Budget Financial Management

Assignment 3 budget

Instructions

You are the administrator of the medical - surgical department at a hospital. Review the transcripts from the budget meeting and recent voicemails from your CFO and, using the available information and resources, develop an operating budget for your department.

Your budget should include a 2-4 page document with an accompanying Excel spreadsheet that:

· Provides the revenue and expenses through the current month of the current year.

· Estimates the revenue and expenses for the rest of the current fiscal year based on the assumptions provided in the transcript documents

· Prepares a budget for the next fiscal year.

Transcript of the VOICEMAIL FROM Simon Cowell (CFO):

Hi, it's Simon. I hear you're working on a budget for the Med-Surg department for FY 2019. I'd like you to come to the budget meeting this afternoon, because I'm going to be sharing some numbers that are likely to have an impact on your budget. I've sent you the year-to-date statements through December, the overall budget for the year, and the year-to-date budget variance for your department. Take a look at them, and bring them with you to the meeting. See you later!

Transcript from BUDGET MEETING:

Simon., CFO

Hi, everyone. Thanks for coming. We've got some important numbers to go through and a big challenge to respond to, so I think we better get started.

Simon Vice President of Operations

That sounds ominous.

Newman, Vice President

Well, can we at least get an idea of how we're doing year-to-date before you go to the 40,000-foot level?

Simon

I think you might need to hear this first. Here's the situation: The hospital has to cut operating expenses by 5 percent for next fiscal year.

Kramer,

I'm sorry, did you say 5 percent? Operating expenses?

Simon

That's right.

Simon

That's a big ask. We're already operating awfully lean.

Paul

Agreed. But it's the situation we're in. I'll get to the reasons, but based on what I'm going to go over, I just want everyone to keep in mind that we can't make assumptions we were making before. So let me give you an overview of the budget and the year-to-date numbers, and I think you'll see why we're going to have to make those cuts.

Now, last year, for the entire hospital, we assumed that we would see $1.2 billion in total patient revenue. But as you can see, for half the year, we've only hit just over $607 million. By this point in the year, we should be over $612 million. So already in terms of total patient revenue, we've got a deficit of nearly $5 million that we didn't expect. The problem is made worse when we see that other operating revenue is also under budget by $1.5 million.

I believe that recent efforts in the billing department coupled with some of the solid work by the c-suite team on physician engagement and external marketing are going to have an impact on the revenue side of things. We’re also currently negotiating with a couple of our primary commercial payers, but those negotiations remain uncertain. All things considered, I’m hoping for about a 5% bump on the revenue side for FY 19. Our operating expenses are fairly close to target so far this year, but given the situation with uncertain revenue, we will need to try to find some additional cost savings opportunities. I want to be reasonably conservative in case market conditions change or negotiations with our payers don’t go as expected.

Simon

Wow. Well, okay, so that's the reality. What's the timeline? How long do we have to make these cuts?

Paul

Well, implementation is obviously by June 30 since the next fiscal year starts July 1. The board will approve the new budget probably by mid-June, but all the negotiation at the unit and department level will be going on this month. Our first official budget committee meeting is in early May. So I'd suggest getting your ducks in a row within the next week or so.

Attachments

Additional Instructions

This assignment will require you to project the current year operating budget and then consider the assignment scenario in your development of next year's budget. Please note: a budget requires choices and it is often an iterative product - meaning it might take several rounds of negotiation within your organization before it is finalized. Logically, choices made by leaders can vary, so on this assignment, and focus less on being 'right' and more on being logical. As part of this, you'll have to determine what is 'fixed' or at least more rigid, and what is more flexible in your forward looking budget. When we are all done, I will show you how I would complete a preliminary budget as one possible solution. I will be looking for logic, professionalism, and clarity in the grading of the final product you produce. 

Here is some additional guidance:

1. Recognize that you are being asked to develop the 2019 budget for the Med/Surg department only, but you're now only half way through 2018. 

2. Take the current execution through 2018 and project forward to what your revenues and expenses for 2018 will be by the end of the fiscal year based on the 'run rate' you've been on thus far through the year. 

3. Using the guidance in the narrative that was provided, make the appropriate adjustments to the 2019 budget. Note: some things you can cut and some you cannot. You need to critically think about each revenue and expense line. This is where some decisions will need to be made. Your goal is to at least break even on paper (revenues - expenses = 0) at the Med-Surg Department level, but being able to turn a profit at the department level would be beneficial.

4. Once your calculations are complete, draft a short memo  describing where you expect your revenues to be in 2019 and where you were able to cut expenses to meet the senior leadership team's directions and intent.

I hope that helps! Give me a shout if you need further assistance.

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