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Assessment 2
Preparing and Managing an Operating Budget
Overview
Prepare an 810-page operating budget for a hospital unit.
Note: Complete the assessments in this course in the order in which they are presented.
Sound financial management is essential to the fiscal well-being of all health care organizations, and the nurse
leader plays an important part. Consequently, the preparation and effective management of operating budgets is
a critical skill for nurse leaders. The budget guides leaders in optimizing the use of resources, and because nurses
are closest to patients, they understand very well what it takes to operate on a daily basis and provide safe, high-
quality care.
This assessment provides an opportunity for you to develop an operating budget for a health care unit. Keep in
mind, staff is a large part of this budget and is often hard to control.
By successfully completing this assessment, you will demonstrate your proficiency in the following course
competencies and assessment criteria:
Competency 1: Design an operating budget that incorporates variances or discretionary spending.
Prepare an operating budget.
Explain how a budget is designed and created.
Competency 2: Develop a plan for managing the labor force, within the parameters of the budget and
productivity.
Develop an approach to ongoing budget management.
Competency 5: Apply financial principles to a strategic plan for achieving organizational goals and fiscal
success.
Develop a strategic plan.
Competency 6: Communicate effectively with diverse audiences, in an appropriate form and style,
consistent with applicable organizational, professional, and scholarly standards.
Present budget data and information clearly and accurately.
Integrate relevant and credible sources of evidence to support budget data and information,
correctly formatting citations and references using APA style.
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Numbers on a budget sheet or report are only numbers. Nurse leaders are major decision makers who must be
informed and able to make data-driven decisions, often in a very limited amount of time. Financial analysis
consists of the organization and presentation of data in a meaningful and relevant format that enables analysis,
comparison, and synthesis.
One of the major challenges facing nurse leaders with regard to financial analysis is determining how many and
what types of health care goods and services to deliver. Leaders must also consider how much to charge for
goods and services and how to break even or generate profits.
Questions to Consider
As you prepare to complete this assessment, you may want to think about other related issues to deepen your
understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss
them with a fellow learner, a work associate, an interested friend, or a member of your professional community.
Note that these questions are for your own development and exploration and do not need to be completed or
submitted as part of your assessment.
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Resources
Required Resources
The following resources are required to complete the assessment.
APA Style Paper Template [DOCX]. Use this template for the written portion of your operating budget.
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Assessment Instructions
Note: Complete the assessments in this course in the order in which they are presented.
Preparation
You are the nurse manager of a 35-bed hospital unit with 20 full-time equivalent (FTE) staff. You have been
given the task of getting the budget under control. Several people have recently left the unit, and you have
been working to fill those open positions. Your staff work scheduled overtime and many sign up to work extra
shifts. Your unit serves an older population, as well, and has incurred expenses associated with this group of
patients.
Note: Remember that you can submit all of, or a portion of, your draft to Smarthinking for feedback, before
you submit the final version for this assessment. However, be mindful of the turnaround time of 2448 hours
for receiving feedback, if you plan on using this free service.
Requirements
Note: The following requirements correspond to the grading criteria in the assessment scoring guide. Be sure
that your budget addresses each point, at a minimum. You may also want to read the Guiding Questions:
Preparing and Managing an Operating Budget [DOCX], linked in the Resources under the Suggested
Resources heading, to better understand how each criterion will be assessed.
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Prepare and submit an operating budget for your hospital unit.
Prepare the operating budget.
Note: Assemble your budget figures in a table, using a format of your choice. You may use
either Microsoft Word or Excel to create your budget table.
Explain how the budget was designed and created.
Develop a strategic plan.
Develop an approach to ongoing budget management.
Present budget data and information clearly and accurately.
Integrate relevant and credible sources of evidence to support your budget data and information,
correctly formatting citations and references using current APA style.
Additional Requirements
If you use Microsoft Excel to create your budget table, submit the Excel file along with your budget narrative.
You may also add the Excel file to your Word document as an embedded object.
