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Budget
A detailed plan, expressed in numbers, that specifies how resources will be acquired and used during a specified period of time
Purpose of a budget
Planning
Facilitating communication and coordination
Allocating resources
Controlling profit and operations
Evaluating performance and providing incentives
Operating budget:
→Projections for operations over a given time
→Inputs, outputs, processes
→Forecasted income statement
Cash budget
Flow of liquid/cash assets in and out of an organization
Capital budget
→Plans for long term investments, programs, facilities,
→Can impact cash flows over time
Budgeting steps
Sales/Revenue Forecasting | “We think this will change” |
Operational budgets | Labor, drugs, operating expenses |
Forecasting drug expenditure steps
1)Collect data |
2)Review financial history |
3)Build a high priority drug budget |
4)Build a new product budget |
5)Build a nonformulary drug budget |
6)Build a low priority drug budget |
7)Establish a drug cost containment plan |
8)Finalize and present the total drug budget |
9)Vigilance |
Zero Based budgeting
All budget items are set at zero and re justified each time the budget is established
*throws out historical data
Budget variance analysis
Compared what was budgeted with what occurred
Budget variance analysis- Favorable
Expenses lower than forecasted
Revenues higher than forecasted
Budget variance analysis- Unfavorable
Expenses higher than forecasted
Revenues lower than forecasted