How to Create a Good Budget in a Hospital Organization

What is a budget? A budget is an estimate of income and expenditure for a set period of time. Every organization has a budget and having the right budget that functions well without over-estimates and even under-estimates is essential. In the healthcare industry especially in the hospitals. An improper or badly set budget could vastly affect a hospitals operation negatively. A hospital needs it budget to always be in top shape so the flow of medication, hospital supplies, and other items for patient care is not interrupted. Also so the care providers are compensated on time. This is why much care and research is always put into the Hospital Budgeting Process. It has to go smoothly so other aspects of the healthcare organization and hospital can go smoothly too.

In order to have a good budget that’s maintained, it has to start at the planning stage. Let’s talk about the steps to take to develop a good and reliable budget

Write it down

Having a steady budget requires writing it down at the start of the budgeting process. This is especially important in an organization when the budget serves more than one person and receiving more than one input. Putting the budgeting process into writing creates a measurement tool against which you can monitor your progress and creates a checklist to ensure thoroughness in the process.  When written down, the process becomes a durable management tool possessed by the organization rather than an intangible thing talked about by just one or two individuals. Institutionalize the process by writing it down.

Decide who should be involved and when

The executive director and program director or directors naturally play a significant role in the budget process, but departmental staff members who have responsibility for adhering to budgets should also play a role in creating those budgets.  It builds buy-in and the process is informed by those with direct experience. Unless you have a board functioning as quasi-staff, usually staff members know more about operating details than board members, even very involved ones. In general, it is probably more efficient for staff to create the early drafts of budgets and use the time of finance committee members to review and vet the proposed drafts.  

Establish an annualized timeline

Most ideal budgets are annual in nature. For the coming year, you need to start budgeting early. Many large organizations start budgeting for the following year far earlier than small and midsize organizations customarily get serious about budgeting.  Aim for having the budget approved by your board at least two months before the new fiscal year begins.  Earlier is even better, if feasible.  

Ensure that budget line items and accounting line items are in sync

Budget line items should align with financial statements and the structure of the full operating budget should match the chart of accounts to ensure effective comparisons between budget and actuals.  A mismatch between budget items and accounting items creates extra work for administrative staff or key volunteers who must translate between the two and risks inconsistencies that undermine the usefulness of financial reports.   

Make a summary budget and full budget

The format of the hospital budget needs not have the level of detail that staff or finance committee members see.  Using detail worksheets as tools to build a “Full Budget” and a “Summary Budget” allows staff and finance committee members to go deep into the trees while presenting the forest to the board. Use the detailed budget worksheets to prompt deeper thinking about budget components and to help ensure nothing is forgotten.  Link these worksheets, or workbook tabs, to a full budget sheet in a single, multi-tab workbook.  For instance, for the budget/accounting line item of “Insurance”, a detail budget worksheet could prompt for the various types of insurance to be carried by the organization such as general liability, directors & officers, vehicle insurance, or patient insurance.