MLS 3302 BIOSTATISTICS RESEARCH METHODS LABORATORY PRACTICES Unit
MLS 3302 BIOSTATISTICS, RESEARCH METHODS, & LABORATORY PRACTICES Unit 4 – Financial Management Section 4 – Laboratory Budgeting Matthew Nicholaou, Dr. PH, MT(ASCP)
Unit 4. 4 – Laboratory Budgeting We have covered the many reasons and complications of ever rising healthcare costs By creating an effective financial plan (budget) the clinical laboratory can maximize efficiency and limit wasteful spending, cost containment. There are two main types of budgets: � OPERATIONAL BUDGETS – are short term financial plans that usually cover a one-year period, usually dealing with the day-today operation of the lab. � CAPITAL BUDGETS – are more long term financial plans that focus on internal investment strategies and typically extend over a five to ten year period.
Unit 4. 4 – Operational Budget The operational budget is a tool for laboratory managers to use throughout the year. It is a calculated best-guess estimate of revenue and expenditures the lab is expected to realize for a 12 month period. The operational budget is the overall plan for projections, identification and coordination of resources and a means to track expenditures. Types of Operational Budgets: • • • ROLLING BUDGET FIXED OR STATIC BUDGET FLEXIBLE OR VARIABLE BUDGET • INCREMENTAL BUDGET PROGRAM BUDGET • ZERO-BASED BUDGET APPROPRIATION BUDGET
Unit 4. 4 – Operational Budget FIXED or STATIC BUDGET: � Assumes a single level of activity � Appropriate If no new tests are brought in or no new equipment is purchased � This budget is NOT a tool to monitor and control resources FLEXIBLE or VARIABLE BUDGET: � This budget can be geared to a range of activity � Usefully if any change in service is anticipated � Recognizes the difficulty of establishing a single level of achievement and provides a tool for controlling costs.
Unit 4. 4 – Operational Budget PROGRAM BUDGET: � Is created based on a specific program matrix. � This matrix is based on all proposed services, staffing, and equipment associated with the program. � Useful for short-term planning APPROPRIATION BUDGET: � An outside agency reviews the budget in detail and authorizes specific dollar amounts. � Common in governmental organizations that depend on outside funding. � Basically a grant is a from of appropriation budget.
Unit 4. 4 – Operational Budget ROLLING BUDGET: � A continuous budget that is update periodically in preparation for the next budget cycle � Reviewed quarterly, the previous quarter becomes history and the new quarter is added to the projection to move forward � Used for cash projections INCREMENTAL BUDGET: � Addresses only changes like new equipment, positions, and programs. � Assumes all current operations are essential to the process and working at peak performance. � Advantage is the minimal time in budget prep but makes assumptions about existing operations
Unit 4. 4 – Operational Budget ZERO-BASED BUDGET: � Management annually reevaluates all activities to decide what should be eliminated or funded. � This budget helps to determine levels of resource requirements within a service or program and the possible expenditure level within each responsibility center. � Each department is required to justify the entire unit budget annually as if all activities were totally new.
Unit 4. 4 – Capital Budgets (Acquisitions) The laboratory capital budget deals with internal investments like EQUIPMENT PURCHASES (CAPITAL EQUIPMENT) but not all aspects of the equipment go in the capital budget. � The COST TO RENT OR LEASE the equipment is usually placed in the OPERATIONAL BUDGET. � The COST OF INTEREST AND DEPRECIATION of the purchase are placed in the CAPITAL BUDGET. Often these budgets are used to compare ‘compete’ against equipment or projects being submitted by other departments. � RETURN ON INVESTMENT, PAYBACK PERIOD, ANNUAL RATE OF RETURN, etc… these are crucial factors in managements decision process when making a capital purchase.
Unit 4. 4 – Considerations in Capital Acquisitions CASH FLOW – amount of money and schedule of when it is paid. Purchase requires large outlay of cash; lease and rental spread payments over time. COMMITMENT – buy-in of the company to the capital equipment � purchase being the most committed and rental the least. COST – time value of money must be factored in to determine final cost. TAX IMPACT – depreciable or deductible expense OBSOLESCENCE RISK – expected life cycle of product versus newer equipment with advances in technology.
Unit 4. 4 – Budget Process There are three important segments of a complete budget: � INCOME FORECASTING – estimates future revenues and should be used to set goals. � EXPENSE BUDGET – consists of labor expense with benefits (FTEs), non-labor expense (based on projected volumes of testing), an overhead expense (heating, cooling, etc. . ) � CASH FLOW PROJECTIONS – Essential reflects the income based on revenue predications and expense forecasting
Unit 4. 4 – Variance Analysis (Budgets) Once operations begin, unless the existing budget is modified, the monthly operating reports will reflect things like additional volumes in the actual revenue and expenses… � Which create VARIANCES when compared to the budgeted volumes The VARIANCE ANALYSIS will capture changes and trends in the market place that will affect operations
Unit 4. 4 – Laboratory Budgeting
- Slides: 12