Essay Example on Effective Planning and Budgeting in Healthcare: Achieving Desired Goals

Introduction

Planning and budgeting entail developing financial targets in terms of how an organization will raise and spend resources within a given timeframe. Planning and budgeting are done with the anticipation to achieve a certain result. Healthcare organizations have to plan how they can use limited resources to achieve the desired goals. Money and time are limited resources; therefore, planning helps healthcare organizations to remain focus and direct their resources towards achieving the organizational goal. Budgeting and planning determine the future of a healthcare provider where resources are allocated to departments and projects that meet the objective of the healthcare provider.

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STEPS IN THE BUDGETING PROCESS

The following are the steps followed in the budgeting process for a healthcare provider.

1. Plan
2. Gather information
3. Prepare input.
4. Preparing a draft version of the resources that the healthcare provider will use within a given timeframe.
5. Developing strategies of how the healthcare provider will raise the amount of money that the healthcare provider will need during the financial year.
6. Developing budget policies and goals that will be followed during implementation.
7. Make required revision draft
8. Present preliminary budget
9. Make required revision to the preliminary budget
10. Submit final budget

The healthcare organization needs to have the capacity to fund the budget set in terms of the ability to raise the resources that the healthcare organization intends to use within a given period of time. The budget estimates are formed on the historical basis of the organization to raise the estimated resources (Baker, Baker & Dworkin, 2018). The budgeting process is done in consultation with all the stakeholders that will generate and spend the revenues. The budgeting process steps help the healthcare provider to identify organizational needs and objectives and come up with a plan of how the organization will be able to meet its organizational needs. The budgeting process enables the organization to develop strategies of how it intends to achieve its goals and objectives.

RISKS WHEN CREATING A BUDGET

There are different risks in budgeting that might make the healthcare organization achieve the desired outcome from the budget. The risks include inaccuracy where the set assumptions of the operational costs for the healthcare organization do not reflect the needs of the organization. The set goals in terms of resources to be generated are not always achieved, resulting in consequences that make the organization adjust its budget (Rajan, Barroy & Stenberg, 2016). The healthcare organization operates in an environment that is influenced by external factors that make the organization unable to meet its financial needs. Budgets are made with the expectation that all the conditions will remain constant once the organization is unable to meet its financial estimates the costs overrun to the next financial year and affects the chances of the organization to meet its goal.

There is also the risk of being unable to implement the budget within the time required; different budget estimates have timeframes that the healthcare organization seeks to achieve. Failure to achieve budge goals affects the ability of the organization to meet its goals (Rajan, Barroy, & Stenberg, 2016). The budget policies need to identify the potential risks and develop strategies that will enable the healthcare organization to deal with the challenges encountered in budget implementation. Rigid decisions need to be made during the development of the budget to ensure that the budget gives room for changes to be made during implementation, depending on the performance and external and internal factors that influence the organization.

PROS AND CONS OF BUDGETING MODALITIES

Flexible Budgeting

One of the budgeting modality in healthcare is flexible budgeting, which is computed using the budgeted revenue and cost amounts. This type of budget was necessitated by establishing diagnosis-related groups (DRGs) (Baker, Baker, & Dworkin, 2018). One of the advantages of flexible budgeting is that it is a clear true reflection of the organization's finances. This modality also helps the organization to track its expenditures and adjust where necessary. The limitation of using this approach is the time consumed in figuring the variable cost of the variants.

Rolling/Continuous Budgeting

The second type of budgeting applied in healthcare is continuous or rolling budgeting. In this approach, a budget is replaced once it has expired (Baker, Baker, & Dworkin, 2018). This approach is advantageous as it helps the organization to mitigate the risks as well as promote performance. It also helps the organization to remain relevant by aligning its planning and budgeting with the organization's goals. The effort reduces the budget process effort by forecasting the budget throughout the year. When this is done every month, the workload decreases by spreading the forecasting tasks throughout the year. However, this approach is time-consuming as forecasting is done several months in one fiscal year.

Incremental Budgeting

The third modality of budgeting is incremental budgeting, where a budget is computed by making adjustments to the actuals of the preceding period (Baker, Baker, & Dworkin, 2018). This may be through an increase or decrease depending on the needs and the situation the organization is in. One of the pros of this modality is its simplicity as the records of the previous period are available. The modality also facilitates a steady flow of funds and is easy to standardize. This type of budgeting, however, is susceptible to overspending and affects innovation. Additionally, managers can manipulate the accounts by either exaggerating expenditure of overestimating revenue.

References

Baker, J. J., Baker, R. W., & Dworkin, N. R. (2018). Health care finance. Jones & Bartlett Learning. Retrieved from https://www.amazon.com/Health-Care-Finance-Nonfinancial-Managers/dp/1284118215

Rajan, D., Barroy, H., & Stenberg, K. (2016). Budgeting for health. Strategizing national health in the 21st century: a handbook. Geneva: World Health Organisation.