Strategies for Establishing Operational Budgets
The first effective strategy for establishing operational budgets in health care is planning across multiple time horizons, which allows health care specialists to align models, plans, and budgets. The strategy has three basic constituents (Siegel, Young, Zysberg, & Santillan, 2014):
- Rolling forecasts. To provide an advanced view of the organizational performance, it is essential to perform actual and monthly projections that would cover at least 18 months. Current realities, as well as operational plans, must be assessed as per their potential effect on multi-year budgets.
- Multi-year plans. They allow aligning internal initiatives with external factors that may impact the further development of the organization. Different scenarios can be evaluated and juxtaposed to opt for the best initiative.
- Detailed budgets. The strategy suggests that each manager must be able to see the baselines of budget planning for introducing necessary corrections and refinements that would improve the outcome numbers.
The evident advantage of this strategy is that it allows not only addressing the current budget issues of the organization but also allocate the budget in such a way that future needs are predicted in advance. However, at the same time, the disadvantage of it is that establishing budgets gets limited by numbers excluding human factors (Talley, Thorgrimson, & Robinson, 2013). It is also not uncommon that the calculation errors may lead to long-lasting detrimental consequences for future planning.
Another strategy makes emphasis on reporting rather than statistics since the feedback loop may ensure higher accountability and visibility. Thus, effective reporting that could assist in establishing operational budget should be (Daxi, 2013):
- Role-based. Dashboards can provide all the required performance indicators to managers and chief executives at all organizational levels.
- Provide notifications and alerts. Outlier variances or report readiness notifications can attract the attention of managers to the budget issues that have to be immediately addressed.
- Improve feedback. Managers must not only decide how to allocate the budge but also provide commentary and explanations of the decisions made.
Unlike the previous strategy, this one has the advantage of taking into account human factors that may influence budget solutions. However, its weak point is that the data collected can be too subjective and lead to ineffective planning.
Strategy Implemented by my CNO
My CNO opts for cross-departmental modeling. The previously described strategies allow structuring the budget only on the department or entity level, which limits forecasting opportunities. In many cases, more than one baseline set of assumptions is required to plan the budget. Assessing the needs of other departments makes it possible to apply “what-if” modeling and predict future needs.
However, some challenges have to be faced during the implementation of the model. The first one is connected with the fact that collecting information on the hospital level requires additional effort while the information obtained is not always applicable. Another challenge is that there is no guarantee that the budget needs of different departments will cross in the future. There is always a risk that the predictions will be wrong and the real needs of the department will not get satisfied.
If the unit operating budget is running in the red, it may have numerous negative implications for CNO. First and foremost, the needs of patients will not be fully satisfied due to the deficiency. Second, it will undermine CNO’s reputation and increase pressure on behalf of the hospital administration. Third, it may increase turnover rates in the unit since nurses are likely to take mandatory overtime in such conditions.
References
Daxi, Z. (2013). Exploration on the budget performance of hospital under new hospital financial system and hospital accounting system. Medicine and Society, 6(2), 018-033.
Siegel, E. O., Young, H. M., Zysberg, L., & Santillan, V. (2014). Securing and managing nursing home resources: Director of nursing tactics. The Gerontologist, 55(5), 748-759.
Talley, L. B., Thorgrimson, D. H., & Robinson, N. C. (2013). Financial literacy as an essential element in nursing management practice. Nursing Economics, 31(2), 77-89.