Operating Budget

HMO’s and enrollees are two important players in the world of health care. Due to uncertainty on the supply and demand, moral hazard, and adverse selection, decision making for HMO’s more complex. The simulation provided me the decision making tools necessary, when making an economic decision for an HMO. Health care can be seen as a good that consumers demand and managed care firms are considered to be suppliers of both health insurance and health care. Economics tells us that rational firms make choices to maximize profits. Managed care firms incur cost when providing health care services to their enrollees and maximize their revenue by

Another expense results with budget expectations is capital purchases. Capital purchases are those that cost an organization more than $5,000. Such purchases include radiology equipment, lab equipment, computer systems. Unexpected expenses occur when equipment failure occurs and a need for new or repaired equipment arises or when unexpected volumes of patients require additional capital purchases of equipment to be made. “Working capital management is the role of the manager, in ensuring that there is adequate cash on hand to meet the organization’s needs and minimizing the cost of those resources” (Finkler et al., 2007, p. 360). Variances occur when multiple unexpected costs arise and that reserved cash is expended and needs to assume short-term loans or take away from other departments is necessary. This type of unexpected spending may be categorized as an unfavorable variance. Unfavorable variances are “variances in which more is spent than the budgeted amount” (Finkler et al., 2007, p. 501).

Within the last decade, health care has gone through drastic changes due to reforms that have impacted all levels of the United States health care system. From the 2010 enactment of the Affordable Care Act, the financial operations of many medical institutions have faced many improved and challenging transformations. Many of these transformations included the day to day administrative tasks, increased overhead expenses, and incurred costs brought on by practice and hospital adherence to new reforms. Currently, there is much debate on new reforms that would assist in improving the financial operations of the current health care system. Correspondingly, strong reforms have the ability to assist in making the health care system more efficient

No matter the design approach, all of management should understand the concepts of the budget and monitor performance. Ultimately it is the responsibility of the CEO, CFO, and/or senior management to monitor and evaluate if the organization is maintaining the budget through operations. The board of directors should review the organization’s budget for the year, oversee major expenditures, and ensure that strategic goals are being met by the organization. With the combined approach from all of management and the board of directors, a suitable budgetary plan can be implemented to ensure the efficiency of the organization and accomplishment of strategic

Managing the finances of Health Care Systems, Inc. has taken center stage in enhancing the efficiency and success of this vast enterprise. The healthcare industry as a whole has changed dramatically since the evolution of the Affordable Care Act. The adoption of Medicare’s coding system for efficient billing coupled with the use of Electronic Medical Records are examples of the major transformation taking place within Health Care Systems, Incorporated. Moreover, the role of finance at Health Care Systems Inc. has received a new face to focus on basic functions such as Pooling of Resources, Revenue Collection as well as Purchase of Interventions. Pooling of resources entails accumulation and proper management of revenues in order for members of the pooled funds to share a combined health risks, hence shielding the individual member from vast unprecedented health expenditures. Payment allows the pool members to settle their average expected costs before due, consequently relieving them from uncertainty in addition to assurance of compensation in case of occurrence of a loss. Pooling combined with payment aids in developing insurance structure and redistribution of health spending among high and low-income individuals and high and low-risk individuals. Revenue collection is all about raising money from households and businesses as well as external sources while purchasing is all about sourcing for goods and services from private and public providers. These three financial

Health care expenditures in the United States continue to soar with health care costs accounting for 17% of the country’s gross domestic product (GDP) (http://www.usgovernmentspending.com) [If this URL is in a citation, it should not appear here but rather on the references page] . The United States, along with Turkey

Since a budget is a component of sound and responsible financial management, tracking its formulation and implementation can go a long way to ensuring its objectives are adequately met. Sound budget management strategies include keeping a proper record of all the expenses v. allocations. Also, consistently review the implementation to be sure of the anticipated outcome. Considering the implementation can also help isolate the possibility of adjustments in line with the budget objectives (Wyatt, 2013).

There are thousands of people who budgets on a daily basis. A budget is a financial plan of revenues, expenses, and future costs for a given period. It allow individuals to set goals for themselves, so they can achieve them. The budget process is important in public and private sectors because it coordinates the organization’s activities. Budgeting involves positive effects which influence our decisions on a range of activities.

An operating budget helps to organize and manage the costs and income to run your business. It helps a company to understand day to day costs and income for the company. “A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period usually one year.” (Operating budget) Overall it is a great way to ensure that the company can see if it is set up to make and exceed its breakeven point for the year. It gives a company a chance to review any changes that need to be made in order to be profitable for the year. Elements of an operating budget include the sales budget, production budget,

In todays ever changing business environment the traditional budgeting model is no longer able to effectively provide an organizations with the tools

Budget formulation is not a complex task, but it must be thorough. Budgeting decisions are based on past records and future predictions. However, most of these budgeting decisions are based on prior years. One of the biggest challenges facing small organizations is budgeting based on past transactions and being able to allocate resources for the future. The organization cannot simply budget on a progressive plane for income and have too much wiggle room for expenses. Not-for-profit entities must effectively allocate resources that allow the organization to grow or perfect its operations.

The article, "The Case Against Budgeting" explains how the budgeting process has essentially become obsolete in the current business climate. Krell explains that many businesses feel that the budgeting process takes too much time and when it's finally completed the final product is usually less than desirable (2003). "Businesses need more agile forecasting and reforecasting capabilities, but the organizational barriers to those capabilities are formidable" (Krell, 2003). Krell reviews the most common reasons that most budgets fail; it's usually a hybrid of reasons from shoddy strategic planning, to an inability of the management to take strong corrective action, to a general absence of faith in the budget, resulting in an overwhelming amount of apathy (2003). Krell describes how ineffective budgeting can be toxic to a company, creating a state of overaggressive assumptions leading to decreased morale within employees, cash flow conflicts, consistent disappointment and necessary reforecasting, surprises in earnings, postponed capital acquisition, and developing a state where bad decisions are made over and over again (2003). Krell clearly highlights how perilous bad budgets can be for an organization, both fiscally and for the atmosphere and sense of accomplishment.

Budgeting can be an important management tool if implemented properly. Identify several positive results when budgets are used properly. Since budgets affect people, identify several negative aspects if budgets are not implemented properly. (20marks)

Differences could be within the budget that could be beneficial, or over the budget which can be. The difference is used as a tool to calculate the budget for upcoming years, help to reduce spending within the present year, and assist in evaluating the managers and their agencies. To specify the source of fluctuations the managers are required to investigate and justify to top management the reason why the difference occurred. There are numerous reasons behind fluctuations, which have to be recognized and maintained if possible. (Finkler, 2007)

The process of budgeting is one of the most important management tools available to a business, particularly in today’s current economic climate. It serves three major purposes; coordinating activities and tasks, motivating employees and allows for forecasting of future developments and events in order to prepare for the future of the business effectively (Weber, 2005).