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Preparing and Managing a Capital Budget

Preparing and Managing a Capital Budget

Capital budgets aim to establish the most appropriate investment or project upon evaluating other potential projects’ feasibility. Unlike operational budgets in routine organizational activities, capital budgets are targeted for long-term plans. They are thus centered on projects or activities that correspond with long-term organizational objectives. This paper seeks to prepare and manage an annual capital budget for a 50-bed, step-down unit to address particular issues affecting its operationalization.

The capital budget set for preparation will cover renovations and a face-up lift for a 50-bed step-down unit. This will entail replacing some beds, rehabilitating the baths and the roof, and redesigning the entire room to make it more spacious and allow free movement of people within this unit. Additionally, various medical equipment will be installed, and outdated ones will be upgraded or replaced. For space expansion, an additional room will have to be constructed and fitted with all the necessary equipment. Upon completion, the unit is expected to have a 50% increase in capacity, fully equipped with all the necessary equipment, properly lit, and with adequate airflow. Likewise, the face-up lift project will see the room assume a modern look with elegant finishes and enhanced aesthetic value. The renovation program will also care for the nurses’ station, providing a nurses’ lounge fully fitted with comfortable seats and all necessary resources for nurses’ comfort and cool-off. This project is expected to last after six months.

This budget seeks to address the dissatisfaction and poor morale among nurses and improve their work environment. By increasing the spacing and bed capacity, this budget will enhance the movement of providers within this unit, provide ample working space for the nurses, and reduce the risk of injury and contamination that would have otherwise been apparent. By ensuring that this unit is equipped with all the necessary medical equipment needed, this budget will improve the work efficiency of these nurses, ensuring that they get the necessary tools they need for inpatient assessment, diagnosis, and care management processes. This budget will also provide for a nursing lounge that will enable the nurses to cool off after a rather tedious care process and offer space that they may utilize for their medical knowledge revision and for resting. This will enable the rejuvenation of the nurse’s energy, enabling them to deliver care in their optimal state of mind and in a way that ensures quality and effectiveness. Combining all these effects enhances the care process by enabling the nurses to do their best in the care delivery process.

The hospital’s mission is to provide quality and effective care most cost-effectively. Quality and effectiveness of care depend on the work environment and the provider’s welfare. This budget seeks to address the work environment issues by providing for renovations. It faces uplifting the hospital’s step-down unit and equipping it with all the necessary equipment for care processes. It also addresses the provider’s welfare through space expansion that will give them ample spaces for care delivery and a lounge that they will utilize for cooling off and their private activities. Combining all these effects will enhance care delivery processes and ensure that the nurses offer their services in their optimal state of mind. These, in turn, ensure the efficiency and effectiveness of care as postulated in the hospital’s mission.

Budget

item allocation
Project allowance

 

 

$ 2,121,347

Project expenses

Building designer

Building report

Building materials

Hospital equipment

Bath renovations

Roof renovations

Building process

$7,889

$1,500

$351,547

$251,653

$75,034

$83,229

$300,714

$2,121

 

total $1,092,687

The cost allocated for each line of items in the budget was arrived at upon consultations with other stakeholders and experts. However, the cost allocation utilized in the budget was informed by the hospital’s financial statement and previous budgetary allocations. The role of experts, in this case, was to inform the unit cost of each line of an item reflected in the budget and is set to be utilized in the renovation processes. The stakeholder’s role is to approve the cost provisions provided by the experts (Ridwan, 2017). The financial and previous budget statements are significant in informing the hospital’s position in raising the proposed amount.

The reliability of information regarding cost allocation depends on the accuracy of the source of this information. Therefore, experts with the necessary experience in these fields of construction must be selected, and their expertise is utilized in cost calculations and provision (Zimon & Zimon, 2016). Additionally, the determination of the hospital’s accurate financial position depends on the selection of up-to-date statements that accurately reflect the actual financial position of the hospital and the current market dynamics that may interplay to cause alterations in the implementation processes (Walsh, 2016). The cost allocation process utilized the account analysis method, which utilizes experts who evaluate the allocations against the available cash and determine their feasibility.

