Nov 20, 2020 in Health

Healthcare Management Practices

Operating budget is a part of the consolidated budget of the company. The budget plans the income (revenue), costs (cost) and the final financial results (profit) during the budget period. There are several financial management practices, which are most effective in creating and monitoring an operating budget. These practices are described below.


Variance Reporting

The variance analysis is a comparison between planned and actual performances of the company; it is the assessment of deviations of actual performance from the plan and its causes. Deviation can be negative when the actual figures are below the planned figures, and positive if the actual figures are already installed. Deviation may be measured in absolute and relative (e.g. percentage) units. Budgeting is a technology of financial planning, accounting, and control of revenues and expenses derived from the business at all levels of governance, which allows you to analyze and forecast financial performance.

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Benchmarking is the process of identifying, understanding and adapting existing examples of effective operation of the company in order to improve its work. It equally involves two processes: evaluation and comparison. Benchmarking can be regarded as one of the areas strategically oriented at marketing researches. The advantage of this approach is that when work in the company is properly organized and has many threats to business, it is possible to predict and make correct management decisions in the presence of the necessary information. Disadvantage of this approach is the tangible costs that the company has to bear for keeping the track changes in the external marketing environment. It makes no sense to hold this event in a time when the company has a monopoly position in the market. There is no sense to carry out benchmarking in terms of pure competition. Benchmarking is a very expensive process too.

Environmental Scanning

Environmental analysis and forecasting are the basis for further planning of the enterprise. Tracking medium includes a variety of actions, starting from the analysis and forecasting of the major trends and development in the environment, and ending with the irregular collection of information acquired through personal contacts, studying competitors products. Studying the internal environment can make a significant contribution to the livelihoods and prosperity enterprise. The microenvironment determines the enterprise in such directions as the state of the finances, the level of implementation of scientific and technological progress, the level of organization of management, the business strategy and the level of skills. The concept of microenvironment draws attention to the nearest markets and suppliers, as well as factors affecting the organization of space within this environment.

Model Development

The development of predictive models for the financial condition of the enterprise helps to develop a general financial strategy to ensure the financial resources of the enterprise, assess its capabilities in the future. It should be based on the study of the actual financial capabilities of the enterprise, internal and external factors, and cover issues such as the optimization of fixed and current assets, the equity and debt, the distribution of profits, the investment, and pricing. The main focus is concentrated on identifying and mobilizing the internal reserves for increasing the cash income, the maximum reduction in the cost of production and services, the development of a correct policy of profit distribution, and the effective use of the companys capital at all stages of the circuit.


Forecasting is the effective operation of enterprises and firms in a market economy, which largely depends on how significantly they foresee the distal and proximal perspectives of its development. The forecasting is an assessment of the prospects of development of the enterprises and firms based on an analysis of market condition, changes of the market conditions in the coming period. Forecasting, as a result of the marketing research, is the starting point for the organization of the production and sales of the products, which are required by the consumer.

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Types of Budgets

Properly organized system of budgeting allows managers the evaluation opportunities. This system also shows how things are going in different divisions of the company and how is the situation in general. It allows managing effectively not only individual businesses, but also the combination of different types of management. Budgeting is necessary in the situation when the company attracts foreign investment. After all, it is important for investors to have reliable information about the business development. And it can be learned only from the details prescribed in budgets. Deciding on the introduction of budgeting depends on long-term plans of the company. If it intends to grow consistently, the implementation of this program involves passing a series of stages. Budgets allow to predict how the situation will develop at some or another stage.

Types of Monitoring Methods

Based on the monitoring of economic performance of enterprises, entrepreneurs can find the threshold levels, which can formulate the crisis that affects on the stability of the enterprise in short and medium terms. In the short term, the threshold value is determined by the ability of enterprise to meet its financial obligations and compulsory payments. In the medium term, a system of indicators should be based on targets set by the Board on the regional anti-crisis policy.

Frequency of Monitoring

Frequency of monitoring the activities of the company should be increased when there is the instability in the development of the company, the loss of budget and autonomy of the company.

Self Audit

Self-audit is a key element of the quality of service enterprises accommodation facilities. It is a thorough self-examination on a regular basis, using checklists. These checks show how well the company kept the accepted standards. The main advantage of this method is the low cost of the audit, as it is carried out by its own staff which is trained and prepared on the basis of consultants that develop and approve the companys management criteria.

Hence, it can be concluded that the most effective financial management practices in creating and monitoring an operating budget are environmental scanning, model development, forecasting, and self-audit.

There are several financial management practices, which are least effective in creating and monitoring an operating budget. These practices are described below.

Top Down/Bottom Up Budgets

Budgets, which are based on the top down or bottom up principle, work on the reverse basin. The disadvantage of this type of budgeting is that it does not take into account the opinion of the performers, and management often does not have the full information necessary for budgeting.

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Lack of Control

The lack of control of the company leads to such problems as budget deficits, inability to collaborate with other companies, and inability to perform its functions. The company becomes not competitive; hence, it may cease to exist.

Poor Inventorying

Inventory is a check availability of the property of the organization and the state of its financial obligations on a specific date by comparing actual data with accounting data. It is the main way of actual control over the preservation of property values and resources. The poor inventorying leads to the risk of losing the property values and resources.

Lack of Staff Investment

The lack of staff investment jeopardizes the fulfillment of the tasks of the enterprise; the companys position worsens on the internal and external markets. Consequently, the number of the permanent workers of the company will be decreased.

Over Control

The excessive control leads to additional costs (collection, processing information) (Sternberg, 2008). The over control impairs the psychological climate in the collective too.

Therefore, it can be concluded that the least effective financial management practices in creating and monitoring an operating budget are lack of control, poor inventorying and lack of staff investment.


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