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Variance analysis is a technique applied to budget

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Unformatted text preview: ement o Goals o Objectives The operating, or five-year, plan is the “how we expect to meet our objectives” portion of the planning process. The planning process takes place more or less continuously throughout the year. Operating (5-Year) Plan Format Chapter 1: Mission, values, vision, and goals Chapter 2: Corporate objectives Chapter 7: Functional area plans A. Marketing B. Operations C. Finance D. Administration and human resources E. Facilities Note that the plan is most detailed for the first year. Financial Plan Format C. Finance 1. Current financial condition analysis 2. Capital investments and financing a. Capital budget b. Financing plan 3. Financial operations a. Overall policy b. Cash budget c. Cash and marketable securities management d. Inventory management e. Revenue cycle management f. Short-term financing 4. Budgeting and control (first year only) a. Revenue budget b. Expense budget c. Operating budget d. Control procedures 5. Future financial condition analysis ? What are the keys to an effective planning process? Budget Basics Budgets are detailed plans, expressed in dollar terms, that specify how resources will be used over some period of time. Budgets may be developed and applied to any level within an organization: o Aggregate o By department o By service line o By contract o By the nature of the expenditure To be effective, budgets must not be thought of as financial staff tools, but rather as managerial tools. Budgets are used for: o Planning o Communication o Control There are three decisions that must be made regarding a business’s budgeting process. Conventional vs. Zero-Based Budgets Traditionally, health providers have used the conventional approach to budgeting. The old budget is the starting point. Typically, only minor changes are made. Changes often are applied equally. In zero-based budgeting, each new budget is started from scratch. ? What are the advantages and disadvantages of each approach? Budget Timing All organizations use annual budgets to set standards for the coming year. Most also use quarterly (or more frequent) budgets to ensure timely feedback and control. Not all budget types have to follow the same timing pattern. Out-year budgets are more for planning than for control purposes. Top-Down vs. Bottom-up Budgets Top-down budgets: Begin at the finance department with senior management guidance. Are sent to the departments for review. Bottom-up budgets: Begin at sub-unit (departmental) level. Are reviewed and compiled by the finance department. Are approved by senior management. ? What are the advantages and disadvantages of each? Revenue Budget Most businesses have a: o Revenue budget o Expense budget o Operating budget The revenue budget uses volume and payment data to forecast revenues. The end result is a revenue forecast: o In the aggregate o By department o By service o By diagnosi...
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