Upon preparation of the capital budget, it must be managed effectively to ensure it is followed appropriately. This process entails administration and oversight of the finances allocated for each line of items on the budget (Mukherjee et al., 2016). The process is important as it prevents overutilization of funds in one item while depriving the other and limiting wastages that would have otherwise occurred without oversight. Oversight and management of the budget will be carried out by the hospital’s project office, as well as the hospital’s administrative officers. This budget management will utilize the budgetary control technique to control the entire process’s cost. By following the budget and sticking to its provisions, the overall cost utilized in this renovation should be in concert with the budgetary provisions. Variances may occur during the implementation process. This, however, is managed by allowing some degree of flexibility while allocating costs for each line of the item (Phaup, 2018). Additionally, accurate allocation of funds for each item is necessary, as under-allocating or over-allocating will lead to variances. These actions effectively account for any variance that may be realized.

The significance of these renovations is postulated to be realized over time. The effects of these renovations are expected to evident in increased work efficiency and quality improvements in the care delivery process. This impact increases customer satisfaction and consequently increases patient population as most patients are attracted to quality, effectiveness, and efficient care delivery. An increased patient population translates to increased revenues and higher profits. The cost utilized in renovations is expected to be fully recovered in two and a half years. This is due to the assumption that the patient population will increase relatively fast due to increased bed capacity and quality improvements. The depreciation value is as well considered in this calculation. It is responsible for the relatively long duration for realizing the cost utilized in the renovation process.

The utilization of capital budgeting in establishing long-term projects for any organization underpins its significance in organizations’ strategic growth. This hospital utilized capital budgeting in the renovation plans for its 50-bed capacity step-down unit. Capital acquisition for this budget is informed by experts, stakeholders, and the financial and budgetary statements. The acquired amount should be able to cover all the budgetary items. In the case described above, the capital budget is targeted at improving the welfare of the nurses and the quality of their services, which are expected to improve the hospital’s profitability in the long run. 

References

Mukherjee, T., Al Rahahleh, N., & Lane, W. (2016). The Capital Budgeting Process of Healthcare Organizations: A Review of Surveys. Journal Of Healthcare Management, 61(1), 58-76. https://doi.org/10.1097/00115514-201601000-00011

Phaup, M., 2018. Budgeting for Mandatory Spending: Prologue to Reform. Public Budgeting & Finance, 39(1), pp.24-44.

Ridwan, 2017. Managing budgeting process in an emerging economy: a study of participative budgeting, budget pressure, and budgetary slack in Indonesia. Journal of International Business and Economics, 17(2), pp.83-94.

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

Zimon, G., & Zimon, D. (2016). Influence of Quality Management Systems on The Financial Capital Management Strategies In Trading Companies. Modern Management Review. https://doi.org/10.7862/rz.2014.mmr.62

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Question 


Preparing and Managing a Capital Budget

PART 4 of 4 (Part 1 – Order 38945, Part 2 – Order 38946, Part 3 – Order 38947)
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OVERVIEW:
Prepare an 4–5 page capital budget for a major capital acquisition.

  • Note: Complete the assessments in this course in the order in which they are presented.

In today’s health care environment, the focus on major purchases, as part of the capital budget, has emphasized the need for newer and better technology. Although the need to invest in capital equipment and technology has been ongoing, the nursing workforce must also have a safe and pleasant work environment.

This assessment provides an opportunity for you develop a capital budget for a major facility improvement that will benefit patients, nurses, and the organization.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  1. 1. Competency 3: Develop a capital budget.
    • Describe a capital acquisition.

      Preparing and Managing a Capital Budget

      Preparing and Managing a Capital Budget

    • Prepare a capital budget.
    • Describe the process for calculating costs.
  2. 2. Competency 4: Determine the equipment and services needed to maintain seamless patient or client care.
    • Justify the need for a capital acquisition.
  3. 3. Competency 5: Apply financial principles to a strategic plan for achieving organizational goals and fiscal success.
    • Present a plan for budget management.
    • Explain how a capital acquisition will affect the financial health of the organization.
  4. 4. Competency 6: Communicate effectively with diverse audiences, in an appropriate form and style, consistent with applicable organizational, professional, and scholarly standards.
    • Present budget data and information clearly and accurately.
    • Integrate relevant and credible sources of evidence to support your budget data and information, correctly formatting citations and references using APA style.

