Hooray for Budgets!
"It's budget time..." This phrase, when uttered by your friendly, neighborhood Finance team, often can strike dread into the hearts of managers and associates alike. In my many years at MedStar Harbor Hospital, I'm not sure I've ever heard anyone come up to me after the budget calendar is released and cheer, "Hooray! Time to dig into capital and operating budgets!"
As we build the Fiscal Year 2011 budget, I thought I'd use this column to shed some light on why and how we do what we do. First, a brief budget primer: There are two types of budget we undertake each year, beginning in December: capital and operating.
Capital Budget: The purpose of this budget is to identify specific items to be acquired for the upcoming year. Taken into account are age of existing equipment/facilities, technological obsolescence, maintenance costs, strategic priorities and available funds. In your home, this might be your fund to buy new windows, or pave a cracked driveway. And just like you can't do all your projects in one year, neither can the hospital.
Operating Budget: A simple definition of operating budget is an overall plan for the coordination of resources (expected availability and use of resources). This process includes projection of volume (a collaborative approach between senior leadership and the physician community); revenue (based on rates negotiations with Maryland's rate setting authority - the Health Services Cost Review Commission); and expenses (department managers' estimate of resources required). In your house, this is similar to your budget for electricity, your mortgage, and groceries, combined with your salary.
In fact, creating an annual hospital budget is very similar to creating your own household budget. And just as exceeding your household budget can put you in financial deep water, the same is true at the hospital. If we budget inaccurately, we put our mission in jeopardy.
Budget creations is a team process. And our shared goal is to create a fiscal framework for success-not to create headaches. We try to work with managers and senior leadership to identify priorities. Sometimes everything feels like a priority, and that's when we ask you to roll up your sleeves and begin to prioritize the needs. Sure, we'd love to approve everything. And it may seem fabulous at first, but I can assure you that this would be much to the detriment of the hospital.
In these economically challenged times when the cost curve is going up faster than the revenue curve and there are increasing health care cost constraints, it is extremely important that we use best practices in the budget process as well. Best practice budgeting includes, among other steps, setting accurate budgets using a collaborative approach, establishing accountability, managing expenses and monitoring variances.
When we create and manage effective, reality-based budgets, we are empowering our hospital team members to deliver the very best care. And that is worth cheering about!