Case 2 Planning and budgetng
Learning goals:
1. What is internal budget? The purpose of internal budgetng?
2. The process of an internal budgetng?
3. What are the budget types? And how to use?
4. What factors infuence the internal budgetng?
5. What is the variance analysis and how can it be used?
6. Can we do without traditonal budgetng?
1. What is internal budget?
Lecture
A budget is:
a multi-part (operatng) plan
the costs expected by a set of actvites
the revenues that are expected to cover these costs
Only a plan –No money in the bank, no expenses! Variance is expected
Importance of a budget:
Gives informaton on expected income/expenses
Forewarns of potental shortalls in the resources
Forces managers to put priorites
Forces managers to make commitments
Allows managers to analyze efciency
Fruitticher – Budget practces case studies
Budgetng is one of the fundamental decisioni-making processes in organizatons. During budget
formulaton, ofcials determine the proporton of the organizaton’s resources that the manager of
each unit will be authorized to spend… budgets ofen establish performance goals for the unit in
terms of costs, revenues and/or producton.
Typically, budgets are used to flter and analyze informaton throughout the organizaton, not
necessarily to create more informaton for disseminaton. The budgetng process utlizes what
informaton is already available.
Gruen; chapter 7
A budget can be defned as a management tool used to relate planned resource consumpton to a
period of tme. It is a planning and a control tool. The play a role in the strategic framework of the
organizaton. A set of budgets is constructed to translate the strategic objectves into detailed
operatonal plans. A Budget of the hospital will be make up department budgets which are in turn
collected with the income budget to form a master budget for the hospital. The three main features
of a budget are:
It is a plan that is developed before an event has occurred.
It can include a broad range of resources – not just money but also tme
It relates to a specifc period of tme
Budgets are on diferent levels, for example natonal level or unit level.
i- Internal budget is about the organizatons individual budgets, the external budget (not included in
this course) is when an outside organizaton provides a set budget.
, Budget components difference beteeen lecture and RUcEN
Master Budget: incorporated and summarizes all of the budget elements for the coming year within
an organizaton, which combines the functonal budgets, the capital budget and the cash fow budget
with the budgeted income statement and balance sheet for the forthcoming period. Not summing up
everything.
The master plan becomes the plan for everything an organizaton will be doing during the
coming year and it is prepared each year.
The main elements of the master budget are the operatng budget and the fnancial budget.
All parts can be part of a budget, but it can be either a line or a separate sheet of the budget.
Unless there are governmental regulatons, budgets difer per organizaton.
This budget may be translated into a forecast income statement and a forecast balance
sheet: It shows the planned positon at the end of the budget period, representng stocks.
3 main categories of budgets within the master budget (Finkler, Gruen, lecture):
1. Statstcs budget: Identfes the amount of service that will be provided. Contains the
projectons of expected producton quanttes. E.g. how much patent going to be treated or
how much hospital days you account.
2. Operatng budget: Budgets that relate to items in the operatonal actvites of the
organizaton, that is items relatng to the operatonal actvites of the organizaton. The plan
for revenues and expenses for the fscal year. About what you want to do. Based on fndings
of the statstcs budget. It has 2 sides: The expenses and revenue operatng budget
i- Uevenue budgets: relate the items appearing in the income statement, that is
items relatng to the operatonal actvites of the organizaton
i- Cross charges budgets: Recharging the cost of work done by one department for
another. E.g. the costs for radiology as used by the orthopedic ward. See
transferi- prices of case 1.
i- Capital charges budgets: Budget for the replacement and renewal of equipment
and facilites. Includes depreciaton, the charge to expenditure over the lifetme
of the asset. E.g. a notonal charge relatng to the use of the buildings, which are
purchased and need to be replaced in the future, maintenance.
i- Income budgets: Budget to show the planned levels of actvity and the
associated sources of income over the budget period. How much income you
expect to gain in a given period of tme. It is vital that an organizaton can be
sure that it has secured the necessary income to fund the planned resource use.