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QUESTIONS TO CONSIDER:

  1. 1. How would you approach the process of designing a capital budget? For example:
    • What steps would you need to take?
    • What resources would you access?
    • Will you collaborate with other executives or staff?
    • How will you tie the vision for the capital expenditure to the organization’s mission and goals?
  2. 2. What challenges do you anticipate in justifying a capital budget to administrative leaders in an organization?
  3. 3. What criteria might a particular health care organization or service provider apply to evaluate the return on a capital investment?

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SUGGESTED RESOURCES:

Capital Budgeting:
The following articles address capital budgeting and may help you with preparing your capital budget in this assessment.

  1. 1. Jasuta, L. (2016). Rolling capital managing investments in a value-based care world. Healthcare Financial Management, 70(6), 82–89.
    • Discusses the use of a rolling approach to capital budget planning in health care, similar to what is done in other industries.
  2. 2. Maxwell, J. M., Cho, T., Rudkin, S., Wong, A., Almassi, N., & Barton, Erik. (2016). Mobile COWs (Computer on Wheels): Hamburger or VEAL? Western Journal of Emergency Medicine, 17(5), 527–530.
    • A comparison study specific to purchase and implementation of Computer On Wheels (COWs) versus Very Efficient Agile Laptop (VEAL). The author discusses costs and benefits.
  3. 3. Mukherjee, T., Al Rahahleh, N., Lane, W., & Dunn, J. (2016). The capital budgeting process of healthcare organizations: A review of surveys. Journal of Healthcare Management, 61(1), 58–77.
    • Examines different capital budgeting practices.
  4. 4. Rundio, A. (2016). Budget development for nurse managers. Reflections on Nursing Leadership, 42(3), 1–8.
    • A step-by-step approach to budget workflow.
  5. 5. Stroudt, R. L. (2013). 12 strategies for managing capital projects. Healthcare Financial Management, 67(5), 68–71.
    • Suggests strategies for most successful program management.

Capital Budget Preparation:
The following interactive exercise introduces you to the process of preparing a capital budget.

1. Vila Health: Developing a Capital Budget | ATTACHEDVocabulary Practice

  • Vocabulary Drag-and-Drop Exercise 7 | ATTACHED
  • Vocabulary Drag-and-Drop Exercise 8 | ATTACHED
  • Vocabulary Drag-and-Drop Exercise 9 | ATTACHED

Capella Resources

  1. 1. Guiding Questions: Preparing and Managing a Capital Budget ATTACHED
    • This document includes questions to consider and additional guidance on how to successfully complete the assessment.

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ASSIGNMENT INSTRUCTIONS:

Preparation:
You are the unit manager of a 50-bed, step-down unit, and it is time for you to prepare your annual capital budget. You have seen a significant turnover in your nursing staff in the past three years; a review of exit interviews and patient surveys indicates low nurse satisfaction, poor morale, and complaints of an antiquated and depressing work environment. You have researched the impact of a positive working environment on staff productivity and morale and decided to request a renovation of the nurses’ lounge as the main purchase in your capital budget. You will present your request as a quality improvement investment.

Requirements:
Note: The requirements outlined below correspond to the grading criteria in the assessment scoring guide. Be sure that your budget addresses each point, at a minimum. You may also want to read the Guiding Questions: Preparing and Managing a Capital Budget.

Prepare a capital budget for a facility renovation. Assemble your budget figures in a table, using a format of your choice. You may use either Microsoft Word or Excel to create your budget table.

Note: You may use the budget in the Vila Health: Preparing a Capital Budget multimedia exercise from the Resources as an example of how you might format your table. You may also use a budget format used in your organization or a format you find in any of the course resources or on the Internet.

1. Describe the capital acquisition.
2. Justify the need for the capital acquisition.
3. Prepare the capital budget.
4. Describe the process for calculating costs.
5. Present a plan for budget management.
6. Explain how the capital acquisition will affect the financial health of the organization.
7. Present budget data and information clearly and accurately.
8. Integrate relevant and credible sources of evidence to support your budget data and information, correctly formatting citations and references using current APA style.

Additional Requirements
****If you used Microsoft Excel to create your budget table, submit the Excel file along with your budget narrative. You may also add the Excel file to your Word document as an embedded object.

Format your budget using APA style.

  1. 1. Use the APA Style. Be sure to include:
    • An APA-formatted title page and reference page. An abstract is not required.
    • A minimum of five properly formatted citations and references.
  2. 2. Your budget should be 4–5 pages in length, not including the title page and reference page.

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