Budgeting

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