Creating and Managing Budgets
The significance of financial management skills in managing budgets underpins its necessity among nurse leaders and any other leader budgetary control dockets. Budgeting is a critical component of organizational operations as it informs the various operationalization requiring funds. Leaders play critical roles in financial management in their organizations as they influence the various budgetary utilization and allocations and tailor the organization towards an effective operational budget that ensures it stays in business. It is, therefore, paramount that nurse leaders and other organizational leaders obtain financial management skills and skills in creating and managing operational and capital budgets to ensure that their organizations remain in business. This paper seeks to analyze an interview with a business mentor on the various aspects of the creation and management of budgets.
Various types of budgets exist and are utilizable in business. These types are operational budgets and capital budgets. These two budget forms differ in several aspects. An operating budget entails funds that are utilizable in a business’s efficient running and successful running in a specific period. Operating budgets include all fixed and variable costs, total revenues gained from the business venture, and any expenses incurred from the organizational operationalizations.
The operational budget is normally dependent on the nature of the business and is often subject to time-to-time variations in the various components of this budget. Such components as the volume of sales, production, overhead costs, and general organizational expenses have been attributed to alterations in operating budgets. These components are as well varied across different organizations. Operational budgets confer significant benefits to the business; such benefits as a reduction in business debt, projection of future expenses, aid in current expense management, and establishment of financial accountability underpins the necessity of nurse leaders to acquire and maintain knowledge on operating budgeting.
The capital budget, on the other hand, encompasses receipts, payments, and expenditures targeted at addressing an organization’s future needs. Capital receipts include incoming cash either from loans or business earnings. In contrast, capital payments entail all expenditures on acquiring various commodities intended for long-term use by the organization. Capital budgeting is particularly important in the evaluation of the potential investment opportunity of any organization. It involves a prospective assessment of revenues attributable to that specific investment opportunity. Such methods as through analysis, discount cash analysis, and payback analysis have been used to determine investments with higher potential for better returns.
Capital and operational budgets require projections on the cost utilizable in paying the bills and the amount required to sustain the specific business venture. Profitability is often the preferred outcome of either of the budgeting processes. In contrast, capital budgets are obtained from future cash flows of an organization’s projects and are utilized to purchase commodities for long-term use, such as fixed assets. Operational budgets, however, are projections of the business’s activities, such as paying bills, buying, and selling over a specific period. Fundamentally, all nurse leaders are well conversant with these types of cost and their utility in the healthcare system. This is necessary for enhancing profitability and planning for future hospital investments that may further enhance its profitability.
Effective and efficient operationalization of any business requires a free flow of resources. These resources are utilized in labor, equipment as well as in-service purchases. Resource allocation thus forms a significant component of any business operationalization as it enables these processes. The resource allocation process utilizes four steps that begin with determining the required resources. This is then followed by the acquisition of those resources, management of those resources, and then control of their utilization (Manukonda, 2018). The resource allocation process is utilized by various leaders and managers to soundly allocate resources to various entities of their businesses in the areas where it is needed most.
Various techniques and technologies enable the accurate prediction and allocation of the optimal balance of resources to the business entities and areas that need it most. These technologies contain information and data on the current and previous utilization of resources and inform the quantification of the resource needed by these entities. Such information as those obtainable from the organization’s financial records, previous resource allocation, and activity role, among others, provides adequate information that informs the allocation process. Additionally, an effective allocation process requires managers, leaders, and project management officers to consult with several persons. Such persons as financial experts, previous managers and leaders, and other staff members are important aids in resource allocation. The information obtained from them not only informs the process but also guides their decision-making and, ultimately, its success (Mårtensson, 2016). Such information includes the competing needs of the organization, the right information on the organizational entities to allocate resources, prioritization of the organizational areas, decision-making and analysis of each decision, and the amount allocatable to each entity.
Several considerations must be made for the allocation process to maintain effectiveness. Such factors include organizational objectives or goals, external influence from clients, governments, and the public, internal politics, and availability of resources, among others. These factors inform the appropriateness of any decision made regarding the allocation process by combining both environmental factors, internal factors, and the implication of the decision.
