8.1 the control means, ensuring the present performance

8.1 Why are
planning and budgeting so important to an organization’s success?


Financial planning and budgeting play a significant role
in the finance occupation of all health services organizations. Planning and
budgeting is the most substantial of all finance-related work. In general,
business organizational strategies/plan center on long-term vast picture, while
the budgets tackle in the details of planning for immediate future and, through
the control means, ensuring the present performance are consistent with the
business organizational plans and goals (Gapenski & Reiter, 2016).
Financial planning and budgeting in healthcare organization is essential to the
maintaining service levels and running a sustainable process and operations. It
aids and offers information to make effective decision in the attainment the
organizational objectives. Remember, accomplishing a strong financial
performance is a main goal of every healthcare organization. Consistency and
efficiency will contribute to enhancing the organizational functioning and the
achievement of key business goal, operationally and financially.

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8.2 Briefly
describe the planning process. Be sure to include summaries of the strategic,
operating, and financial plan.


Planning involves the overall process of organizing for
the future, it is important to the organizational success. Healthcare managers devote
great deal of time on activities related to planning. Budgeting is an offshoot
of the planning process. These planning goals affect internal, external, financial
decisions based upon the organization’s obligations to its objective.
Therefore, it is significant that these obligations are achieved and that the
associated process provide accurate and precise results.


Financial planning is the process of estimating the
capital required and determining its competition, it is a process of outlining
financial policies in relation to earning, investment, and administration of
funds on the business organization.


These are some objectives of financial planning:

a. Determining capital requirements

b. Determining capital structure

c. Framing financial policies

d. Healthcare manager ensures that the scare financial
resources are maximally utilized in the best possible manner, in order to get
maximum return on investment.


To cultivate a solid financial plan, it is important for
a healthcare manager to cover all your bases such as examine your current
situation, set financial goals, and measure your progress.




Deciding in purchasing a newly innovative chemistry
analyzer. Justification made through financial planning and research in
responding to customer needs and changes in healthcare marketplace. Following
the guidelines for financial planning come up in the majority to obtain the


Strategic Planning. 
Strategic Plans focus on company’s vision and priorities in response to
a fast changing environment. The main purpose is to make sure that everyone
within the organization is working towards the same goals. It is also take into
account how you will measure those goals and the major project you will take on
to meet them. It is concentrated towards attaining the long-term objectives of
the organization.




Stony Brook Southampton Hospital: “To meet the evolving
healthcare needs of its Eastern Long Island community by providing access to
continuum of high quality clinical service. To achieve this, the hospital will
focus resources on continuously improving clinical outcome, patient safety,
service excellence, and promoting educational outreach and professional development
of its staff.” (www.southampton.stonybrookmedicine.edu)


Operational Planning provides the road map for executing
an organization’s strategic plan. It contains near-term operational objectives
and the complete guidance necessary to meet those objectives. Operating plans
provides the “how to” portion of the organizational overall plan for the
future. The plan can be developed for anytime horizon, but most organization
use a five-year term, however, that the plans are more comprehensive for the
first year, then become less specific (Gapenski & Reiter, 2016). In other
words, operational planning is done to achieve a short-term objective of the
organization. It is the process which predetermines the day to day activities
of the organization, the planning is done to support the strategic planning to
accomplish the organizational goal. In this process, short run objectives of
the organization are determined as well as a means to achieve those objectives
are also discovered. It also known as “work plan” an outline of what your
department will focus on for the near future or the upcoming year.



Stony Brook Hospital 2018 National Patient Safety Goals /
The Joint Commission (www.jointcommission.org)

a. Improve the accuracy of patient identification.

b. Improve the effectiveness of communication among care

c. Improve the safety of using medication.

d. Reduce the harm associated with clinical alarm system.

e. Reduce the risk of healthcare associated infections.

f. The hospital identifies safety risks inherent in its
patient populations.

g. The universal protocol for preventing wrong site,
wrong procedure, and wrong person surgery.


As a healthcare management, planning is an important
activity performed by management. We need to keep operational and strategic
planning clearly distinct in our thinking and discussion of planning in health
care organizations. It is a linked decision process, designed to inform and
support one another for effective management of strategies to improve the
overall performance of the healthcare organization.





