Write a brief response to each discussion
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According to Baker and Baker (2014), forecasting is a method of using data to plan for future budgeting needs. There are three common types of forecasting done in healthcare such as revenue, staffing and operating expense (Baker & Baker, 2014). One of the forecasting methods that I am more accustomed to is the staffing forecasts. As a staff nurse lead or house supervisor, I must work in conjunction with other nurses to ensure that patient to staff ratios are maintained. For example, the unit that I am employed on (ICU) requires one nurse to two patients if they are in critical condition. If the patients are med/surg overflow, then one nurse can take up to four patients. In our eight bed unit, we attempt to have ideally four nurses scheduled everyday, however, this is not always possible. If there aren’t enough nurses to care for the patients on the unit, then a float nurse from another floor or the main hospital’s float pool helps out. If our unit is overstaffed, then nurses will float or be put on call to help manage the budget.
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Forecasting is major element in predicting future results in our hospital. Managers are asked to forecast new service line additions and what the impact will be on revenue, expenses, volumes, and staffing. Our annual budget basically is one big forecasting picture. What will the next year bring in patient volumes and how will that impact our bottom line? Just as such historic trending plays a role, but forecasting is our crystal ball. As Baker and Baker (2014) state, “the ultimate accuracy of a forecast rests on the strength of its assumptions.”
The one example that comes to mind is a major forecasting project that was completed prior to our recent addition and renovation project. To help the former CEO decide to push forward with this magnitude of a project, the CFO and I had to forecast five-year financial statements with the help from our external audit firm, considering the price of the proposed project, principal and interest payments, depreciation, staffing, revenue, and expense. Part of the forecast even included using the new square footage to forecast increased utility costs. It also showed the impact of adding a larger annual principal and interest obligation. This forecast was a great tool to determine what a new project would look like with our Critical Access Hospital reimbursement model by considering what portions of the project would be allowable and non-allowable and how it would impact our financial strength.
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Different types of companies use forecasting for different situations. In healthcare, analysts use forecasting to predict revenue, staffing needs and operating expenses (Baker & Baker, 2014). Hospitals need to forecast staffing needs as to stay within budget but also have enough staff to meet the demands of patients. There are three considerations when preparing staffing forecasts: controllable versus no controllable expenses, required minimum staff levels, and labor market issues in staffing forecasts (Baker & Baker, 2014). It is important to have a master staffing plan to include all times and days needed. According to Baker & Baker (2014), the accuracy of a forecasts rests on the strength of its assumptions.
Juan Casas 6.1
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An example I can think of when working in the billing office, we had to come up with a forecast for the billed claims per all the hospitals that belong to the health system I work for. When forecasting, we looked at a couple years of fiscal data and we also annualized the present fiscal year to come up with an estimate of billed claims for the rest of the year. My director always insisted that for budgeting purposes, it was necessary to have at least 3 fiscal years to identify trends. Ideally, it would be better to have at least 5 years in total.
In addition, when forecasting and benchmarking, it was necessary to clean the raw data to only count unique claims and avoid counting duplicate claims. For Benchmarking, it was also important to include resubmissions of claims when denials occurred, since that required worked hours in the billing office.
Even though the bulling office was not a real profit center, it was more like a cost center since we want to minimize the cost per claim.
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What is the difference between a flexible and a static budget? If you reviewed a budget at your work place, do you think you could explain the major variances?
According to Baker and Baker (2014) the static budget is based on a single level of operations. After a static budget, has been approved and finalized, that single level of operations is never adjusted. Because budgets are measured by how they are different for the actual results a variance is the difference between an actual result and a budget amount when the budget amount is a financial variable reported by the accounting system.
I would explain to my workplace that the computation of the static budget variance only requires one calculation: Actual Results minus Static Budget Amount equals Static Budget Variance.
According to Baker and Baker (2014) a flexible budget is one that is created using budget revenue and/or budget cost amounts. Unlike static budget, flexible budgets are adjusted or flexed to the actual level of the output achieved during the budget period. Thus, a flexible budget looks towards a range of activity or volume unlike the one level in a static budget.
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Flexible budgets adjust for changes in volume where static budgets do not; static budgets stay the same regardless of the volume (Baker & Baker, 2014). In healthcare, static budgets are helpful for planning, but they are not as useful for an operational budget since volume is variable. When a static budget is used, less data is available when evaluating variance in specific areas. With a flexible budget, the variable costs are increased proportionately but fixed costs remain the same (Rachita, Diaconescu, & Mazga, 2016). If a specific metric is not met even when the activity level was, managers are better able to determine exactly where deviation from plan occurred, and they are better able to determine areas where improvements can be made. For example, if a static budget includes supply expense at $100,000, if the actual was $95,000, the expense would be under budget, so the cost would never be evaluated. If the same budget was done as a flexible budget and supply expense was budgeted at $100,000 for a volume of 10,000 patient days and the actual expense was $95,000 with 8,000 patient days, even though the dollar amount is under the budget, the volume was significantly less and it would be an area to evaluate as part of cost containment measures.
Flexible budget variances are the differences between the actual result and the flexible budget amount, and they reflect how actual results deviate from expected results at a certain activity level (Rachita, Diaconescu, & Mazga, 2016). At my work, if I was asked to review a budget, I could explain the major variances, but I prefer not to just explain but to analyze, determine root causes, and implement process improvements.
DB 6.2 Randolph
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According to our text book a flexible budget is one that is adjustable for change such as an increase in volume of activity. This simply means that there is room in the budget to increase to volume of activity or work. For a static budget there is a fixed amount regardless of the volume of activity. The difference in the two is pretty obvious, one has the ability to be flexible and the other is not. In my organization we are currently sharing a budget between our athletic training department and our strength and conditioning department. I believe if I were to review our budget it would be very easy to see a variance. This year our budget took a hit due to a new weight room facility but on a typical year in the past there hasn’t been too much variance. We manage to stay within our budget every year, and we hope to soon have independent budgets for each department.
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The text states a flexible budget is a budget that adjusts or flexes for changes in the volume of activity. While a static budget remains at one amount regardless of the volume of activity (Baker & Baker, 2014). So, per the text the difference between two is as stated in the previous sentence one budget adjust or flexes (flexible), and the other budget remains at one amount (static). If I reviewed a budget at my work place, I do you think I could explain the major variances between the two budgets since the flexible budget offers changes based upon volume, provides a greater level of control, and accomplishes the forecast in one step., which would be easy to recognize and explain if I had the task to do so. Static budgets offer the variance analysis. The variance analysis tells the owner how much she’s over or under the original budget, via percentage and dollars and that you can adjust the budget up or down depending upon the variance percentages. The negatives of the two are that the flexible budget is a more sophisticated method which means you may not have time to make the necessary changes to it. And lastly with the Static budget it’s down fall could be attributed to the lack of actual data upon which to build a budget if actual data were to differ significantly from the static budget, it would be impossible to change the budget or to determine if the costs to produce the revenue were properly controlled.
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