Discuss which financial management practices are least effective in creating and monitoring an operating budget.

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Discuss which financial management practices are least effective in creating and monitoring an operating budget.

Assume the 2009 projections were realized.
Develop a budget for the hospital based on the 2009
Operating Budget and the 2010 Operating Budget
Assumptions.
Write a 700- to 1,050-word paper in which you do
the following:

Discuss which financial management practices are most
effective in creating and monitoring an operating
budget.
Discuss which financial management practices are least
effective in creating and monitoring an operating
budget.

Submit your 2010 Operating Budget Projection with your
paper. Format your assignment consistent with APA
guidelines.
Patton – Fuller Community Hospital
Operating Budget
2009
(In Thousands)
(Projection) 2008 Budget %
Change
from
2008 2009
(Projection)1 Revenues Net
Patient Revenue $418,509 7% $447,8052 Other Revenue
2,805 15% 3,2253 Total Revenues $421,314 7% $451,030
Expenses Salaries and benefits $214,129
3% $220,5534 Supplies 71,346 3% 73,4875
Physician and professional fees 107,065 3% 110,2776
Utilities 1,164 5% 1,2227 Other 1,784 3% 1,838
Depreciation & Amortization
(non-cash expenses) 24,955 20% 29,9468 Interest
3,597 3% 3,7059 Provision for doubtful accounts 13,383
10% 14,72110 Total Expenses $437,424 4%
$455,74911 Operating Income ($16,110)
($4,719)12 Non-operating Income (Loss)
Investment Income 264 15% 30413 Net
Income ($15,846) ($4,416)14

Assumptions
1 Based on these 2008 assumptions: a 3%
overall “inflation rate” in 2009, with the cost of oil
disproportionately affecting some expense items.
2 Patient revenue will increase with little
or no increase in patient volume, due to new managed care
contracts.
3 Marketing’s plan to increase donations by
15%.
4 Salaries will hold to a 3% overall increase
in cost, no increase in labor hours due to no increase in patient
volume.
5 Supplies cost will increase more due to the
rising cost of oil and its effect on the cost of plastics and
transpiration.
6 Contracts for fees have a built-in 3%
increase.
7 Utilities cost will increase more due to
the rising cost of oil.
8 Some high-cost equipment (air conditioning,
telephone system, all patient beds and headwalls) will have to be
replaced this year, and “depreciation” will rise
sharply.
9 The repayment plan for any monies borrowed
in 2009 will not come due until 2010.
10 The renegotiation of Managed Care plans
could make collections less certain.
11 Total expenses will rise 4%.
12 Operating Income will improve, with the
hospital’s loss reduced by 2/3.
13 The Market has been going up for years,
the “bull market” should continue in 2009.
14 The hospital’s loss will be further
reduced by good returns on investment income.
2010 Operating Budget Projection
Assumptions
Based upon a review of the 2007, 2008 and 2009 Operating
Budget variances, the long and short-term plans of the various
hospital departments and an in-depth analysis of general economic
conditions, we have arrived at the following assumptions that will
be used in the preparation of the 2010 Operating Budget
projections.
In general, we anticipate a 3% overall “deflation rate” for
prices in 2009 – due to the weak economy – will continue into
2010.
Revenues
Net Patient Revenue
Patient revenue will continue to increase -but at a
decreased rate (3%) – with little or no increase in patient volume,
due to new managed care contracts.
Other Revenue
Other revenue is projected to increase by 15% based on
Marketing’s plan to increase donations by 15%.
Expenses
Salaries and benefits
Salaries will hold to a 1% overall increase in cost due to
price “deflation” nation-wide, with no increase in labor hours (due
to no increase in patient volume). This assumption could be
affected by a board decision to either raise nursing wages by $1
per hour or to increase the nursing hour ratio.
Supplies
Supplies cost will decrease 3% due to the price deflation
and our current over-stock purchased last year.
Physcian and Professional Fees
Contracts for fees have a built-in 3%
increase.
Utilities
Utilities cost will increase 5% due to the rising cost of
oil partially offset by the efficiency of the hospital’s new
heating and cooling systems.
Other
No net change in the cost or volume of these
items.
Depreciation & Amortization (“non-cash”
expenses)
Some high-cost equipment (air conditioning, telephone
system, all patient beds and headwalls) were replaced in 2009, and
“depreciation” rose sharply. Depreciation will remain at this level
in 2010 so no projected increase.
Interest
The repayment plan for any monies borrowed in 2009 will
come due in 2010, with a sharp increase (30%) in interest
cost.
Provision for Doubtful Accounts
The renegotiation of Managed Care plans has delayed
collection and made collections less certain. We will assume a 10%
increase in doubtful accounts.
Operating Income
Non-operating Income (Loss)
We do not expect to have any non-operating income or
loss.
Investment Income (Loss)
The Market is down, expected to hold steady, so a “zero”
return is expected, with neither losses nor gains.

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