Preparing and Managing an Operating Budget

As the role of nurses continues to expand, designing and monitoring an operational budget is part of the nurse leaders’ daily duty. Operational budgets monitor daily activities, supplies, resources, as well as personnel. Elderly people are often at high risk of developing health complications related and their body response is poor when compared to younger patients. Therefore, more elderly will be admitted to hospitals. At the same time, they have longer hospital stays thereby utilizing more resources while still in the hospital . An accurate budgeting plan is, therefore, critical in reducing healthcare costs in the 35-bed unit hospital that is faced with nurse shortages. 

Budget Creation and Design 

The budget is zero-based aimed at eliminating unnecessary expenses that are not required in the hospital unit. The financial restructuring is to find ways of addressing additional costs of nurses having to work overtime. Revenues are based on the charges and income received from patient visits, hospitalization, and procedures. In this case, revenues from the nursing unit were projected from patient days or procedures. On the other hand, expenses include salaries and wages, overtime from the decreased nurse shortage, benefits, nurse shifts. In this case, productive time is the actual time used for work including overtime ( Danna, 2017). It does not include vacation and education hours and aims at increasing profits. On the other hand, supplies are both medical and non-medical items. In the care of old people, medical supplies include catheter trays, IV tubing, thermometers, and moisturizers for their skin among others. Increase in other services of the elderly might also be included in the cost structure. After all, elderly people are known to incur more hospital expenses due to the possibility of having increased clinical services and attention given to them. However, a majority of the medical supplies and other service costs are often bundled up in their hospital charges. In contrary, office supplies such as paper clips, pens, and forms are solely incurred by the hospital where they could be expensive if not controlled. Overhead costs include repair and maintenance, cleaning, leased equipment such as specialty beds, and travel costs. In this case, interdepartmental changes such as pharmacy costs did not apply in the above operational budget plan. 

Strategic Plan 

In the face of reducing health care costs, overhead costs are rising at an uncontrollable rate. The alarming rate of the unavoidable costs may be controlled if certain unnecessary expenses are reduced or eliminated ( Keenan, Saccardo & Gneezy, 2017) . In this case, the hospital strives to be a leader in optimizing and availing care to the elderly through holistic approaches . Providing care to the elderly is intensive thereby requiring additional resources and extra care provided to cater for their needs. Therefore, the specific proposed strategic themes include quality aim, integrated care, effective volume growth, and high-performance organization that addresses the needs of the older population. Quality may be improved through leveraging iCare to improve pain management and become patient-centered while employing a staff review oversight. Integrated care should include training nurses on effectively providing palliative care to patients. However, in order to cater for smart hospital growth while incurring low costs, more specialized services such as minimally invasive procedures and wound care would help the center earn more revenue since they fetch higher service costs ( Bijlani, Hebert, Davitian, May, Speers, Leung & Tewari, 2016) . Improving wound care services and the overall quality of care would additionally help reduce hospital stays due to improved patient outcomes. At the same time, more readmission rates would further increase hospital revenue while reducing the length of hospital stays would reduce the total costs of operation. The hospital is also strategizing on reducing medical errors and duplicate examinations since they would result in repeated examinations or testing processes thereby forcing the hospital to incur more costs. The facility also seeks to have few transfers and lower the times of operations in order to save up on unnecessary costs that would be incurred from the transferring process and operations. This would also mean achieving a high outpatient growth and reducing or maintaining the current rate of hospital admissions. 

An Approach to the Ongoing Budget Management 

Budget assumptions describe an increased price change where outpatient charges are higher than inpatient pricing. On the other hand, the budget derives assumptions that reimbursements are derived from increased commercial payers, a decreased rate in Medicare, and an increase in Medi-Cal. The plan also assumes that an other operating revenue is derived from additional hospital projects. At the same time, it is assumed that inpatient volume increased thereby leading to increased operational costs. The hospital had initially projected an increase in outpatients and a reduction of inpatients with the main assumptions of costs saving from unnecessary hospital admissions. 

Expense assumptions also included high inflation rates and additional staffing due to the increase in hospital admissions. Currently, the hospital nurses who are FTEs have to work extra and get their overtime paid while others extend their shifts due to staff reduction where some had been laid off. Unfortunately, the results received are negative since the number of elderly patients increased with there being a possibility of incurring longer hospital stays. As a result, longer hospital stays for the elderly may end in further health complications, nurse burnouts or increased costs of services that they are required to be given. Such reports often result in urgent meetings held to provide solutions. Occasionally, we incur incidental OT when the number of patients increase beyond expectations such as in the event of a disaster or when a nurse fails to appear on time during their duty. As a leader, I ensure that OT compensation is fairly done, motivation done to reduce redundancy, and outsource staff from retired nurses to fill in. 

