Part 1: Executive Summary

Using the Healthcare Budget Request Template, develop a 1- to 2-page executive summary that describes the issue or opportunity that you are analyzing.  

Part 2: Workbook Template

apply financial ratios and other calculations to make the business case for your idea. In this component of the assignment, you will customize a spreadsheet workbook and prepare it for use in your analysis.  

Healthcare Budget Request

Prepared by:

Submitted:

Executive Summary

Projected Expenses and Revenues (Five Year)

Projected Budget (Five Year)

4

Part 1. Copy your final worksheet here and include your analysis.>

Summary/Elevator Speech (PPT slides)

4

Nursing 6211 Finance and Economics in Healthcare Delivery – Week 2 Assignment

Throughout this course, you will develop a comprehensive Healthcare Budget Request to promote commitment from leadership to your idea for a healthcare product or service to address gaps or provide opportunities to your organization. We started thinking about this in the week 1 discussion.

For this Assignment, you will begin this effort by developing an executive summary for the proposal. You will also begin work on a spreadsheet workbook that you will utilize to calculate and present financial analysis in support of your idea.

Photo Credit: Getty Images/Vetta

This assignment has two parts. Part 1 is the development of an executive summary. Part 2 is the development of an Excel workbook template to be used throughout the course and you analyze data related to your proposed healthcare product or service. Be sure to read the details and directions as presented in the Blackboard classroom for this week.

To Prepare

· Reflect on current gaps or opportunities for enhanced services within your healthcare organization.

 

· Select one of these gaps or opportunities that you would like to analyze and for which you would like to propose a healthcare product or service solution. 

· Reflect on the impact this issue/opportunity and product/service solution have (or could have) on various stakeholders and systems across your healthcare organization. 

· Identify one or more individuals within your healthcare organization to act as “finance counselor” with whom you can consult on financial and budget items such as costing, estimating, and budget request processes.  

· Reflect on the current costs associated with the selected issue or opportunity, including direct financial costs to the organization and financial costs to patients, healthcare providers, and other stakeholders. Also consider non-financial costs, including opportunity costs. 

· Consider how you would communicate a proposal to leadership that addresses the selected issue/opportunity within your organization.  

The Assignment: Healthcare Budget Request – Executive Summary:

Develop an executive summary and structure for a healthcare budget request for your new product or service idea by completing the following:

Part 1: Executive Summary

Using the Healthcare Budget Request Template, develop a 1- to 2-page executive summary that describes the issue or opportunity that you are analyzing. In your executive summary, you should:  

· Describe the healthcare issue or opportunity you selected.  

· Describe the stakeholder groups impacted by this issue/opportunity. 

· Explain which stakeholder groups would most likely be responsible for helping you address the healthcare issue or opportunity you selected and why. Be specific and provide examples. 

· Describe the healthcare product or service that you propose to address the identified gaps/opportunities and explain why.

The instructions from the Healthcare Budget Request Workbook say:

Part 1: Executive Summary

Your executive summary will be a critical first component of your formal healthcare budget request. It will be your first real opportunity to sell leadership and other stakeholders on the value of your proposed product or service. Hence it should be persuasive. It should also be informative without explaining every facet in more detail that anyone cares to read up front. It should outline why the organization should invest resources in your idea. It should be specific and focus on results.

For the purposes of this Assignment, your executive summary should be 1-2 pages in length. Be sure to review the Learning Resources and conduct your own research to review samples of executive summaries (many examples can be found online).

Be sure to save your Executive Summary and submit it to the appropriate Assignment 2 Part 1 submission link by the due date specified in the classroom.

 

Part 2: Workbook Template

As you progress through this course on the development of a Healthcare Budget Request, you will apply financial ratios and other calculations to make the business case for your idea. In this component of the assignment, you will customize a spreadsheet workbook and prepare it for use in your analysis. To do this, you will: 

· