HCM477-0802A-01 Finance in Health Care - Phase 2 Discussion Board 2 - Essay Example

FINANCE IN HEALTH CARE Introduction A budget is all the expenses and revenues planned and predicted by the management before they actually take place. It is like a monetary organizational document. In this paper, I will essentially describe the relationship between a departmental budget and a total facility budget, after which I will go over the budget cycle, the decision problems, and decision rules that may affect the relationships between the department and total facility.DiscussionTo fully describe the relationship between the two kinds of budgets, we first need to know what they are.

So, what is a departmental budget? Departmental budgets are pieces of budgets that individuals and/or groups (departments) of an organization are responsible for (Oliver 2000). Total facilities budget, on the other hand, is the total, final budget prepared by an organization chairperson. Clearly, the relationship between them is that departmental budgets are parts of the total facilities budget. That is, the total facilities budget is made up of the departmental budgets; hence, it is dependent on them.

The business transactions that take place in an organizational budget are all expected income and expected expenses for the year. The first one is reported as budget income transactions and the second as budget expense transactions. Furthermore, the start of year Class balances are identified and accounted for as an accessible source of income. Therefore, the budget formula is: Start of Year Class Balance + Total Expected Income = Total Expected Expenses (County Accounting Manual, 2007).The three stages involved in preparing a total budget are: (1) Budget Preparation (2) Budget Execution and (3) Budget Evaluation.

The first one requires program and budget planning and funds procurement. The decisions, therefore, that need to be made at this stage involves how to estimate costs, where to get funds from, communicating with members of the organization so as to make planning effective, etc. The second stage engages in fiscal management so decision problems that could affect the relationship between departmental budgets and total facility budgets could be how to locate internal funds, whether projection of variances by the departments were right, whether management of cash flow was effective.

Lastly, the third stage requires budget cycling and performance assessments and audits. The decision problems here could be about reporting to external constituencies, maybe program re-planning or continuing with the budget. (http://www.socwel.ku.edu/marke//Total%20Budgeting.ppt).Each department is responsible for managing within the constraints of the fiscal year. Each departmental budget consists of short-term strategies and plans, the organizational structure, departmental spending, the capital budget, and the documentation of assumptions, risks and opportunities (Oliver 2000).

Therefore, each department must prepare these without losing sight of the ultimate goal. They can use this budget to manage costs because inputs on part of the departments give them an understanding about exactly what the revenues and expenses are. It enables to make strategies and plans for staying within financial limits, which makes it easier to us the budget.REFERENCESOliver, L. (2000). The Cost Management Toolbox: A Manager’s Guide to Controlling Costs and Boosting Profits. AMACON Div American Mgmt Assn.(2007). Entering Budget Transactions.

Retrieved April 29, 2008, from University of Missouri Exapansion, County Accounting Manual. Website:http://extension.missouri.edu/acctmanual/Budgets/Budget%20_Transactions.pdf.Three Stages of Budget Cycling. Retrieved April 29, 2008. Website: http://www.socwel.ku.edu/marke//Total%20Budgeting.ppt