3. Financial budget: includes a cash budget and a capital budget and are combined.
i- Cash budget (cash fow forecasts): Planning for shorti-term actvites/resources,
for 1 fscal year. A plan for expected cash receipts and payments. Represents the
cash fow. Only about money that is currently available for spending. A budget
to ensure that there is enough cash to meet operatonal and other needs. It
Learning goals:
1. What is internal budget? The purpose of internal budgetng?
2. The process of an internal budgetng?
3. What are the budget types? And how to use?
4. What factors infuence the internal budgetng?
5. What is the variance analysis and how can it be used?
6. Can we do without traditonal budgetng?
1. What is internal budget?
Lecture
A budget is:
a multi-part (operatng) plan
the costs expected by a set of actvites
the revenues that are expected to cover these costs
Only a plan –No money in the bank, no expenses! Variance is expected
Importance of a budget:
Gives informaton on expected income/expenses
Forewarns of potental shortalls in the resources
Forces managers to put priorites
Forces managers to make commitments
Allows managers to analyze efciency
Fruitticher – Budget practces case studies
Budgetng is one of the fundamental decisioni-making processes in organizatons. During budget
formulaton, ofcials determine the proporton of the organizaton’s resources that the manager of
each unit will be authorized to spend… budgets ofen establish performance goals for the unit in
terms of costs, revenues and/or producton.
Typically, budgets are used to flter and analyze informaton throughout the organizaton, not
necessarily to create more informaton for disseminaton. The budgetng process utlizes what
informaton is already available.
Gruen; chapter 7
A budget can be defned as a management tool used to relate planned resource consumpton to a
period of tme. It is a planning and a control tool. The play a role in the strategic framework of the
organizaton. A set of budgets is constructed to translate the strategic objectves into detailed
operatonal plans. A Budget of the hospital will be make up department budgets which are in turn
collected with the income budget to form a master budget for the hospital. The three main features
of a budget are:
It is a plan that is developed before an event has occurred.
It can include a broad range of resources – not just money but also tme
It relates to a specifc period of tme
Budgets are on diferent levels, for example natonal level or unit level.
i- Internal budget is about the organizatons individual budgets, the external budget (not included in
this course) is when an outside organizaton provides a set budget.
, Budget components difference beteeen lecture and RUcEN
Master Budget: incorporated and summarizes all of the budget elements for the coming year within
an organizaton, which combines the functonal budgets, the capital budget and the cash fow budget
with the budgeted income statement and balance sheet for the forthcoming period. Not summing up
everything.
The master plan becomes the plan for everything an organizaton will be doing during the
coming year and it is prepared each year.
The main elements of the master budget are the operatng budget and the fnancial budget.
All parts can be part of a budget, but it can be either a line or a separate sheet of the budget.
Unless there are governmental regulatons, budgets difer per organizaton.
This budget may be translated into a forecast income statement and a forecast balance
sheet: It shows the planned positon at the end of the budget period, representng stocks.
3 main categories of budgets within the master budget (Finkler, Gruen, lecture):
1. Statstcs budget: Identfes the amount of service that will be provided. Contains the
projectons of expected producton quanttes. E.g. how much patent going to be treated or
how much hospital days you account.
2. Operatng budget: Budgets that relate to items in the operatonal actvites of the
organizaton, that is items relatng to the operatonal actvites of the organizaton. The plan
for revenues and expenses for the fscal year. About what you want to do. Based on fndings
of the statstcs budget. It has 2 sides: The expenses and revenue operatng budget
i- Uevenue budgets: relate the items appearing in the income statement, that is
items relatng to the operatonal actvites of the organizaton
i- Cross charges budgets: Recharging the cost of work done by one department for
another. E.g. the costs for radiology as used by the orthopedic ward. See
transferi- prices of case 1.
i- Capital charges budgets: Budget for the replacement and renewal of equipment
and facilites. Includes depreciaton, the charge to expenditure over the lifetme
of the asset. E.g. a notonal charge relatng to the use of the buildings, which are
purchased and need to be replaced in the future, maintenance.
i- Income budgets: Budget to show the planned levels of actvity and the
associated sources of income over the budget period. How much income you
expect to gain in a given period of tme. It is vital that an organizaton can be
sure that it has secured the necessary income to fund the planned resource use.
3. Financial budget: includes a cash budget and a capital budget and are combined.
i- Cash budget (cash fow forecasts): Planning for shorti-term actvites/resources,
for 1 fscal year. A plan for expected cash receipts and payments. Represents the
cash fow. Only about money that is currently available for spending. A budget
to ensure that there is enough cash to meet operatonal and other needs. It