8.3 Describe the
component of a financial plan.


The first part of the financial planning focuses on the financial
condition, capital investments, and financing at the organizational level. Its
first part is a review of the current financial condition, which gives the bias
and starting point, like a remainder of the financial plan. Next is capital
budget, which outlines future plans for capital investment. This information
feeds into forecasted financial statements projected for the next five years.
Lastly, the organizations’ future financing requirements are listed together
with a plan for obtaining these funds. The first part of financial plan
provides an outline of the financial future of the organization. The second
part of financial plan focus on existing accounts management, which includes
the management of present assets and present liabilities, which including
revenue cycle management. In this part provides the overall guidance in regard
to day-to-day, short-term financial operations. Its provides the benchmark for
all facets of present accounts management. The third part is the budgeting and
control portion of the financial plan that’s provides the financial goals at
the micro level. This portion contains the budgets that provide the benchmark
managers should be striving to attain throughout the year (Gapenski &
Reiter, 2016). Financial Plan frameworks how the organization will accomplish
their goals. It is like a roadmap, it gives you directions that you need to
stay on course and reach your destinations.


8.4 How are the
statistics, revenue, expense, and operating budgets related?

Statistic budgets
is the basis of the budgeting process in that it specifies the patient volume
and the resource expectations used in other budgets, accuracy is essentially
important. It does not provide thorough information on essential resources
which includes staffing and short-term operating asset requirements. However,
it delivers an overall guidance (Gapenski & Reiter, 2016). Example: The outcome
of the organizational plan in pricing action on volume.


Revenue budgets
is a complete information from the statistic budgets feeds, which combines
patient volume and compensation figures to established revenue projection.
Budget that are given importance on the revenue of an organization or its
departments (Gapenski & Reiter, 2016). Example: conventional fee-for-fee
service contracts.


Expense budgets
is originated from the data in the statistic budgets. It’s give importance on
the cost of providing services rather than the resulting revenues. It is separated
into labor and non-labor sections. Expenses are run-down into fixed and
variable sections (Gapenski & Reiter, 2016).


Example: Salaries/wages, medical supplies


Operating budget
flows from the revenue and expense budgets for a big organization, small
organization can be found from statistic revenue and expense budget. Operating
budget is arranged using accrual accounting methods, it ca be roughly thought
of as a forecasted income statement, usually arranged and prepared at the
organizational level, operating budgets are arranged and prepared at the
subunit level (Gapenski & Reiter, 2016).


Overseeing an organization requires to carefully plan and
review their finances. Healthcare organization uses statistic, revenue,
expense, and operating budgets for identifying, measuring, analyzing and
reporting their organizational financial information. This are the most
important tools for the organizational business, represent comprehensive
analysis on how the organization expects to spend capital in the future time
periods. Generating financial roadmap and plan for future growth.


8.5 What are the
advantages and disadvantages of conventional budgeting versus zero-based


involves comprehensive plan, expressed in dollars terms, that specify how the
resources will be obtained and used during the specified future period of time.
Budget trust heavily on revenue and cost estimate. Budgeting is managerial
tools, it is clearly important because it deliver the means to plan and to
communicate operational expectations within the organizations. Budgeting
process and the resultant final budget deliver the means for the senior
executives to allocate financial resources among competing demands with the
organizations. Another important of budgeting is that it established financial standards
for control and lastly it feeds managers with the information about what needs
to be made to improve the organizational performance (Gapenski & Reiter,


Budgeting, in this approach, the previous budget is used as the starting
point for creating a new budget. Each line on the old budget is examined, and
then adjustments are being made to reflect changes in circumstances. This is usual
for many budget changes to be applied more or less equally across departments
and programs (Gapenski & Reiter, 2016). Conventional budgeting also
involves adding funds to the previous year’s budget to expand or complete
projects, example is construction on a new health facilities or a new innovated
laboratory department in the health care organizations. Zero-based budgeting, starts with a clean slate, begins with a zero
budget. They must fully justify every line item in their budgets, such as the
contribution and the impact of alternative funding levels (Gapenski &
Reiter, 2016). This approach of budgeting technique where current year’s budget
is prepared from scratch, taking the base as zero. This technique consumes much
more detail and makes everyone accountable for their necessary expenses. The
example, a new hospital wide software account would require a quote for all the
software that the organization intends to purchase in the next year budgets, if
it’s not in the budget meaning it will not get purchased.


Justification of
data: zero-based budgeting, because it is starting with zero base all the
items in the cash flow need to be justified, with the conventional budgeting,
only the items which are over and above the last year’s budget that are needed
to be justified (Borad, SB. 2018).


