Operating Budget


Using the same publicly traded company you used in the Environmental Scanning Interactive Assignment, and the downloadable Operating Budget Template, research the company online by accessing the Mergent Ashford University Library online database which offers company financials, descriptions, history, property, subsidiaries, officers and directors. Also, access the Business Insights: Global Ashford University Library online database which offers information on global companies, and industries. It includes SWOT reports, market share data, financial reports, case studies, business news, and company comparison charts. (View the Getting Started With Mergent and Business Insights: Global documents for suggested methods of searching Ashford University Library databases generally as well as specific advice for searching these two databases). You can always conduct research using credible online sources of corporate financial information, just be sure that wherever you obtain financial information that you cite your source.

For this Interactive Assignment, you are going to look at the financial statements for the company you selected and, using the previous quarter’s financial data, interpret the data and propose a budget for the next Quarter based on your current and previous analysis of company performance. Complete the budget template using this Operating Budget Template:

List your current sales, discounts and allowances, net sales, margins, operating costs, and earning before and after taxes.
Choose a minimum of two financial ratios (below) and include in your analysis.
Prepare the next quarter’s budget based on your interpretation of past data.
Include at least two of the following types of relevant financial ratios in your analysis. Review the online article Analyze Investments Quickly With Ratios (Links to an external site.) (Elmerraji, 2017) and Chapter 5 in the Abraham’s textbook to help with this portion of the budget:

Profitability Ratio
Liquidity Ratio
Solvency Ratio
Valuation Ratio
Leverage Ratio
(NOTE: Incorporate the feedback you receive from your instructor and peers and save your work. It will be part of your Strategic Plan Final Project for this course).

The post Operating Budget first appeared on COMPLIANT PAPERS.

Posted in Uncategorized

Operating Budget


A budget gives an analysis of the organization’s operational and financial goals. It is important in allocating resources, evaluating performance and formulating plans (Bucci, 2014).   Operating budget is composed of all the revenues and the expenses over a certain period of time such as quarterly or yearly. It is prepared before the reporting period as a plan that an organization is expected to achieve (Zietlow, Jo Ann Hankin, Seidner & O’brien, 2018). Patton-Fuller Community Hospital (PFCH) is a full-service hospital with a capacity of 600 beds which was established in 1975 and it is for-profit healthcare organization (University of Phoenix, 2020). In order to maximize the profits for the shareholders and the owners, the organization needs to keep well established operating budget. The paper gives an analysis of the budget for PFCH based on the 2009 and 2010 operating budget assumptions. The paper will also explain some of the effective and least effective management practices in creating and monitoring an operating budget.

Patton-Fuller Community Hospital

Statement of Revenue and Expense

2009 to 2010 Operating Budget

2009 (Proj)2010 Budgeted % Change From 2009 Projection2010 Budget2010 Operating Budget Assumptions
Revenue Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009—due to the weak economy—will continue into 2010.
Net patient revenue459,9003%473,697Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts.
Other revenue3,08215%3,544Marketing’s plan to increase donations by 15%
Total revenue462,9823%477,241 
2009 (Proj)2010 Budgeted % Change From 2009 Projection2010 Budget2010 Operating Budget Assumptions
Salaries and benefits220,7521%222,959.52Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. This assumption could be affected by a board decision either to raise nursing wages by $1 per hour or to increase the nursing hour ratio.
Supplies74,584-3%72,346.48Supplies cost will decrease by 3% due to the price deflation and our current over-stock purchased last year.
Physician and professional fees110,3763%113,687.28Contracts for fees have a built-in 3% increase.
Utilities1,2005%1,260Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital’s new heating and cooling systems.
Other1,8400%1,840No net change in the cost or volume of these items.
Depreciation & amortization (noncash expenses)36,0360%36,036Some high-cost equipment—air conditioning, telephone system, all patient beds, and headwalls—were replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010.
Interest3,70830%4,820.4The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost.
Provision for doubtful accounts13,79710%15,176.7The renegotiation of managed care plans has delayed collection and made collections less certain.
462,2931.26%468,126.38Total expenses will rise 1.26%.
2009 (Proj)2010 Budgeted % Change From 2009 Projection2010 Budget2010 Operating Budget Assumptions
Operating income6897%737.23Operating Income will improve, with the hospital’s loss reduced by 2/3.
Loss (non operating income)  
Investment income(62)0%62The market is down, expected to hold steady; a zero-return is expected, with neither losses nor gains.
Net income6278%677.23The hospital will continue its dramatic turnaround, taking advantage of the stagnation in patient volume, price deflation, the efficiency of new equipment, and the improved arrangements with the managed care companies.

Effective Financial Management Practices in Creating and Monitoring Operating Budget

Financial management is a way in which an organization analyses the investments and money for decision making. In order to achieve a working operating budget, effective financial management practices should be applied such as benchmarking and variance reporting.

Variance reporting is one of the effective methods. It is used to identify if there are any differences between the expected financial outcomes that is the budget   and the actual financial outcomes (Bucci, 2014). A good variance is where the actual income is high as compared to the budgeted or if the actual expenditure is less than the budget. On the other hand, an adverse variance is where the actual expenditure is higher than the budget or if the actual income is less than the budget. What causes the variance between the actual outcome and the expected outcome will be analyzed in order to determine the areas of improvement for the organization. It is important in understanding why fluctuations occur and what to be done to reduce adverse variance, therefore, better budgeting activity (Bucci, 2014).