Format your budget narrative using APA style.
Use the APA Style Paper Template [DOCX], linked in the Resources under the Required Resources
heading. An APA tutorial is also provided in the resources to help you in writing and formatting your
document. Be sure to include:
An APA-formatted title page and reference page. An abstract is not required.
A minimum of five properly formatted citations and references.
Your budget should be 810 pages in length, not including the title page and reference page.
Portfolio Prompt: You may choose to save this learning activity to your ePortfolio.
How to use the scoring guide
Preparing and Managing an Operating Budget Scoring Guide
Use the scoring guide to enhance your learning.
VIEW SCORING
GUIDE
This button will take you to the next available assessment
attempt tab, where you will be able to submit your assessment.
SUBMIT ASSESSMENT
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Vila Health: Developing an
Operating Budget
Introduction
Locations
Medical Unit Office
SAMC Budget
Conference Room
Pediatrics Department Operating Budget Adjustments Proposed
Adjusted Budget
Conclusion
Credits
Introduction
Vila Health: Developing an
Operating Budget
Budgeting may seem dry and boring, but it is crucial, since it is
the process by which an organization determines what it is going
to do and what specific actions it is going to take to pursue its
goals. Half of this process is the operating budget, which
allocates funds for daytoday functioning.
You are in charge of the budget for St. Anthony Medical Center’s Med-
Surg department. These are difficult times at the hospital; while the
overall hospital budgeting process is ongoing, there have been some
unexpected revenue shortfalls, and hard choices are in order.
SAMC Office Visits.
Another day of work at St. Anthony Medical Center. First, you
should stop by the Medical Unit Office and check in. Afterwards,
you should head to the conference room.
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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FY 2017 YTD
(Jul – Dec)
FY 2017 Budget FY 2017
Variance YTD
OPERATING
REVENUE
Inpatient Revenue $345,040,349 $700,000,000 $(4,959,651)
Outpatient Revenue $232,498,397 $525,000,000 $(30,001,603)
TOTAL PATIENT
SERVICES REVENUE
$577,538,746 $1,225,000,000 $(34,961,254)
SAMC Medical Unit Office
It looks like you have an email!
From: Owen Welch, CFO
Subject: Budget Forecast
Hi, this is Owen. I’m sending you this email to give you a headsup. I
know you’ve been working on the MedSurg budget for the next fiscal
year, and that you have have a pretty solid draft. Well, I just got out of a
forecast meeting, and I hate to say it, but it looks like the rumors are true.
I think we’re going to have to be ready to trim up to 6 percent from next
year’s operating budget to address these revenue shortfalls. I’d like you
to take a look at your draft so far, and then think about how you might
handle this.
I know that Anna Jiang over in Pediatrics is in the same boat you’re in,
but she saw the writing on the wall a little sooner and worked up a plan
for cuts to their operating budget. She’ll be giving a brief presentation to
senior leadership this afternoon about her plan it might be worth your
time to go sit in on that and see what she has in mind.
Thanks! I know this is a tough time.
