The Development of a BudgetA budget is a clear delineation of the resources of either an individual or a company for the purposes of achieving set strategic goals; these resources may include the financial aspects, physical aspects, and human aspects that go in to the successful running of a household or corporate entity (Andersen, 2000). There are many different aspects involved in the development of a budget, but before such a task may be accomplished, the duration of the time that the budget will cover must be established; when an individual creates a budget it may be done in any time frame, from that of a day, to a week, to a month, to a year, though this is slightly different for the creation of a budget associated with a company. A company’s budget will typically be created to cover the course of one fiscal year, a year that will start and end at varying times throughout the actual calendar year depending on the industry of which the business is a part (Budget Bootcamp, 2014).
The budget may be created by a variety of different individuals, depending on the size of the business and its layout; for a small business the owner may be the only one involved in the budget creation process, though in a larger corporation, such a budget may be made by a team of individuals including at least one accountant whose task it is to draw up the budget and present it to the board for approval or rejection (Guide to Creating your Company Budget, 2014). As always, the budget that is created should be carefully linked to the corporate strategy, procedures should be utilized that allow for the strategic allocation of resources, incentives should be offered if necessary to ensure that the budget works to meet targets in the most effective method possible, cost management efforts should be clearly linked to the budgeting process, the budget should not be complex, striving to maintain simplicity while decreasing cycle time, and, as always, the budget should be flexible enough to allow for any change or issue that may arise (Andersen, 2000).
Sample Operating Statement and Budget Variance
Looking to the sample operating report, there are five line items that have been chosen for review: the Reg. Nurse Regular, Reg. Nurse OT, Reg. Nurse Premium, LPN Regular, and LPN OT line items of the Revenue and Expenses section for Salary Expenses.
Looking first at those line items for which less was paid out than that was budgeted, it is possible to see that the actual totals for the Reg. Nurse Regular, Reg. Nurse Premium, and LPN Regular were all higher than that which was budgeted for, while the Reg. Nurse OT and the LPN OT were both at lower totals than were budgeted for. The Reg. Nurse Regular exceeded the budgeted total by 8,116, the Reg, Nurse Premium exceeded the budgeted total by 43,230, and the LPN Regular exceeded the budgeted total by 2,167. There was a negative variance for each of the three line items that exceeded the budgeted total, as can be expected. The most likely reason for such an action to occur would be a decrease in approved overtime, but as nurses are unable to drop what they are doing, as may be done in other traditional jobs, the amount of hours exceeded would be unavoidable. Due to the fact that the nursing job is unlike a traditional office job, wherein workers are required to work for set hours only, one possible solution to address the negative variance in regard to each of these positions within the organization would be to work to adjust the following year’s budget, looking to decrease the amount allocated for each of the OT positions and shift those overages to the regular hours for registered nurses and licensed nurse practitioners, ensuring that the budget is able to be more closely balanced while working at the same time to address the needs of the community and the organization.
Of the many different benchmarking techniques that may be applied to improve budget accuracy, it is recommended that the organization work to implement three different types of internal benchmarking, specifically those of performance benchmarking, competitive benchmarking, and clinical practice benchmarking (Kay, 2007). Performance benchmarking, the process of comparing gaps in performance to performance levels, will work to bring the hours worked more closely in line with the amount of work done, thereby bringing the budget closer to a balanced state (Kay, 2007). Competitive benchmarking, using set performance measures to determine how closely a branch or organization is coming to meeting its set goals, would allow the organization to track how close the organization is to staying within budget (Kay, 2007). Finally, clinical practice benchmarking would allow for the structural comparison of the paper budget to the actuality in order to determine whether or not best practices are being used in all areas, again working to bring the projected budget closer to the actual totals spent (Kay, 2007). By working to understand the best practices for budgeting and how a budget works, it is possible to work to bring any budget back under control and closer to a balanced state.
- Amsolutions.net. (2014). Guide to creating your company budget | accounting management solutions, inc.. [online] Retrieved from: http://www.amsolutions.net/
- Andersen, A. (2000). Best practices: developing budgets. [online] Retrieved from: http://www.inc.com/
- Kay, J. (2007). Health care benchmarking. Medical Bulletin, 12 (2), pp. 22-27. Retrieved from: http://www.fmshk.org
- Performance.houstontx.gov. (2014). Budget bootcamp. [online] Retrieved from: http://performance.houstontx.gov/