongoing Budget Management
Factors Affecting the Budget
Several key factors influence the ongoing management of the budget. The first type of financial planning relates to identifying key organizational objectives regarding budget allocation and its correspondence to strategic goals, such as increasing patient service quality (Ho, 2018). Secondly, internal policies and regulations act as a convenient budgeting principle that advises avoiding compliance issues while deciding the budget. Finally, balancing competition for funding also means making allocations between departments and correctly reporting on essential needs across the different operational units of the organization to meet the organizational goals optimally (Bae, 2022).
Limiting Staff Overtime
Various measures are taken to limit overtime expenses among the staff. Efficient staffing patterns and working plans are applied to ensure optimal use of human capital and avoid excessive working hours (Ross, 2018). This includes correctly predicting the number of patients expected over a given period and responding to this by increasing staffing.
Managing Non-Productive Time and Expenses
This requires effective habits concerning non-productive time and expenditure for its coverage, which is essential to budget sustainability. Employee training and certification programs are offered during hours of low business volume so as not to maintain workflow while simultaneously developing the human capital (Homauni et al., 2023). Online training incorporates training sessions while minimizing travel and accommodation expenses incurred while attending off-site training activities.
Managing Ongoing Expenses
The further management of continuous expanse in terms of supply and equipment is a crucial factor in addressing the issue. Big containerization is used in purchases to attain lower prices per unit while ensuring quality and reliability (Ho, 2018). In this case, the constant studies of the usage pattern and the needs of the business help change the procurement strategies to determine what is best to maintain the inventory levels regarding the usage needs of the business.
Conclusion
In conclusion, the operating budget crafted for the hospital unit is a cornerstone in advancing our organizational mission of delivering superior patient care. All the efforts include careful planning and alignment with the efficiency of the budgetary processes by the best practices regarding staffing, supplies, and equipment. It also entails a commitment to functional capability in an organization while endorsing proper patient care services. An essential budget facet incorporates historical data, benchmarking, and stakeholder feedback to balance financial sustainability against industry growth and change. It introduces the value of proper financial controls and procedures with policymakers or law enforcement to guarantee that financial resources are appropriately employed to fulfill present and future demands. The budget recognizes the importance of providing high-quality care to patients and embracing a manner in which progress can be maintained in line with the set goals. This reflects our commitment to improving our patients’ lives, strengthening our staff, and preserving the public’s confidence in our organization by demonstrating fiscal responsibility and integrity.
References
Anderson, D. M., Cronk, R., Best, L., Radin, M., Schram, H., Tracy, J. W., & Bartram, J. (2020). Budgeting for Environmental Health Services in Healthcare Facilities: A Ten-step Model for Planning and Costing. International Journal of Environmental Research and Public Health, 17(6). https://doi.org/10.3390/ijerph17062075
Bae, S. (2022). Noneconomic and economic impacts of nurse turnover in hospitals: a systematic review. International Nursing Review, 69(3), 392–404. https://doi.org/10.1111/inr.12769
Clarke, C. (2018). Strategic Planning in Healthcare. Textbook of Medical Administration and Leadership, pp. 31–46. https://doi.org/10.1007/978-981-10-5454-9_3
Ehrlich, H., McKenney, M., & Elkbuli, A. (2020). Strategic planning and recommendations for healthcare workers during the COVID-19 pandemic. The American Journal of Emergency Medicine, 38(7). https://doi.org/10.1016/j.ajem.2020.03.057
Figueroa, C. A., Harrison, R., Chauhan, A., & Meyer, L. (2019). Priorities and Challenges for Health Leadership and Workforce Management globally: a Rapid Review. BMC Health Services Research, 19(1), 1–11. Biomedcentral. https://bmchealthservres.biomedcentral.com/articles/10.1186/s12913-019-4080-7
Ho, A. T.-K. (2018). From Performance Budgeting to Performance Budget Management: Theory and Practice. Public Administration Review, 78(5), 748–758.
Homauni, A., Markazi-Moghaddam, N., Mosadeghkhah, A., Noori, M., Abbasiyan, K., & Jame. (2023). Budgeting in Healthcare Systems and Organizations: A Systematic Review. Iranian Journal of Public Health, 52(9). https://doi.org/10.18502/ijph.v52i9.13571
Ross, K, T. (2018). A comprehensive guide to budgeting for healthcare managers. Jones & Bartlett Learning.
Weiskirchner-Merten, K. (2019). Interdependence, participation, and coordination in the budgeting process. Business Research, 13(1), 247–274. https://doi.org/10.1007/s40685-019-0090-x
Zhang, R., & Bohlen, J. (2023). Healthcare Business Budgeting. PubMed; StatPearls Publishing. https://www.ncbi.nlm.nih.gov/books/NBK589707/