Overhead costs must have been not rightly captured and accurately recorded. Ideally, they should be allocated to the final cost class to ensure that it is fairly spread. This would be done before dividing costs into different product categories. Good intervention measures designed to reduce costs would thereby be easy to manage and become less complicated. In the same regard, decreasing overhead costs that do not contribute to better care would also contribute to better cost efficiency. Also, non-clinical functions such as human resources, marketing, and finance should be centralized in order to reduce the unnecessary costs of having additional staff ( Keenan, Saccardo & Gneezy, 2017) . Some of the unnecessary training would also have to be eliminated in order to reduce expenses . Also, reduction in PR costs and integrating digital channels of marking communication brings efficiency in the cost reduction process. The hospital could also partner up with others to achieve economies of scale where operational costs would be reduced and revenues increased. Partnership with the aim of fostering a smart growth while maintaining service quality would also increase funding to the hospital operations ( Keenan, Saccardo & Gneezy, 2017) . At the same time, the hospital could also look for funders and well-wishers who support the growth of continued quality care. As a result, overhead costs would be taken care of adequately. 

The hospital could also borrow some tips from other industries such as standardizing payment options. The hospital could standardize billing operations in the multi-payer system to save money and the hours of practice from the nurses and support staff. Hospitals could also encourage wellness among their employees in order to promote worker productivity. The current practice is a cost control measure embraced by employees on a global scale ( Keenan, Saccardo & Gneezy, 2017) . Refining the alignment of clinical operations with community health priorities would boost patient volume as more people would be attracted to the facility. 

Also, the potential of saving costs is substantive due to the large transactions accounted for by the differences of having manual and electronic methods. The costs of manual transactions such as papers and power used in printing would be eliminated or reduced. Eliminating the redundant manual-paper process and replacing them with automation would also save on time spent on handling patients. In turn, quick service provision provided to patients will reduce nurse burnout and increase patient volume. The hospital could also outsource the receipt system of payments as a means of not incurring unnecessary costs of billing and management of the receipt system ( Keenan, Saccardo & Gneezy, 2017) . Automation also creates efficiency in hospital operations and increases accuracy in carrying out tests and making the correct diagnosis. 

Most importantly, the hospital should include all nurses and other non-clinical staff in adapting the new culture of cost-cutting initiatives. Reduction of other hospital costs may be challenging to cope with the possibility of attracting resistance and opposition. Therefore, nurse leaders have the key responsibility of informing other nurses and staff members to collaborate with the cost-reduction strategies ( Keenan, Saccardo & Gneezy, 2017) . Involving staff members also invites innovative ideas in cost reduction strategies while enhancing quality, financial sustainability, as well as the overall patient experience. 

Presentation of the Budget Data 

Hospitalization poses risks to patients since it involves immobility, many tests, and drug regiments, among other treatment modalities that may increase negative effects. After all, outcomes of taking care of the elderly are poor especially when serious illnesses are involved. Treatment of the elderly could be dehumanizing particularly when loved ones are not close to taking care of the patients ( Bakerjian, 2019) . In this case, the reduction of staff members may reduce care and required attention of elderly patients. Hospitalizations of the elderly should, therefore, last until there is a transition to home care, rehabilitation centers, or nursing homes. Therefore, the hospital’s expenses are higher than the revenues collected. In the end, the hospital operates at a loss since the costs of taking care of patients surpass their charges and other revenues. 

Actual vs Budgeted Data 

Unfortunately, despite having a higher actual revenue amount of $810, 000, the expenses are higher than what had been estimated. According to Andersen, Samset & Welde (2016), while it is not uncommon to have budget underestimations, it is important to realize that costs overruns may result in inferior projects being selected. Therefore, the process would illustrate a failure in terms of strategic performance. 

In this case, it would be important to overestimate the budget expenses from $1,013,000 to any amount above the actual incurred expense of $1,102,000. Having varied unexpected costs accounts for the unexpected occurrences that may be costly to the hospital. Adding at least 10% to the total expenses would amount to $1,114,000 which would be above the actual incurred costs. Therefore, there would be a good chance of having cost savings that would be used in other areas such as paying up debt. 

On the other hand, an underestimation of income was done with an aim to protect the hospital from overreliance of other income sources that may create a burden to the facility. Therefore, having a $35,000 variance to the budgeted revenue of $775,000 resulted in an actualization income of $810,000. For instance, a performance bonus that never materializes would thereby be regarded as additional income to the facility ( Ríos, Guillamón, Benito, & Bastida, 2018). Therefore, the firm would have sufficient funds to meet its obligations. In this case, the $35,000 variance on income is extra money for the facility. Subtracting 10% of the monthly income would enable one to cater for unforeseen circumstances when allocating money to meeting the needs of the individual. Similarly, underestimating revenue helps the hospital to save extra money to be used for other purposes ( Ríos, Guillamón, Benito, & Bastida, 2018) . 

