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The Budgeting Process and Capital Investment Decisions

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The Budgeting Process and Capital Investment Decisions essay assignment

  • Use the Internet or Strayer databases to research information related to the budgeting processes within the various types of health care organizations. Next, determine the most-effective budgeting approach for a hospital, indicating how this approach can lead to effective financial management of the facility. Provide support for your rationale.
  • Assume that you are an administrator for a hospital, and you need to acquire a new technology system so that you may comply with regulatory requirements. Create an argument to be presented to the leadership team in which you justify the need for your facility to invest in this new technology. Then indicate the value to the organization and provide support for your argument.

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  • HSA525 Week 7, Lecture 1 Script: Operating Budgets
    Slide # Scene/Interaction Narration
    Slide 1 Scene 1:

    Professor Quan greets class.  Begins lecturing in front of classroom using chalk board.

    HSA525_7_1_1_ProfQuan-1:  Hello everyone….welcome to this week’s lecture on operating budgets.

    Healthcare organizations use budgets in their efforts to plan for future goals and the financing of those goals. The operating budget uses underlying data, such as volume, reimbursements, and labor requirements to forecast revenues, expenses, and profits. The operating budget is generally prepared at various organizational levels and is typically prepared on a monthly, quarterly, and annually basis.


    HSA525_7_1_1_Tyler-1:   What is the difference between the operating budget and the capital budget?


    HSA525_7_1_1_ProfQuan-2:  The operating budget deals with day-to-day expenses. This can include wages, rent, or utilities. Whereas, the capital budgeting process is concerned with the provision of resources for the long-term running of the organization. Most capital purchases are depreciated, instead of being expensed in the current year.


    HSA525_7_1_1_Lauren-1:   Would the capital budget have an effect on the operational budget?


    HSA525_7_1_1_ProfQuan-3:  There is a definite relationship. An increase in capital expenditures can cause an increase in the operating budget. For instance, assets purchased from the capital budget may require maintenance or monthly payments, which affects the operational budget.


    HSA525_7_1_1_Sophia-1:   Is there a particular baseline percentage that a company should adhere to when assessing its budget for capital needs and operating expenses?


    HSA525_7_1_1_ProfQuan-4:  Many analysts believe that a company’s total percentage of all expenditures should be thirty three percent for capital assets and sixty seven percent for operating expenses. If the organization’s income is being used up by operational expenses, it simply cannot grow.


    HSA525_7_1_1_Lauren-2:   I think that another distinction to be made about the operating budget and the capital budget involves the time frame, such as the role that long or short term planning plays in the budget process. Is that correct?


    HSA525_7_1_1_ProfQuan-5:  Absolutely, Lauren. Capital healthcare budgets present plans for the acquisition of assets that deliver benefits to the organization over the long term, typically two to five years. They are listed on the company’s balance sheet and depreciated over its useful life. Items on the health care organization’s operating budget deliver short term benefits, usually less than one year. These items are listed on the organization’s income statement and classified as expenses.


    Slide 2 Scene 2:

    Professor Quan uses projector to cover key points.

    HSA525_7_1_2_ProfQuan-1:  The operating budget  is prepared for an entire organizations – all departments, service lines, payers, and at any other level that enables for the effective control process by managers. Cost centers are organizational subunits that incur costs, but do not directly generate revenue.


    HSA525_7_1_2_Sophia-1:   Can you provide an example of a cost center for a healthcare organization?

    HSA525_7_1_2_ProfQuan-2:  Yes, consider the finance department of a hospital. Another example would be the research and development unit of a pharmaceutical company.


    HSA525_7_1_2_Tyler-1:   Professor, you stated that the cost center does not generate revenue. Wouldn’t the activities completed by the research and development unit generate revenue?


    HSA525_7_1_2_ProfQuan-3:  Remember, the cost center does not directly generate revenue, but it does contribute indirectly. For example, the research and development unit creates innovation, and that definitely has a positive effect on revenue. The key is…these units indirectly contribute to revenue.

    In the cost center, the manager is accountable only for the cost of running his or her department.


    HSA525_7_1_2_Lauren-1:   What are revenue centers? Are they the opposite of cost centers?


    HSA525_7_1_2_ProfQuan-4:  In this context, the revenue center is the opposite of the cost center, as the revenue center generates both costs and revenues. They are also referred to as profit centers. Examples would include emergency departments and outpatient clinics.


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