The existing needs for cost information in healthcare include budgeting, planning, and management control. These needs are dependent on three aspects for their efficiency. The first aspect for budgeting, planning, and management control is having prior knowledge of the items or services in question and their cost (Cleverly 364). The second aspect is the time frame in which the cost information is required for budgeting, planning, and management control. The third aspect is how to make use of the existing cost systems and relate them to company needs for cost information.
Management uses budgets for many purposes. For example, they use budgets to monitor the results of control systems in a place and ensure control over activity centers and the various company processes (Cleverly 380). It also helps in the decision making process. In planning, for example, budgeting helps in the identification of strategies that are cost-effective and beneficial to a company. Moreover, budgeting assists managers in determining the necessary resources for production. Lastly, management uses budgeting to make the corrections needed to meet organizational needs.
Budgeting is considered as a tool for cost control in healthcare organizations. The budgeting process incorporates interrelated budgets, which include statistics, discretionary revenue, expense, revenue, capital, cash, and financial statements budgets (Cleverly 382). The budgeting process also involves the board of governors, chief executive officers, controllers, responsibility center managers, and the committee involved in the budgeting process.
The initial step of the process of budgeting is developing a statistics budget. The main aim of this budget is to provide workload measures in various departments. The measures include the output expectations, estimation methodology, and the responsibility for estimation (Cleverly 383). The next step is the expense budget. At this level, budget period length, flexible budgets, principles for price and product worth, and apportionment of indirect costs are determined. The third step is the revenue budget, which is set after the development of expense and statistics budget. Revenues are fixed at points covering all expenditures plus a return on investment.
The next level is the discretionary revenue budget and capital budget development, and it managers a control tool. The cash budgets and financial statements development follows. The cash budgets are indicators of the company’s expected short-run creditworthiness, and they translate previous budgets into cash inflows and outflows. These budgets and financial statements test the appropriateness of the whole budgetary process.
The statistics budget is used for measuring the work capacity in the various departments, which involves the output prospects, responsibility estimates, and estimation methods (Cleverly 384). Expense budgets are used for cost control in various departments, including payrolls and supplies. On the other hand, revenue budgets are used for covering expenses and the provision of a return on investment. Moreover, capital budgets are used as a tool of control by the management, while ash budgets are used as indicators of the company’s short-term creditworthiness (Cleverly 389). They also translate former budgets into statements of cash influxes and outflows. Lastly, cash budgets and budgeted financial statements are used in the testing of the suitability of the budgeting process.
Cleverly, William. Essentials of Healthcare Finance. 8th. Jones & Bartlett Learning, 2017.