Question

Budget Types

Explain at least three different types of budgets used by health care organizations (operating, capital, revenue, et cetera). Why is each budget important to the organization, and which stakeholders would be interested in each?

Answer 1

A Budget is a quantitative expression of a plan of action prepared in advance of the period in which it relates.

Budgets may be prepared for the organization as a whole, for departments, for functions such as sales and production, or for financial and resources such as Cash, capital expenditure and etc. Budgeting is important to all the organizations since it is part of organization's strategic planning process.

A Master budget is an overall budget for a health care organizations prepared by aggregating the individual components.

Types of Budgets

Revenue Budget - The first step in any budgeting process is to budget for revenue/revenue from healthcare services and to define other inter-related budgets based on the revenue budget. The objective of the budget is to estimate the projected revenue for the budgeted year. Revenue budget is an important budget of all, hence all the internal stakeholder and as well as the external stakeholder are interested in this budget.

Operating - An operating budget is a forecast and analysis of projected income and expenses over the course of a specified time period. It is the second step after the sales budget process is completed. All the operating expenses to be budgeted to arrive at the operating income. The operating manager is interested in this budget to ensure an efficient operation of the business.

Cash Budget -This budget estimates the sources and expenditure of cash flows to the organization within a specified time period. It can be useful in helping a company determine whether it's managing its cash wisely. Estimating cash flows is important and challenging for the business which is growing rapidly, that have seasonal sales or have irregular sales patterns. The budgeting process objective is to estimate the cash flows. The CFO and management team of the health care organization is interested in this budget.