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Budgeting Process

Budgeting Process

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Executive Summary

The main purpose of the budgeting process is to ensure that the budget that has been allocated towards the establishment of the Diabetes Education Center are spent and used for the purposes of providing education and health related resources to the community in order to improve the management of disease in patients with diabetes. The budgeting process will begin with the review of previous budgets before the drafting of the new budget and the discussion of the new budget with the management of the clinic. The environmental analysis identifies a number of economic, market, and competition forces which impact on the operations of the Diabetes Education Center. The internal analysis identifies a number of factors specific to the organization including performance, management and staff, infrastructure, customers, and strategies which have implications on its performance. This analysis also identifies the strengths, weaknesses, opportunities, and threats of the Diabetes Education Center. Sources of revenue of the Diabetes Education Center include insurance, Medicare, cash payments, donations, and grants.

Services provided by the Diabetes Education Center include; patient care, diabetes assessment by physicians, diabetes screening, education to patients and families, laboratory results, and dietitian consultation. The center will develop cash and operating budgets. A variance analysis will be carried out in order to determine the differences between the amount that is budgeted and the actual resulting amount.. There are a number of strategies that will be established in order to maintain control over the revenue, salary and benefits, and supplies.


Budgeting Process

Purpose and objective

The main purpose of the budgeting process is to ensure that the budget that has been allocated towards the establishment of the Diabetes Education Center are spent and used for the purposes of providing education and health related resources to the community in order to improve the management of disease in patients with diabetes. The specific objectives of the budgeting process are;

  • To justify the resources that are required in order to provide education and health related resources to the community
  • To ensure that resources are allocated and expenditures disbursed in a manner that is effective, efficient and economics
  • To hold the managers responsible for spending money on the establishment of the Diabetes Education Center in terms of the achievement of outcomes and the value for money
  • To estimate the financial results associated with each strategic direction (Finkler et al, 2008).

Budgeting process

Review of previous budget by managers

The management of the Diabetes Education Center will review the previous budgets as the starting point for the preparation of the current budget. The information drawn from the previous budget reviews will provide the baseline and any changes will be made based on the new information. Information from the previous budget year that impact on the present cash flows will be integrated in the accounts of the current year. Review of previous budget by managers will determine how well the budgeting guidelines were followed as well as provide the reasons as to why the variances in the budget occurred (Finkler et al, 2008). New budget

After reviewing the previous year’s budget, the managers will draft a new budget for the Diabetes Education Center. This budget will provide a detailed analysis regarding how money will be allocated to meet the expected needs of the Diabetes Education Center in the future periods. It will limit the amount of money that is spent on certain operations while at the same time ensuring that the Diabetes Education Center has enough capital on hand for making the decisions that relate to its operations. All the planned activities of the Diabetes Education Center will be considered in terms of their cash flow as well as their impacts on the financial statements. The new budget will then be presented to the management of the clinic for review as well as approval (Finkler et al, 2008).

Discuss new budget with clinic management

It is important for those engaged in the process of budgeting to discuss the new budget with the clinic management. Each member of the clinical management team will be provided with an opportunity to comment on the budget, ask any questions and make recommendations. Feedback from the management in relation to the new budget is essential in planning for the subsequent budgets and in making adjustments to the current budget submission (Finkler et al, 2008).

Environment Analysis:

Economic There are a number of forces in the economic environment which impact on the budget preparation process. Economic factors such as the recent recession account for almost half of the projected deficits in the subsequent budgets. There are major economic trends such as unemployment, inflation and interest rates which affect the budget of the Diabetes Education Center. Such trends have implications on the operating revenues and expenses of the Diabetes Education Center (Fortenberry, 2008). Market

The market factors have an important role to play in the process of budgeting. Some of the conditions in the market that need to be watched out for in the budget preparation process including the market share, and the product life cycle stage of the Diabetes Education Center. Under those circumstances where the company has a good market share in relation to competition, then the budget allocated towards marketing operations will be lower. However, the Diabetes Education Center is at the introduction phase of the product life cycle stages and this means the marketing budget will be kept high in order for the Center to have a place in the market with the existing players (Fortenberry, 2008).

Competition

The level of competition in the market has a major influence on the process of budgeting. In the case of the Diabetes Education Center, the competitive pressure comes from other acute care settings located in the north of Orange County and south of Los Angeles County. Under intense market competition, more funds will have to be allocated towards the marketing operations of the Diabetes Education Center. However, when there is a low level of competition in the market the center will reduce the amount of funds that are allocated towards the marketing function (Fortenberry, 2008).