It is a very organizational objective to realize profitability. This is only attainable when the organization utilizes effective approaches that contribute to the planning process and enables profit-making and fiscal success. Such approaches include cost reductions, as in variable cost reductions, increasing turnover, increasing productivity to ensure much of the goods are vailed to the market, and increasing efficiency to ensure maximal output is realized at lower costs. Budget creation and management enable the establishment of a plan on funds utilization, thus ensuring that the organization always has sufficient funds to carry out its operations. It also keeps the organization out of debts that would have otherwise arisen from disproportionate spending outside the budget. This degree of financial freedom accustomed to budget creation and management allows the organization to grow and expand its business operationalization.
In budget management, such issues as budget variances often arise. It is important to analyze these budget variances to establish whether they are favorable. Favorable variances are indicators of profitability and business sustainability. They are reflective of an effective business operationalization as well as the market edge of the business. It may also show proper management of variable costs. Unfavorable variances indicate losses and unmet targets(Reddy, Loh & Kane, 2016). This may be attributed to poor organizational finance management, unrealistic targets, or increased expenditures in variable costs.
Discretionary spending entails all non-essential spending that an organization or individual makes upon completion of paying the essential expenses. These expenses eat into the available funds that would have been otherwise utilized in capital budgeting. It also reduces the organizational financial freedom that would have enabled them to increase their operational cost and improve their productivity (Marquis, Surdick & Wood, 2016). Whereas discretionary spending may be favorable for huge companies with vast financial freedom, it remains unfavorable to smaller organizations still building capital to either expand their services or increase their efficiency.
Nurse leaders have had crucial financial management functions in the healthcare delivery system. Nurse leaders are responsible for overseeing their various dockets and managing the limited finances allocated to them. To effectively manage these finances, the nurse leader should possess the relevant managerial and financial competencies to ensure sustainability and profitability. This competency includes financial control, planning, decision-making, and monitoring (Walsh, 2016). These skills enable them to plan strategically and appropriately with the allocated funds, plan operations, budget planning, monitor cash flow, and control expenditure and asset resources, among others. All of these ensure sustainability and profitability.
The effective aspects of this approach include financial planning, monitoring, decision-making, and control. All these aspects enable appropriate planning with the available limited funds as well as monitoring and controlling its utilization. Nurse leaders’ managerial and competency skills are characteristically favorable and necessary for best financial practices. It is for this reason that I would adopt these skills. Despite the abundance of these managerial and competency skills, nurse leaders are still not knowledgeable about the various healthcare costs that would further give them a better insight into the hospital leadership and management challenges (Naranjee, Ngxongo & Sibiya, 2019). This will suffice their financial management capabilities, thus ensuring the hospital’s profitability.
Budget creation and management are critical components of nurse leader roles. Knowledge of the operational budget and capital budget and how they compare to each other is thus important. Being a manager or leader, knowing the various financial allocation processes is important. The profitability and fiscal success of the organizational business are important. This can be ensured by increasing efficiency, turnover, and cost. As a healthcare system leader, the nurse should possess the various financial managerial skills and competencies that ensure sustainability and profitability.
References
Manukonda, S. (2018). Resource Allocation Process: Contributions, Synthesis, and Future Directions. SSRN Electronic Journal. DOI: 10.2139/ssrn.2284638
Marquis, L., Surdick, J., & Wood, W. (2016). Discretionary spending as a source of model specification bias in statistical cost estimation. Management Accounting Research, 3(3), 229-243. DOI: 10.1016/s1044-5005(92)70013-4
Mårtensson, A. (2016). A resource allocation matrix approach to IT management. Information Technology And Management, 7(1), 21-34. DOI: 10.1007/s10799-006-5727-8
Naranjee, N., Ngxongo, T., & Sibiya, M. (2019). Financial management roles of nurse managers in selected public hospitals in KwaZulu-Natal province, South Africa. African Journal Of Primary Health Care & Family Medicine, 11(1). DOI: 10.4102/phcfm.v11i1.1981
Reddy, A., Loh, S., & Kane, R. (2016). Budget Variance Analysis of a Departmentwide Implementation of a PACS at a Major Academic Medical Center. Journal Of Digital Imaging, 19(S1), 66-71. DOI: 10.1007/s10278-006-0852-9
Walsh, K. (2016). Managing a budget in healthcare professional education. Annals Of Medical And Health Sciences Research, 6(2), 71. DOI: 10.4103/2141-9248.181841
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Question 
Creating and Managing Budgets
OVERVIEW:
Interview a leader of your choice who has experience with creating and managing budgets, and write a 3–5 page analysis of your findings from the interview.
Note: Complete the assessments in this course in the order in which they are presented.