Benchmarking is another effective way. It is a way of comparing the business practices and the performance of an organization to other organizations in order to identify areas of improvement so as to create a competitive environment and establish performance expectations (Hilliard, & Priede, 2018).   It also generates information that will contribute to discussions hence the generation of new ideas and practices that are beneficial to an organization. Benchmarking is categorized into two that is external and internal benchmarking.  Internal is the comparison of the performance among departments within the same organization. External on the other hand is comparing the performance of an organization with other organizations   (Hilliard, & Priede, 2018).  

Environmental scanning is also an effective method. It is where the information on the external trends and events such as technological changes and economic changes that might affect the future of the organization are collected and analyzed during the planning process. The organization will be able to identify potential threats that might affect its operations and therefore they will be able to formulate necessary strategies (Vasumathy Hariharan, 2014).

The majority of the organizations use financial modeling to develop their operating budgets. It is a tool found in Excel used to predict the organization’s financial performance. The forecast is based on the organization’s assumptions on the future, its performance and one is required to prepare a balance sheet, income statement and cash flow statement. The result of a financial model is used for performing financial analysis and for decision making   such as budgeting and forecasting in an organization (Vasumathy Hariharan, 2014).

Financial forecasting is an integral part of budgeting processes. It gives the organizations expected future financial outcomes by analyzing the historical data. It allows the managers to identify future expenditure and revenue trends that will have a long term or immediate influence on the strategic goals. Forecasting is used by the companies to allocate their budgets and they are regularly updated in case of any change in inventories or operations (The What and Why of Budgeting: An Introduction, 2015). 

In order for a budget to be effective, it is important to ensure that it is reflecting the actual activities in the organization through budget monitoring.  Regular monitoring is necessary so that accountability relating to spending can be achieved. Monitoring should involve an examination of the functions of the company in order to determine the actions that are to be taken in case of any deviations (Zietlow et al., 2018).

Financial Management Practices that are Least Effective in Creating and Monitoring an Operating Budget

The use of Top-down and bottom-up methods of budgeting is ineffective. Top-down budgeting is where the senior management in an organization develops the budget and the money will then be allocated to the departments and departments will have to develop their own budgets (Ljungman, 2009). This is the least effective method of creating and monitoring a budget because the people creating the budget might not be involved in the daily activities and therefore may not be fully aware of the expenses needed. This will be a challenge for the departments. Bottom-up approach is where the departments in an organization develop a budget then send it to the senior management for approval and it is either approved, sent back or revised then a master budget is created (Ljungman, 2009).  This is least effective method because it is costly and results in budgets that are not in line with the objectives of the organization because the managers will focus more on departments rather the whole organization (Ljungman, 2009). 

Poor inventory keeping in another least effective method of budget creation and monitoring. Inventory equals to the profit of an organization and incorrect inventorying will have a dramatic effect on the financials.  Inventory needs to be correct in order to achieve proper planning.For a budget to function well also a well-established cost control should be put in place (Vasumathy Hariharan, 2014). Organization’s staff might not stick to the spending levels established. With no spending restrictions, the organization will definitely experience budget shortfalls (Vasumathy Hariharan, 2014).

Some items also in the capital budget if put in the operating budget will make it ineffective. For example, an item like any equipment that an organization purchased but intends to pay it off as long term loan payment. One will not be able to project the actual income that will be generated from the equipment. (Vasumathy Hariharan, 2014).


In conclusion, the budget of PFCH based on 2009 and 2010 operating budget assumptions projects how the organization will perform in 2010. In order to establish a well-working operating budget, PFCH and other organizations should ensure that they utilize the most effective financial management practices in creating and monitoring operating a budget such as benchmarking, variance reporting and environmental scanning. However, there are also management practices that are least effective if they were present in the operating budget such as improper inventorying and the organizations should be careful.


Bucci, R. V. (2014). Budgeting and Variance Analysis. Medicine and Business, 79-86. https://doi.org/10.1007/978-3-319-04060-8_9

Hilliard, I., & Priede, T. (2018). Benchmarking responsible management and non-financial reporting. Benchmarking: An International Journal25(8), 2931-2949. https://doi.org/10.1108/bij-09-2017-0255

Ljungman, G. (2009). Top-Down Budgeting: An Instrument to Strengthen Budget Management. International Monetary Fund.

The What and Why of Budgeting: An Introduction. (2015). Budgeting Basics and Beyond, 1-20. https://doi.org/10.1002/9781118106754.ch1

University of Phoenix. (2020). CFO Report Patton Fuller Community Hospital. Retrieved from University of Phoenix, HCS577-Healthcare Finance website

Vasumathy Hariharan, S. (2014). Financial Sustainability Through Effective Risk Management Practices. Indian Journal of Finance8(7), 18. https://doi.org/10.17010/ijf/2014/v8i7/71904

Zietlow, J. T., Jo Ann Hankin, Seidner, A., & O’brien, T. (2018). Financial management for nonprofit organizations policies and practices. Hoboken, New Jersey Wiley.