Internal Analysis

Performance

Diabetes education Center will offer comprehensive care of complex cases of diabetes and preventive management for patients with diabetes and pre-diabetic conditions. The internal analysis will focus on the historical performance of the company with the main objective of identifying those factors that contributed to the creation of those results that are portrayed in its financial statements. An analysis of the performance of the Diabetes Education Center yields important information regarding whether the company is achieving its financial objectives and whether it is an above average performer in the industry (Kotler et al, 2011).

Management and Staff

Management and staff are important resources and capabilities of the Diabetes Education Center. The analysis of management and staff working at the center yields important information regarding the proven capabilities of the center to provide the much needed education to the patients with diabetes. This analysis reveals whether the center has an experienced as well as capable workforce, talented employees in the major functional areas, and proven management know-how (Kotler et al, 2011).

Infrastructure

Infrastructure is a valuable physical asset of the diabetes management center. The analysis of the infrastructure in the center provides useful information regarding the state of the art plants as well as equipment in the center. This analysis also provides information that assists in the identification of the infrastructure that requires further development in order to play a significant role in the future strategies of the Diabetes Education Center. The management will be able to determine through such an analysis that it does not possess the infrastructure resources that can support the business strategy (Kotler et al, 2011).

Customers

Customers are valuable intangible assets of the Diabetes Education Center. An analysis of the customers reveals whether the customers have strong brand loyalty. Information obtained from such an analysis assists the clinic in developing specific value propositions for each segment. It assists the clinic in identifying those services that are valued by the customers diagnosed with diabetes and how this affects their decisions to use the services (Kotler et al, 2011).

Strengths

There are a number of typical strengths in the process of budget preparation. One of the major strengths of the budget preparation process is the focus on those resources that are required as opposed to the cost. Goals and objectives of the budget preparation process are reasonable and attainable and there is no overestimation of the resource requirements. Prior year budget estimates can be adjusted in order to account for the expected changes. The budget preparation process is not static and there will be a deviation from the original plans under those circumstances where there are changes in conditions. The budget preparation process will be flexible enough and will be tailored to the actual results of operations (Kotler et al, 2011).

Weaknesses

There are a number of typical weaknesses in the budget preparation process. It is highly likely that the submitted budget is based on macroeconomic assumptions or accounting rules that are inconsistent. Economic assumptions that underlie the estimation of costs of the Diabetes Education Center programs could either be erroneous or weak. Previous years’ budget estimates that are relied upon in the preparation of the current budget could be erroneous. There could be lack of satisfactory procedures for reviewing the prioritization of the expenditures of the Diabetes Education Center. The budget team could focus their attention on the current year only with no anticipation of future circumstances and this could result in a situation the recurrent consequences associated with capital spending are not foreseen (Shalowitz et al, 2011).

Opportunities

There are a number of opportunities that the Diabetes Education Center can take advantage of. The center can recruit experienced staff to provide comprehensive education to patients with diabetes. It has the opportunity to develop patient-centered educational program which takes into consideration age, ethnicity, and social background. There is an opportunity for the center to use a multidisciplinary team approach in increasing the effectiveness of the education program. It also has the opportunity to implement an aggressive as well as accurate recall system in which to patients are reminded to have regular check ups (Kotler et al, 2011).

Threats

Payers are sometimes slow to reimburse and this means that the receivables can get hung up in the automated payment system under those circumstances where they are not tracked closely. Competitive pressures from the other acute care settings is another significant threat to the performance of the Diabetes Education Clinic as it affects the demand for those services that are offered by the clinic. Resources allocated towards the establishment of the Diabetes Education Center lags behind the prevalence rates of diabetes (Kotler et al, 2011).

Strategies

The analysis of the strategies of the Diabetes Education Center yields important information regarding how well it is positioned to take advantage of the opportunities in the external environment. A careful analysis of the strategies being pursued by the clinic will assist the firm in determining where it can best achieve a strategic fit between its internal environment and the needs of the external environment. This will provide creative insights in the formulation of future strategies (Kotler et al, 2011).

Revenues

Insurance

Insurance is the primary source of revenue for the diabetes education center as most of the patients residing in the state who are aged 18 years and above are required to have health insurance. Insurance companies spend a large percentage of the premiums on the health care related claims (Penner, 2004).

Medicare

Medicare is another source of revenue for the diabetes education clinic. This is a health insurance program that is administered by the federal government which covers the older people aged 65 years and above and covers the health care costs of those who are enrolled in the program (Penner, 2004).

Cash payments

Cash payments will be made by the diabetes patients visit the center but who are not covered under any insurance scheme as a compensation for receiving those services that are provided in the clinic (Penner, 2004)

Donations

Some of the revenues of the Diabetes Education Center will be from private contributions and donations from individuals and foundations (Penner, 2004).