Nurse leaders must be well-versed in the fundamentals of health care economics. A firm understanding of these concepts is essential in order to examine national trends and diverse health care organizations. At the organizational level, health care economics operate in a manner very similar to other competitive industries and businesses.
Within any organization, regardless of size, nurse leaders must understand the purpose and complexity of building a solid budget. Nurse leaders must be able to recognize the organizational or unit goals and then be adept and competent in the planning, designing, and defending a budget to meet those needs.
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QUESTIONS TO CONSIDER:
Capital and operating budgets each play a major role in the financial expenditures of nursing units.
1. What is the purpose of each type of budget?
2. How does managing these two types of budgets differ?
3. What financial management techniques are common to both types?
Reflect on your experience with either type of budget.
Creating and Managing Budgets
1. How have one or the other of these two budgets affected the provision of care in your organization or unit?
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SUGGESTED RESOURCES:
Budgeting:
The following articles provide useful information about budgeting that may help with your interview analysis in this assessment and with budget preparation in subsequent assessments.
- 1. Goel, S. (2015). Capital budgeting. New York, NY: Business Expert Press.
- Chapter 2, “Capital Budgeting: Nature and Scope,” provides an introduction to capital budgeting.
- 2. Parsons, L., Howell, T., & James, T. F. (2012). Building new programs in women’s health: A fiscal perspective. International Journal of Childbirth Education, 27(1), 64–69.
- Provides basic information about budgeting, within the context of educational programs.
- 3. Rundio, A. (2012). The nurse manager’s guide to budgeting and finance. Indianapolis, IN: Sigma Theta Tau International.
- Chapter 3, “Varieties of Budgets,” explains the various types of budgets.
- Chapter 6, “Understanding Capital Budgets,” explains the key components of capital budgets.
- 4. Sharma, M. (2016). Budgetary bandage. Quality Progress, 49(4), 38–44.
- Describes how process improvement approaches were used to lower wound care costs.
- 5. Southworth, P. (2012). Cash in on money talk. Occupational Health, 64(10), 27–29.
- Tips on budget preparation.
- 6. Vockley, M. (2016). Choosing wisely: Trends and strategies for capital planning and procurement. Biomedical Instrumentation & Technology, 50(4), 230–241.
- Discusses trends and strategies for making better purchasing decisions.
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ASSIGNMENT INSTRUCTIONS:
Preparation:
You are the nurse manager of a new urgent care clinic, and one of your first tasks is to prepare next year’s operating budget. Like many nurses, you have had little or no direct experience with the budgeting process and realize that financial management is not one of your strengths as a leader. Consequently, you have decided that you need to reach out for help from someone in the facility with budgeting experience and financial management expertise who can offer you help and insight.
REQUIREMENTS:
Interview:
Conduct an interview with your site supervisor, or other nurse leader whom you consider to be a mentor in the area of health care finance. Discuss their experience with operations and capital budgets in their current or previous role. Explore the following topics in your interview:
1. Their experience managing an operating budget.
2. Their approach to managing productivity within the parameters of the budget.
3. Their approach to oversight of the appropriate use and availability of equipment and supplies.
4. The experience of managing a capital budget.
5. How managing a capital budget differs from managing an operating budget.
6. Their application of finance principles to fulfill the organization’s mission and goals.
Analysis
Note: The requirements outlined below correspond to the GRADING CRITERIA in the SCORING GUIDE. Be sure that your written analysis addresses each point, at a minimum. You may also want to read the Guiding Questions: ATTACHED, to better understand how each criterion will be assessed.
Prepare a written analysis of your findings from the interview, supplemented by your own research and evaluation of budget management techniques.
1. Compare the process of managing an operating budget to that of managing a capital budget.
2. Describe the process of allocating resources for labor, equipment, and services.
3. Describe an effective approach that contributes to planning for profitability and fiscal success.
4. Evaluate the nurse leader’s approach to budget management.
5. Write clearly and concisely, using correct grammar and mechanics.
6. Integrate relevant and credible sources of evidence to support your assertions, correctly formatting citations and references using current APA style.
Additional Requirements
- 1. Format your analysis using APA style.
- 2. Use APA Style. Be sure to include:
- A title page and reference page. An abstract is not required.
- A running head on all pages.
- Appropriate section headings.
- A minimum of five properly formatted citations and references.
- 3. Your analysis should be 3–5 pages in length, not including the title page and reference page.