DQ1. After your monthly review of your unit’s operational budget, you find you are over your budget for medical supplies. What steps would you take to investigate why this happened and how to correct the issue?

DQ2. Your staff have come to you with several requests for new equipment for the nursing unit. How would you go about determining what is the most important request? What next steps would you take in regards to the operational budget and these requests?

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Solution

Discussion Posts

The text describes two responses to two discussion posts. The first explains steps to investigate over-budget scenarios and how to correct them; the second details how to select the important equipment request and subsequent steps concerning the operational budget and the requests.

DQI

Steps to Investigate Over-Budget

Financial analysts have attested that the actual costs and revenues can differ from the budgeted values. Stakeholders cannot always project with absolute accuracy the amount of money that the health facility will incur. They can, however, always compare to determine the variances in order to avoid or mitigate them. In this case, the first step to determining why the company spent more than the budgeted value on medical supplies is to collect the relevant data and place it on a centralized database. It includes the amount that was initially budgeted for medical supplies and the actual amount used to purchase them for that specific month and other prior months. The next step is to compare the two different data sets to obtain the variance. Specifically, subtract the actual value from the budgeted value. After that, determine the type of variance that occurred, cost or volume variance, to identify if the accounting team had undervalued the price or the volume that the unit required (Ross, 2020). The last step is to evaluate whether the variance was a one-time event, something that has happened before, caused by seasonality, or one specific occasion.

How to Correct Over-budget

After determining the cause of the over-budget, the accounting can accurately develop ways to correct it. In this case, I would advise the management to revise the budget in a manner that reduces controllable costs for purchasing the medical supplies to cancel out unfavorable amounts that external financial forces control (Gapenski and Reiter 2016). Also, the unit can seek extra funding from the management to purchase the supplies. The unit will continue to conduct other financial activities without the fear of over-budgeting.

DQ2

Determining the Most Important Request

Determining the most critical request for new equipment is one of the most challenging aspects of budgeting. However, the burden can be reduced by employing the best capital budgeting justifications. For example, to weed out irrelevant requests, I would look at the rationale each of the staff gave to justify buying the new equipment. If buying it meant replacing an older or obsolete one with a better one that would upgrade patients’ safety, reduce the units’ expenses, and increase revenue, then I would choose it. Also, I would look at the equipment that would provide the most useful service that the equipment would provide even after the year it is bought (Mukherjee et al., 2016). I would use methods like cost-benefit analysis to estimate projected costs and benefits and choose the equipment that would be most economically viable for the unit.

Steps Concerning the Operating Budget and Requests

The next step I would take is to investigate the impact of the new equipment purchase on the operating budget. The action is vital because it ensures that the additions to the capital budget of the unit are reflected in the operating budget to capture reductions or increases in costs and expenses. I would also check if the operating budget has a provision to aid the unit in purchasing the equipment. It helps the management use unit’s cash flows rather than borrowing.

Nurses must recognize the importance of budgeting, especially variances, capital, and operating budgets, because of the limited resources that their facilities have.

References

Gapenski, L. C., & Reiter, K. L. (2016). Healthcare finance: An introduction to accounting & financial management.

Mukherjee, T., Naseem, A. A., & Walter, L. (2016). The capital budgeting process of healthcare organizations:… : Journal of healthcare management. LWW. https://journals.lww.com/jhmonline/Citation/2016/01000/The_Capital_Budgeting_Process_of_Healthcare.11.aspx

Ross, T. K. (2020). Practical Budgeting for Health Care: A Concise Guide. Jones & Bartlett Learning.