NUR 621 Operational Budget Presentation

Sample Answer

Introduction

Financial knowledge is important in any sector, including health and nursing. Nurse managers in particular, should master budgeting principles and use the same principles to ensure an institution’s operational efficiency and financial stability.

Operational budget is a vital tool for financial planning and ensuring that there is an appropriate control of the healthcare settings. In particular, operational budget shows projected expenses and revenues over a particular period of time and guides cost management and resource allocation (Anderson et al.,2020).

Understanding operational budget component like capital expenditures, variable and fixed costs and revenue stream also helps the leaders to make informed decisions which align with the formulated strategic goals. Therefore, this presentation focuses on budgeting principles and terminology by addressing concepts such as cost concepts, revenue concepts, breakeven analysis and the difference between the operational and capital budgets.

Cost Concepts

One of the most important concepts is the cost concept and having adequate knowledge regarding the same can support better resource allocation and financial planning. One of the cost concepts is fixed costs. These are expenses which remain constant irrespective of the amount of services provided.

Some of the fixed costs may include salaries and wages, rent and utilities, depreciation. The fixed costs offer stability in budgeting due to the fact that they are predictable and are not impacted by the patient volume (Spencer et al.,2022). The next concept is variable costs. Variable costs may include laboratory tests, overtime pay and medical supplies.

These costs are impacted with changes in patient volumes, implying that a careful monitoring should be done based on the varying patient volumes.
Apart from the variable and fixed costs, the next important cost concepts are direct and indirect costs. Within the context of patient care and healthcare, direct costs are those expected which are attributed directly to patient care.

These costs play a crucial role in budgeting since they affect the effectiveness and quality of services offered. Some of them may include labor costs, costs for clinical supplies and costs incurred in purchasing medications.

On the other hand, indirect costs are those expenses which are not directly to patient care but are vital for operations of different departments (Spencer et al.,2022). They are also called overheads. Some of such costs include training and development, repairs and maintenance as well as administrative salaries.

Revenue Concepts

It is also important to understand the revenue concepts since it helps in accurate projection of income to boost financial sustainability. One of the major revenue sources is patient service revenue which is the primary source of income in most cases. It is obtained from the services offered to patients including emergency services, outpatient services and inpatient services (Qi & Han, 2020).

Another revenue concept is insurance reimbursements where healthcare entities receive payments from sources such as Medicaid and Medicare and private health insurance where private insurers cover the patient treatments and services offered to the patients

Apart from patient service revenue and insurance reimbursements, other revenue sources for healthcare entities include grants and donations. This revenue source can provide the needed funding for healthcare functionalities such as community outreach and research. Research grants are offered to carry out medical research and clinical trials.

Community grants are also provided to help enhance public health. philanthropist donations can also be obtained from foundations, organizations and individuals to help support healthcare organizations’ mission, goals and services (Qi & Han, 2020).

Healthcare organizations can also generate revenues through different sources such as consulting services, retail sales as well as ancillary services which are paid upon offering some additional services.

Breakeven Analysis

Another important concept is breakeven. Its analysis is an important financial tools which can be used by an organization in determining if they will be able to recover all the costs and start getting profits. It is a point where the total revenues are equal to the total expenses, implying that there is no loss or profit (Tolzmann et al.,2020).

Breakeven helps reveal the amount of revenue required to cover the variable and fixed costs related to the services. In exploring breakeven analysis, various components have to be considered, including, revenue, fixed costs, variable costs and total costs. It is important to calculate the breakeven point to support early planning.

As earlier indicated, it is important to calculate the breakeven point to support earlier planning. It can be calculated using the following formula
Breakeven Point= Total Fixed Costs/ Revenue per unit- Variable Cost per unit.

For example, in a case where an organization has a fixed costs of $200,000 and generating $150 per patient services, with a variable costs of $50 per patient services, The BEP would be 2000 patient services, implying that the organization needs to offer 2000 patient services to cover the costs.

Difference Between Operational and Capital Budgets

It is important to have adequate understanding of operational budget and capital budget and the difference between them. Operational budget usually focuses on a department’s or an organization’s short-term financial planning, and typically covers a fiscal year.

It also includes incomes and expenses needed for the organization’s daily operations. Comparatively, capital budget focuses on a long-term expenditure and investment which offer benefits over several years. In most cases, they are large-scale purchases or projects which foster an organization’s capabilities and capacity (Anderson et al.,2020).

The key components of capital budgets include funding sources and capital expenditures. Therefore, it focuses on supporting the strategic growth and development. There are significant differences between operational and capital budgets. One of the key differences is in their purpose.

While operational budget focuses on long-term investments, the operational budget aims at supporting daily operations, the capital budget mainly focuses on long-term investments. Another key difference is in the timeframe or duration. For example, while the operational budget covers a shorter duration, usually a fiscal year, the capital budget can cover multiple or several years.

The components are also different since the operational budget includes day-to-day expenses and revenues, while capital budget involves large-scale investments in long-term assets (Anderson et al.,2020). Operational budgets are also more flexible, hence can be adjusted numerous times while capital budgets are more rigid.

References

• Anderson, D. M., Cronk, R., Best, L., Radin, M., Schram, H., Tracy, J. W., & Bartram, J. (2020). Budgeting for environmental health services in healthcare facilities a ten-step model for planning and costing. International Journal of Environmental Research and Public Health, 17(6), 2075. https //doi.org/10.3390/ijerph17062075.
  
• Spencer, K., Defourny, N., Tunstall, D., Cosgrove, V., Kirkby, K., Henry, A., … & Hall, P. (2022). Variable and fixed costs in NHS radiotherapy; consequences for increasing hypo fractionation. Radiotherapy and Oncology, 166, 180-188. https //doi.org/10.1016/j.radonc.2021.11.035
  
• Qi, K., & Han, S. (2020). Does IT improve revenue management in hospitals?. Journal of the Association for Information Systems, 21(6), 7. Doi 10.17705/1jais.00644
  
• Tolzmann, G. C., Vincent, R. J., & Lewis, M. R. (2024). Costs, budgeting, and financial decision making. Clinical Laboratory Management, 416-441. https //doi.org/10.1002/9781683673941.ch30