Costs overruns from the estimated $1,013,000 to $1,102,000 might have been caused by technical forecasting where data provided was either inadequate or inaccurate. The techniques for arriving and classifying costs might also have been wrong. While this might be avoidable, political-economic explanations might result in misrepresentations of the scope ( Ríos, Guillamón, Benito, & Bastida, 2018) . For instance, a union strike of nurses or an increase in the minimum wage bill might force the hospital to reduce its workforce in order to be operational. Unfortunately, in this case, the hospital would had been pressured to lay off some nurse staff resulting in their salaries of Full-Time Equivalent nurses being at $410,000. Afterward , changes in increased minimum wage would then result in a salary increase to $433,000 that was unexpected. Salaries and wages have increased also due to the increased overtime and agency costs. At the same time, inflation would have caused increased costs of raw materials such as drugs or supply to the hospital that resulted to an increased in the purchasing costs of supplies from $229 to $249. The same would have realized in the productive expenses that rose from $200 to $220. 

In a similar manner, the reduction of staff to 20 FTE nurses who work overtime might have contributed to a possible increase in overtime and bonus payments that inflated the salaries. On the other hand, a reduction of the patient days from 360 days to 347 days might have increased the costs hiring contract nurses or increasing the normal rate of overtime in order for nurses to cater for the growing demand of elderly admissions. In other words, while the hospital might have reduced labor resources, the number of patients increased thereby causing an imbalance in the financial structure. 

In this case, both revenue and expenses were underestimated thereby making the budget a failure. The implications were negative since the costs outweighed the earned revenue. The increased actual costs may destabilize operations or force the facility to look for alternative ways of covering up the costs. In other words, the hospital would be overburdened. 

Conclusion 

Nearly half of adults who occupy hospital beds are above 65 years with their Medicare coverage representing a significant portion of the total national healthcare expenditure. Additionally, hospitalization may magnify age-related physiologic changes that would, in turn, increase morbidity or other health complications. For instance, increased pressure ulcers from admission of immobile elderly patients would, in turn, raise the costs of taking care of the patients ( Bakerjian, 2019). Therefore, an increased nurse staffing on contract basis when demand for services surpasses the hospital’s capacity would be effective. At the same time, incurring more expenses on salaries in the short run would result in reduced readmission rates of the elderly due to their improved health. Having more nurses would facilitate the hospital’s objectives of providing quality care. However, other unnecessary expenses such as unstandardized billing systems and using manual equipment systems such as papers should be eliminated or significantly reduced. 

References 

Andersen, B., Samset, K., & Welde, M. (2016). Low estimates–high stakes: underestimation of costs at the front-end of projects.  International Journal of Managing Projects in Business ,  9 (1), 171-193. 

Bakerjian, D. (2019). Hospital care and the elderly. Merck Manual. Retrieved from https://www.merckmanuals.com/professional/geriatrics/provision-of-care-to-the-elderly/hospital-care-and-the-elderly 

Bijlani, A., Hebert, A. E., Davitian, M., May, H., Speers, M., Leung, R., ... & Tewari, A. (2016). A multidimensional analysis of prostate surgery costs in the United States: robotic-assisted versus retropubic radical prostatectomy.  Value in Health ,  19 (4), 391-403. 

Danna, D. (2017). Learning and mastering the operational budget. Retrieved from http://www.strategiesfornursemanagers.com/ce_detail/213520.cfm# 

Keenan, E., Saccardo, S., & Gneezy, A. (2017). Overcoming Overhead Aversion with Choice.  ACR North American Advances . 

Ríos, A. M., Guillamón, M. D., Benito, B., & Bastida, F. (2018). The influence of transparency on budget forecast deviations in municipal governments.  Journal of Forecasting . 

Appendix 

Appendix 1: Operational Budget of a 35-Bed Hospital Unit 

Item	Budget ($ in thousands)	Actual ($ in thousands)	Variance
REVENUES
Net patient service revenue	$755	$789	$34
Other operating revenue	$20	$21	$1
Total Net Revenue	$775	$810	$35
EXPENSES
Patient days	360 days	347 days	13 days
Productive	$200	$220	$20
Non-productive	$50	$53	$3
Total personnel	$410	$433	$23
Supplies	$229	$249	$20
Overhead	$80	$100	$20
Total non-personnel	$44	$46	$2
Total expenses	$1,013	$1,102	$89
Net Operating Income	-$238	-$292	$54