Grants

The Diabetes Education Center will rely on grants and other forms of payment from the federal government (Penner, 2004).

Staff Cost Staff |Average cost per year| Total Cost over the three year period

  • 2 Endocrinologists | 283061| 849182
  • 2 Nurse practitioners| 130664| 391994
  • 1 Center Administrator| 76890| 230672
  • 1 Dietitian| 66639 199916
  • 1 RN Educator| 87143| 261428
  • 2 medical assistants| 41262 123788
  • 2 Clerical| 41008| 123025

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Services Provided

Patient care

Health care providers have a central role to play in the management as well as coordination of patient care. Diabetes requires continuous patient care that includes monitoring of the blood glucose, provision of a healthy diet, adherence to the medical regimen, assessment, screening, referral, glycemic control, and so on (Unger & Schwartz, 2013). Diabetes assessment by physicians

Patients with diabetes usually attend clinics for consultation on issues that specifically relate to diabetes, complications associated with the illness, or other problems that are unrelated to the condition. Each visit serves as an opportunity for the physician to assess the illness as well as the ability of patients to manage the condition (Unger & Schwartz, 2013).

Diabetes screening

Screening tests that are performed on the diabetic patients are important in preventing the condition as they assist in its identification during the early stages. Performance of blood glucose screening reduces the risk of developing Type 2 diabetes in patients (Unger & Schwartz, 2013).

Education to patients and families

Patients suffering from diabetes and their families require education and healthcare related resources for improving the management of disease. Comprehensive education related to signs and symptoms of the disease, disease progress and complications, blood glucose monitoring skills, and signs and symptoms of hypoglycemia and hyperglycemia will be provided to patients (Unger & Schwartz, 2013).

Laboratory results

Laboratory tests are used in the screening as well as management of diabetes. The diagnosis of diabetes mainly relies on the results of the specific glucose tests that are carried out on the patient (Unger & Schwartz, 2013).

Dietitian consultation

Patients with diabetes need to consult dietitians to provide them with food and nutrition information that can assist them to improve their health (Unger & Schwartz, 2013).

Budgeting Process

Cash

The cash budget of the Diabetes Education Center will include all the incoming revenues such as insurance, Medicare, cash payments, grants and donations as well as the spending on expenses including salaries. This budget indicates whether the cash flow of the center is adequate to meet the anticipated payments (Hoque, 2005).

Operating

The operating budget will cover all the operating expenses of the normal operations of the Diabetes Education Center. It contains those funds that the center expects to spend on the consumables in the short term including the salaries and benefits of the employees, space rental and so on (Hoque, 2005).

Variance Analysis

Variance analysis is an essential management control function in health care organizations. It assists in the determination of the differences between the amount that is budgeted and the actual resulting amount. The actions that are taken by the Diabetes Education Center in response to the variance analysis contribute to dramatic improvements in its future operations (Hoque, 2005)

Strategies to maintain controls on operational budgets

Revenues

There are a number of strategies that the Diabetes Education Center can employ in order to maintain its revenues. The revenue generated from the operations of the clinic needs to be matched against the expenses. It needs to ensure that it maintains stability over the sources of revenue such as grants and donations (Hoque, 2005)

Salaries and benefits

Salaries and benefits offered to the employees can be maintained in the following ways. Salaries and benefits should be offered to the professional staff based on established salary scales but the salary ranges will be reviewed on an annual basis in order to ensure that the center maintains its competitive advantage (Hoque, 2005).

Supplies

The medical supplies in the Diabetes Education Center will be maintained through the review of inventories that are available for the daily function of the Diabetes Education Center as well as the initiation of requests for replenishing the inventory and ordering for new supplies (Seghal, 2010).

References

Finkler, S.A., Kovner, C.T., & Jones, C.B. (2008).Budgeting concepts for nurse managers. Missouri: Saunders Elsevier.

Fortenberry, J.L. (2009). Health care marketing: Tools and techniques. Sudbury: Jones and Bartlett Publishers.

Kotler, P, Shalowitz, J, & Stevens, R.J. (2011). Strategic marketing for healthcare organizations: Building a customer-driven health system. New Jersey: John Wiley and Sons.

Penner, S.J. (2004). Introduction to healthcare economics and financial management: Fundamental concepts with practical applications. Philadelphia, PA: Lippincott Williams and Wilkins.

Sehgal, V. (2010). Supply chain as strategic asset: The key to reaching business goals. New Jersey: John Wiley and Sons.


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