-Owen
SAMC Budget
Income Statement
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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DEDUCTIONS FROM
REVENUE
Contractual
Adjustments
$476,543,215 $950,000,000 $1.543,215
Charity and
Uncompensated Care
$6,725,412 $14,000,000 $(274,588)
TOTAL DEDUCTIONS
FROM REVENUE
$483,268,627 $964,000,000 $1,268,627
NET PATIENT
SERVICES REVENUE
$94,270,119 $261,000,000 $(36,229,881)
OTHER OPERATING
REVENUE
Other Operating
Revenue
$3,500,000 $10,000,000 $(1,500,000)
TOTAL OPERATING
REVENUE
$97,770,119 $271,000,000 $(37,729,881)
OPERATING
EXPENSES
Salaries and Wages $42,932,230 $88,000,000 $(1,067,770)
EMPLOYEE BENEFITS $12,624,012 $25,000,000 $124,012
PROFESSIONAL FEES $4,082,215 $9,000,000 $(417,785)
SUPPLIES $23,883,407 $46,000,000 $883,407
PURCHASED
SERVICES – UTILITIES
$1,632,191 $3,000,000 $132,191
PURCHASED
SERVICES – OTHER
$11,536,320 $22,000,000 $536,320
DEPRECIATION $8,455,254 $17,000,000 $(44,746)
RENTALS AND
LEASES
$2,252,670 $4,000,000 $252,670
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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INSURANCE $2,715,378 $5,000,000 $215,378
LICENSE AND TAXES $7,992,144 $18,000,000 $(1,007,856)
INTEREST $8,393,790 $18,000,000 $(606,210)
PROVISION FOR BAD
DEBTS
– – –
OTHER DIRECT
EXPENSES
$4,744,642 $8,000,000 $744,642
TOTAL OPERATING
EXPENSES
$131,244,253 $263,000,000 $(255,747)
NET OPERATING
REVENUE
$(33,474,134) $8,000,000 $(37,474,134)
NET REVENUE
BEFORE ITEMS
LISTED BELOW
$(33,474,134) $8,000,000 $(37,474,134)
EXTRAORDINARY
ITEM
– – –
NET REVENUE OR
(EXPENSE)
$(33,474,134) $8,000,000 $(37,474,134)
FY 2017 YTD
(Jul – Dec)
FY 2017 Budget FY 2017
Variance YTD
OPERATING
REVENUE
Inpatient Revenue $21,123,516 $50,000,000 $(3,876,484)
TOTAL PATIENT
SERVICES REVENUE
$21,123,516 $50,000,000 $(3,876,484)
OPERATING
EXPENSES
Salaries and Wages $12,157,632 $23,000,000 $657,632
Med/Surg Department Budget
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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Employee Benefits $3,040,408 $5,750,000 $165,408
Professional Fees $250,160 $400,000 $50,160
Supplies $5,883,497 $10,000,000 $883,497
Purchased Services –
Utilities
$27,456 $50,000 $2,456
Purchased Services –
Other
$23,484 $50,000 $(1,516)
Insurance $57,315 $105,000 $4,815
License and Taxes $21,456 $40,000 $1,456
Other Direct
Expenses
$972,157 $1,500,000 $222,157
TOTAL OPERATING
EXPENSES
$22,433,565 $40,895,000 $(1,986,065)
NET REVENUE OR
(EXPENSE)
$(1,310,049) $9,105,000 $(5,862,549)
After hearing Owen’s message and looking at the draft
budget, what are your initial thoughts?
SAMC Conference Room
Budget Meeting in Progress
Your counterpart in Pediatrics, Anna Jiang, is briefing
management on how her department will address the
budget shortfall.
Presentation by Anna Jiang
Hi everybody, thanks for coming.
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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I want to jump right into this, don’t want to take up too much time. This…
has not been an easy process. When I got the word that I needed to trim
6 percent from next year’s Pediatrics budget, I gulped. Six percent is a
big bite, and it’s even harder when we’re dealing with it on such short
notice. It’s like trying to fix a car as it’s rolling down the highway.
Anyway. My first reaction – like everybody’s, I think – was to try to
distribute the cuts equally throughout all of my line items. But of course,
that’s not possible. Some of them are fixed in ways that I just can’t
budge. It’s not like I can just unilaterally say we’re going to pay less for
licenses and taxes, for instance.
So I’ve tried to look at places where cuts are even possible, regardless of
how hard they are. My first hope was that I could make up some room in
the Supplies line item. But I can’t. Not enough. We can live with maybe a
3 percent trim there, but even that is pushing dangerously close to not
having the right materials to do our jobs safely. Again, it’s not like we can
just unilaterally decide not to wear rubber gloves one day a week.
