HCM410IP4

Operations Budgets

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All organizations, including health care organizations, must have an

operations budget to operate effectively and stay financially viable. This

section will review the purpose of an operations budget, considerations for

development of an operations budget, and content of an operations budget.

Purpose of an Operations Budget

An operations budget is used for several purposes. The two primary purposes

are to provide guidance to managers about the amount of resources they

have available to operate their unit and to guide the performance of the unit.

Operations budgets also provide a measure for financial departments to

determine if costs are in line with what is needed for the organization to earn

a profit. They are then used to monitor and ensure a unit’s operations are

within projected costs.

Operations Budget Versus Facility Budget

An operations budget generally is distinct from an organization’s financial

plan or facility budget. The financial plan is a high-level plan to articulate the

organization's financial goals and objectives. The plan includes anticipated

revenues and expenses on the aggregate. An operations budget details the

projected costs for operating a unit or department. In the case of a small

organization, an operations budget details the projected costs for operating

the organization. A facility budget is a compilation of all department and unit

operations budgets into a complete integrated document.

Developing an Operations Budget

There are many ways to develop and organize an operations budget. An

operations budget generally starts with a manager preparing a preliminary

budget of his/her unit of responsibility. The manager of the unit will use

previous budget information and take into consideration the future needs and

costs of the unit. This includes determining if there are any changes to

standard costs, such as employee wages or costs of materials to operate.

Although the manager of a unit will prepare a preliminary budget for the unit,

often times a financial department will provide some standard costs that are

to be included, especially when costs are used by multiple departments.

Examples of some standard costs that can be provided to a manager by a

finance department include employee salary expenses, employee-related

costs, insurance costs, and overhead costs. Any costs that are unique to a

unit will be projected by the unit manager. After the unit manager prepares a

Operations Budgets

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preliminary operations budget, it is reviewed by others and adjusted

according to the organization's priorities and goals.

Prioritization Considerations

Operations budget allocations within the health care industry vary by the type

of organization. For example, organizations that provide health care services

must consider the cost of health care equipment, such as X-ray machines and

MRI machines. Health care insurance and/or reimbursement organizations

budget for the costs of technology used in paying claims and/or bills and

maintaining a provider and/or member services departments. As you can

imagine, the nuances within the operating budgets are numerous.

Contents of an Operations Budget

Operations budgets are detailed in projecting various aspects of operations.

The following are some examples of units that one might expect to see within

a health care organization’s operations budget:

 Expected number of personnel

 Expected salary of personnel

 Expected employee related costs such as taxes and insurance

 Expected amounts of health care supplies anticipated to be utilized

 Expected costs of employee uniforms, for example, operating room

uniforms

 Expected costs of operating technology such as telephone, computers,

and network capabilities

 Expected costs of health care equipment, for example, dialysis

machines

 Expected costs of on-going training and professional development

 Expected costs of building improvements