Building a Budget in healthcare: Which One for What?
There are four main types of budgets that can be used by nursing executives in the planning process. They include; zero based budgets, activity based budgets, incremental budgets, and value proposition.
The incremental type of budget uses the sum from the previous year’s and the current year’s budget to monitor the progress. It is actually the most common among the four types of budgets as it is easy to use and simply understood as well. It is more appropriate in application when the cost of the budget is similar throughout the years with minimal changes. Even though the budget type is effective in use, it has some shortcomings (Fotakis et al.,2018). Some of the challenges include; it may lead to the development of budgetary slack, it may cause a change in the budget and development of perpetuate inefficiencies, and it has assumptions that cause elimination of external drivers of performance and activity.
For the activity based budget, it is a type whereby the budget is calculated in a top down manner. The input applied in the company is used to determine the expenditure and the sales. The profit is calculated through the target that they set in the organization. In value proposition budgeting, there are several considerations required to see it through; that is the amount to be included in the budget, the preference of the customer and the stakeholders, and if the value of the item outweighs its cost (Barr & McClellan 2018). According to the type of budget, the cost has to bring profit for the organization all through annually.
The zero based budget is among the commonly budget. The budget assumes that all departments at the starting point and thus the budget is at zero. Thus, rebuilding must begin from scratch. Through the budget, the managers should be capable of following through every single expense. It is always very tight and tries to avoid expenditure whenever possible to achieve optimal profits (Fang et al.,2016). It is a good type of budget when the company wants to contain the cost.
References
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher education. John Wiley & Sons.
Fang, J., Zhang, J., Jiang, Z., Du, M., Liu, Y., Mao, Y., … & Fang, J. (2016). Environmental remediation potential of Perinereis aibuhitensis (Polychaeta) based on the effects of temperature and feed types on its carbon and nitrogen budgets. Marine Biology Research, 12(6), 583-594.
Fotakis, D., Gourvès, L., Mathieu, C., & Srivastav, A. (2018). Covering Clients with Types and Budgets. In 29th International Symposium on Algorithms and Computation (ISAAC 2018). Schloss Dagstuhl-Leibniz-Zentrum fuer Informatik.