Base for funding:
zero-base budgeting is done considering zero as the base, a new budget is
prepared from the scratch. While the conventional budgeting uses the previous
year’s budget as a baseline to make the current budget for the year (Borad, SB.


Ease in
modification of budget components: with the case for zero-budgeting, it is
easily to eradicate an existing item or add a new item to the current budget as
this budgeting creation of entirely new budgets, in nature it is more flexible.
In the case of conventional budgeting, it is very difficult to change budget
components because budgeting depends on the processing year’s budgets.
Therefore, it is comparatively rigid in nature (Borad, SB. 2018).


Time required:
zero-based budgeting is very time-consuming process as the budget is being
prepared right from the start. Everything will go through a lot of comparisons
and approvals which lead to spending unnecessary time. While the conventional
budgeting is less time-consuming, because changes are done in the previous
year’s budget to meet the needs of the current period (Borad, SB. 2018).


Allocation of
resources: in zero-based budgeting are arranged by allocating maximum
resources to those activities which benefit the organization. The management
can only emphasis on priority decisions. With conventional budgeting is done
without giving any priority to vital activities of the organization and last
year’s budget is simply adjusted considering the inflation factor (Borad, SB.


Ease of preparation
and training: zero-based budgeting, managers demands special skills and
knowledge to prepare zero based budgets, only a qualified and well-trained
professional can prepare such budgets. While the conventional budgets are
fairly easier to prepare as they do not involve complex calculations (Borad,
SB. 2018).


organizational characteristics create likely candidates for zero-based


The organization that have a flexible budget, focused on
operations, lower costs and more disciplined execution are likely candidates
for zero-budgeting. Slashing the automatic growth of budgets and focusing
spending only on necessary expenditures make zero-based budgeting more
attractive. And if your plan is not time sensitive and will provide a precise
and accurate outcome, this approach will be an option.


8.6 If you were
the CEO of Bayside Memorial Hospital, would you advocate a top-down or
bottom-up approach to budgeting? Explain your rational.


If I am the CEO of bayside Memorial Hospital, I would
advocate the bottom-up approach to budgeting. I would let my departments head to
give them the responsible and freedom to create their own budgets and submitted
for approvals. To be strong leadership should promote quality improvement
strategies that involve your lower management to provide and create their own
budget plan since they knew exactly what is going on to their respective
department and how to solve their budget problem. By doing these, I will have
achieved better financial transparency and security, substantially increased
utilization of service, decrease responsive time and the most important is to elevated
staff morale and commitment in my organization. My goal is to give continuous
quality improvements processes at my organization level and prompt solution and
this will lead to increase accountability, quality of care and a stronger
health care organization, and I am allowing the wisdom and enthusiasm of my
management to be nurtured and tapped in addressing their budgets. Always
remember, establishing a better health care organization, you have to ensure
that all the components operate effectively. You need your management to be
engage during the process, let them be creative and innovative, allowing
greater discretion at their level. You need to invest with your management team,
their opinion makes the goals possible which means that you need to hear and
consider them. 


8.7 What is
variance analysis?


Variance analysis
focus on the differences between realized values and forecasts, is a significant
technique for controlling financial performance. It is an examination and
interpretation of the difference between what has actually happened and what
was planned. This is essential to the managerial control process. The goal of
variance analysis is to uncover the cause of operational problems so that these
problems can be fixed as quickly as possible and avoided or at least minimized
in the future (Gapenski & Reiter, 2016). This Variance analysis is used to
maintain control overt an organization.


Example: If your budget for sales is $20,000 and the
actual sales are $18,000, the variance analysis yields a difference of $2,000. Variance
analysis is very effective when you review the amount of a variance on a trend
line, if there is a sudden change in the variance level from month to month are
more rapidly evident. These involves the investigation of the differences, and
an interpretation of why the variance occurred. Back with the example, the
variance was primary caused by the loss of the 123 customers at the end of the
month, which usually buys $2,000 per month from the company. They lost the
customers because of several instances of late deliveries over the past few
months. With this example, this level of detailed variance analysis allows the
organization to understand why this fluctuation happened in the business, and
what they can do to change the situation.


Variance analysis help to maintain control over a
project’s expenses by monitoring planned versus actual costs. Effective
variance analysis can help an organization to spot trends, issues,
opportunities and treats to a short-term or long-term success.