Budgeting Process and Capital Investment Decisions
Financial management is essential in any organization and hospitals are no exception. Given that most hospitals are non-profit making, it is expected that every resource is utilized entirely for the benefit of every patient. Capital investments are crucial in any hospital settings, given that state-of-the-art infrastructure and equipment is necessary for the provision of quality services to clients. These investments may be budgeted in two significant ways; replacement or purchasing new equipment. The budgeting process mainly involves, ascertaining what is needed and then developing it or coming up with ways of acquiring one and allocation of funds to the project (Myers, 1974). An assessment is then conducted and the best option chosen. After that, a post completion audit is carried out to evaluate its success. The manager and budgeting committee are tasked with making the most viable investment decisions.
The budgeting process, on the other hand, may either be prepared in the form of the conventional budget system, the zero-based budget or the input-output system. The regular budget is prepared as per the previous year’s funds with increments made where necessary (Schmidt, 1992). The zero-based budget assumes that nothing happened over the last year; hence, the budgeting committee has to start a fresh and plan for the year as though they just entered into business (Wetherbe& Dickson, 1979). While the input-output system, the hospital is divided into different service centers and budgets are set appropriately as per the services offered e.g. medical department, administrative department, the service department, etc. In any hospital setting, some costs are bound to recur; not forgetting the different services units in the hospital, while others may occur only once (capital investment costs). Therefore the most viable and efficient budgeting technique to apply would be an integrated system of then three types of budgets.
With the compelling need for a new secretary for health, a new regulatory authority has been put in place, to help comply with the new regulations effectively. However, we require a new piece of technology in the facility. The technology system will be managed from the control office, and it will be able to monitor the performance of the service adequately. The regulation comes with implications in that; the compliance will see the service acquire a higher status in the health centers; which may come with more funding from the state government. We will offer better services to our clients, not to mention the leeway to carry on our operations at ease. Failure to comply may warrant closure of the facility; the closure will subsequently deny services to our society, which we serve and our clients will be forced to seek services elsewhere, which may endanger their lives given the distance from our facility to the other health facilities
Schmidt, J. A. (1992). Is it time to replace traditional budgeting?.Journal of Accountancy, 174(4), 103.
Wetherbe, J. C., & Dickson, G. W. (1979). Zero-based budgeting: An alternative to chargeout systems. Information & Management, 2(5), 203-213.
Myers, S. C. (1974). Interactions of corporate financing and investment decisions—implications for capital budgeting. The Journal of finance, 29(1), 1-25.