Budget development and implementation

1. 1
Running Head: Developing a Budget
Budget Development; Steps for aSmallHealth care organization.
By
Ahmed Otokiti, M.B,.B.S. CCRP.

2. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
Abstract
This paper details important aspects of developing a budget for a small health care
organization. The approach to planning and type of budget adopted is stated with justification. I
have also tried to emphasize the fact that the budget is not just a financial document but an
essential component of planning and organization’s well-being.

3. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
Introduction
The Budget is a specific statement of anticipated result over a specified time period. This
period (Budget period) is as specified by the organization, usually referred to as fiscal year.
Depending on the type of organization and project involved, this period can either be long term
or short term. The expected revenues to be earned and the expected expenses likely to be
incurred in future are put in perspective, usually in numerical terms and as such serve as a
guiding tool. In this regard a budget can be considered as a planning and controlling tool
(Liebler, McConnell 2007. P221). For this reasons the function of the budget is not limited to
how financial resources are allocated and spent. The budget also reflects organization structure
as each unit is allocated specific amount of funds based on the functional role it plays in the
organization. The budget also serves as a tool that spells out the delegation of Authority; it
empowers the line manager to develop plans and how to implement plans while taking
responsibility for assigning specific budget amounts to the personnel and material categories
while monitoring the use of these resources(Liebler, McConnell 2007.p222).
Steps and Approach to Developing the Budget
The highly dynamic and rapidly changing nature of the health care industry calls for
flexibility in both short term and long term planning to be implemented in the budget. This is so
as to allow for favorable response to the changes in both external and internal environment.
External environmental changes like changes in Government regulations (examples include; all
hospitals must adopt electronic health record system by 2014, disaster occurrence and un-
planned patient load as experienced in anepidemics). Internal environmental changes like staff

4. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
retirements and equipment breakdown.It is important to preempt these situations and plan budget
and strategies that would ensure flexibility, innovation and swift response to any of these
threats/environmental changes (Encyclopedia of Business, 2013). Due to these reasons it is
important to pay particular attention to the various line items in the revenue and expenses that
can be altered ,reduced or cut during the implementation phase of the budget.This is so as to free
up some resources for emergencies or unplanned changes.
Budget type and justification;in other to fulfill this objective of flexibility and ability to
adapt to change, I will preferable propose a variable budget. This is a budget that does not
presume a stable condition of income and expenses but rather recognizes the fact that operating
expenses and level of activity may fluctuate (Liebler, McConnell 2007. P279). Also utilizing the
step budget form, which certain level of activity is assumed and the impact of deviations from
this level is calculated. In this method, various possible outcomes are considered including the
best case scenarios in terms of profit and loss. This leads to development of estimates with
various pessimistic and optimistic allowances (Liebler, McConnell 2007. P279). In terms of
periodicity, I will like to adopt the periodic moving budget so as to allow for adjustments in the
budget in a three monthly cycle within the fiscal year from January 1st
to December 31st
.This
allows me to make use of more up-to date information that becomes available as the year
progresses.
Particular line items with potential for flexibility; As mentioned earlier there is the
need to pay particular attention to items that can be cut or reduced in quantity should there be
need to adjust the budget to cater to important needs. Although certain expenses can be cut, some
are fixed and cannot be tampered with. Examples of such expenses that cannot be changed
include; sign on bonuses and union agreement wages to be paid to employees, fulfillment of

5. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
contractual expenses and agreement to vendors, software licensure agreement e.t.c. At the same
time some items can be cut, reduced or totally eliminated from the expenditure line items in the
budget. Such items are listed below is usually at the discretion of the manager;
a) Routine annual painting of the office; This can be delayed till the next fiscal year to free
up funds to meet up with other pressing demand
b) Delay in hiring a replacement worker; Should there be a vacancy, the spot may beleft
vacant so as to allow the use wages and salary that would have been paid for other
pressing needs of the department
c) Overtime pay; the amount of overtime paid can be reduced and increased productivity of
staff encouraged as to complete task during regular working hours.
d) Training/conference sponsorships; this is also at the discretion of the manager. Only
relevant training and conference would be reimbursed to further help save funds.
e) Other line items that may be cut include; software licensing not directly involved in the
day to day running of the organization, Bulk purchase period may also be extended.

6. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
Conclusion
The highly volatile nature of the health care industry is a fact to be considered while planning a
budget. Keeping in mind the fact that the budget is a planning tool, it is particularly important for
small scale health care organization to capitalize on their advantage of flexibility and ability to
implement changes as when due. This is particularly trueas compared to large organizations
with all the bureaucracy and chain of commands making it very difficult to implement any
changes and be flexibility.

7. Developing a Budget
Ahmed Otokiti(ahmedotoks@yahoo.com)/2013
References
Liebler J.G, McConnell C.R. (2007). Management principles for Health professionals. (5th
Edition).Jones & Bartlett Learning. Sudbury, MA.
Organizational life cycle (2013).Encyclopedia of Business, 2nd edition. Retrieved May 8, 2013
from http://www.referenceforbusiness.com/encyclopedia/Oli-Per/Organizational-Life-
Cycle.html