You know where this is going. It breaks my heart to do this, but in the
end, staffing is the one place where, if I push hard enough, I can create
some wiggle room. We’re pretty sure that we have a couple of
retirements happening in the department in the next six months. If we
don’t replace them, and if we have at least one other departure – which
would be expected, given normal turnover rates – I believe we can
absorb the shortfall by cutting staff through attrition. We just won’t
backfill the positions.
This isn’t an approach that I love – I’m well aware that this is going to
increase the burden on our remaining staff, and is going to lead to
inefficiency in the short term and burnout and higher turnover in the
longer term. To be frank, this is an action that’s going to cost us money in
a couple of years, when we’ll have to clean up the mess that this will
create. But it gets us through the immediate crisis, and that’s what we
need to do if we’re going to survive to deal with those other crises down
the road.
Thank you.
Pediatrics Department Operating
Budget Adjustments Proposed
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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Decrease to Salaries/Wages and
Employee Benefits line items through
attrition to achieve requested 6%
reduction.
Salaries and Wages
FY 2017 Budget: $21,000,000
FY 2017 Adjusted Line Items: $19,250,000
Employee Benefits
FY 2017 Budget: $5,150,000
FY 2017 Adjusted Line Items: $4,935,000
Professional Fees
FY 2017 Budget: $400,000
FY 2017 Adjusted Line Items: $400,000
Supplies
FY 2017 Budget: $9,000,000
FY 2017 Adjusted Line Items: $8,730,000
Purchased Services – Utilities
FY 2017 Budget: $50,000
FY 2017 Adjusted Line Items: $50,000
Purchased Services – Other
FY 2017 Budget: $50,000
FY 2017 Adjusted Line Items: $50,000
Insurance
FY 2017 Budget: $105,000
FY 2017 Adjusted Line Items: $105,000
License and Taxes
FY 2017 Budget: $40,000
FY 2017 Adjusted Line Items: $40,000
Other Direct Expenses
FY 2017 Budget: $1,500,000
FY 2017 Adjusted Line Items: $1,500,000
Total Operating Expenses
FY 2017 Budget: $37,295,000
8/1/2020 Vila Health: Developing an Operating Budget Transcript
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FY 2017 YTD
(Jul – Dec)
FY 2017
Budget
FY 2017
Variance
YTD
FY 2017
Adjusted
Line Items
OPERATING
REVENUE
Inpatient
Revenue
$19,203,517 $50,000,000 $(5,796,483)
TOTAL PATIENT
SERVICES
REVENUE
$19,203,517 $50,000,000 $(5,796,483)
OPERATING
EXPENSES
Salaries and
Wages
$10,204,669 $21,000,000 $(295,331) $19,250,000
Employee
Benefits
$2,136,201 $5,150,000 $(438,799) $4,935,000
Professional Fees $248,175 $400,000 $48,175 $400,000
Supplies $4,662,491 $9,000,000 $162,491 $8,730,000
Purchased
Services – Utilities
$26,221 $50,000 $1,221 $50,000
Purchased
Services – Other
$24,303 $50,000 $(697) $50,000
Insurance $52,178 $105,000 $(322) $105,000
License and
Taxes
$22,903 $40,000 $2,903 $40,000
Other Direct
Expenses
$926,388 $1,500,000 $176,388 $1,500,000
FY 2017 Adjusted Line Items: $35,060,000
Adjusted Budget
Pediatric Department Budget
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TOTAL
OPERATING
EXPENSES
$18,303,529 $37,295,000 $(343,971) $35,060,000
NET REVENUE
OR (EXPENSE)
$899,988 $(5,452,512) $3,347,034
Conclusion
You have completed the Developing an Operating Budget activity. In this
activity, you learned about some budget realities at St. Anthony Medical
Center, and some trends to keep in mind as you develop your budget for
the Medical-Surgical Unit.
Credits
Subject Matter Expert:
Georgann Weissman
Interactive Design:
Lori Olson
Instructional Design:
Stephen Sorenson
Media Instructional Design:
Keith Pille, Felicity Pearson
Project Management:
Nakeela Hall
Licensed under a Creative Commons Attribution 3.0 License
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