Nursing and Healthcare Financing: Performance Budgeting

Question 1 

Performance budgeting involves the development of budgets based on the relationship between result input and the expected results for each unit of an organization. Instead of evaluating performance based on a single budgeted level such as patient days, performance budgeting uses goals for the various activities. 

Question 2 

There are three steps in the result-oriented performance budgeting framework for resource allocation. First, there is the formulation of objectives for each department in an organization. Secondly, the various programs that will help the organization achieve its objectives are identified. Thirdly, the applications are evaluated in terms of the benefits they confer to the organization concerning resources used. The programs are then selected from the cost-benefit analysis. The performance criteria for the various programs are then developed. Then, there is the preparation of long-term physical and financial plans that precedes the creation of an annual budget. After the budget is ready, there is a performance assessment of programs while comparing to the budget. Finally, periodic reviews are done and the necessary modifications made in needed. 

Question 3 

Performance budgeting is most appropriate when an organization does not have enough resources. With limited resources, performance budgeting allows the organization to focus the few on the necessary activities and eliminate those giving minimal benefits. 

Question 4 

Crucial several performance measurement areas are useful in the implementation of performance budgeting in a nursing unit. These can be divided into three categories. First, there are patient outcomes such as the rate of hospital-acquired infections, complications development such as pressure ulcers and post-operative sepsis and mortality. Secondly, there is the patient experience of care including communication with nurses, pain management, discharge information, and overall rating. Thirdly, there is efficiency in terms of spending per beneficiary. 

Question 5 

Having a budget provides an objective way in which resources will be spent. This makes it easy to assess performance and correct for any deviation. Also, the performance budget motivates units within an organization to set clear goals and work towards them for better allocations in budgets. Further, as budgeting requires the quantification of goals and outcomes by units which makes it easy to evaluate. 

Question 6 

Managing for results and expenditure control are the main incentives used in performance budgeting methodology of resource allocation. The number of resources allocated to programs acts as an incentive to promote outcome effectiveness. The use of resources as an incentive is challenging as no objective performance measures can be utilized. 

Question 7 

Variance refers to the difference between budgeted and actual cost in performance budgeting. A favorable variation occurs when the actual cost of activities and programs is less than the budgeted cost. On the other hand, the variance is unfavorable when the actual cost of programs is higher than budgeted. 

Question 8 

Changes in labor and materials cost are the chief causes of budget variance in an organization. Labor cost in a healthcare organization may rise if the average rate per hour changes such as in case more overtime hours are incurred or when the hospital gets specialists. The prices of such materials as drugs may also change and cause variance. Also, demand for healthcare may increase or decrease resulting in variance. 

Question 9 

To avoid variance, a flexible budget is recommended. Inflexible budget variance analysis, different levels of expense and revenue are presented based on actual sales activities. Flexible budgets analysis allows for the consideration that there might be fluctuations in output. 

Question 10 

Flexible budget variance analysis helps to identify the reasons for the deviation between budgetary allocation and cost. It hence helps understand the causes of the variances observed in a budget. 

Question 11 

Variance analysis is an important tool that aid managers in making forward-looking budgets that are detailed and efficient. It also helps with the assignment of responsibilities and control mechanisms to ensure the organization budget remains within limits of expectations.