Northcentral University

This discussion will cover the use of budgeting as a control mechanism. A budget is a plan expressed in quantitative, usually monetary term, covering a specific period of time, usually one year (Pollick, 2010). Budgets are also a systematic plan for the use of manpower and resources. Healthcare managers will have to create control mechanism to ensure mangers have accountability for the funds they received. In todays healthcare environment financial metrics have been established to measure whether organizations are using their funds to purchase medical supplies and services.

It is critical that when managers are creating their budget, they determine the amount of funds they will need to improve the organization so that they provide patients with quality services. A control mechanism, in this sense, is simply a standard of measurement or a means of measuring your progress toward achieving your financial goals. Anyone can come up with general financial goals and can create budgets to help the organization achieve these goals; however, there has to be a way of monitoring progress. Without a means of determining whether or not your budgeting plan is working, or working as effectively as intended, there is no real way to recognize and correct errors or oversights (Lopex, 2010).

Below I have listed the six requirements that are needed to establish a sound budgetary procedure (Liebler & McConnell, 2008).

  1. Sound organizational structure so that the responsibility for the budget preparation and administration is clear.

  2. A consistent, defined budget period.

  3. The development of adequate statistical data.

  4. A reporting system that reflects the organizational structure.

  5. A uniform code of accounts so the data are meaningful and consistent.

  6. A regular audit systems so that variances are explained in a timely manner.

Healthcare budgets are used to improve patient care. It is the responsibility of managers to manage the budget, so that patients can receive medical care. The Department of Veteran Affairs medical services can range from patients receiving eye exams, artificial limbs or durable medical equipment. Managers must understand all state and federal laws when managing the budget. Budget preparation and administration are major duties of a healthcare manager (Liebler & McConnell, 2008). Before dealing with the actual budget calculations, the manager must understand the basic concepts and principles of budgeting. Budgeting is both a planning and controlling tool. As a plan, the budget is a specific statement of the anticipated results, such as expected revenue to be earned and probable expenses to be incurred. The Department of Veteran Affairs receives their budget annually. Since the VA is the second largest healthcare provider in the U.S. and receives large amounts of money their must be a way for managers to track and control funds. Audits and other financial tracking measures must be established so that the VA can account for the money that congress has allocated.

The budgets process is important for any organization to follow. There are many different control mechanisms that can be implemented. Budgets are established for different departments throughout the healthcare organization. The Department of Veteran Affairs (VA) use a control mechanism called cost centers and budget object codes to track and dispense funds. VA financial managers can track how much departments are spending within a given time period. Generally a single individual heads the responsibility center exercising substantial, if not complete, control over the activities of people or processes within the healthcare organization and allows managers to control the results of their activity (Dewa & Hoch, 2003). Budgetary control mechanism are critical if they organization is going to expand departments and increase their level of operational capabilities. The increase in their operational capabilities can be used to determine the level of care the facility provides to their geographical area.

Overtime is one area where organizations spend large amounts of money. The funds for overtime come out of the organizations budget. Therefore this area should be carefully monitored. Monitoring enables managers to review overtime request so that they can make a determination whither the request is justified. Request which are not justified should be denied and the manager should inform the employee as to why the request was denied. In the healthcare environment there are different shifts that employee can work. In the case of an employee that works 8:00 a.m. - 4:30 p.m. it is important that between these hours employee are working efficiently, so that they can help the organization meets its objective. When employees are working efficiently there will never be a need for overtime unless the workload has increased so much, that it is impossible to complete within eight hours. Managers that approve overtime will need to determine what effects it is having on the budget.

In conclusion the way in which a manager controls a budget is critical towards the success of the organization. Healthcare managers can establish control mechanism that will track financial expenses and establish data that will be useful to management. Perhaps the most obvious of budgeting goals is that of control and evaluation. Budgeting allows a company to have a certain degree of control over costs, such as not allowing many types of expenses to take place if they were not budgeted for, or assigning responsibility for these expenses. A budget also gives a company a benchmark by which to evaluate business units, departments, and even individual managers (Bradford, 2008). It is the responsibility of managers to use funds for medical resources needed to improve patient care.


References

Bradford, T. (2008) The purpose of a business budget. Retrieved April 3, 2010 from http://accounting.suite101.com/article.cfm/the_purpose_of_a_business_budget

Dewa, C. & Hoch, J. (2003) Fixed and flexible formularies as cost-control mechanisms. Retrieved April 3, 2010 from http://www.expert-reviews.com/doi/abs/10.1586/14737167.3.3.303

Lopez, D. (2010) Budgeting: Creating and Using Metrics. Retrieved April 3, 2010 from http://personalmoneystore.com/moneyblog/2010/02/28/112-budgeting-metrics/

Source: ChinaStones - http://china-stones.info/free-essays/business/budgeting-as-a-control-mechanism.php



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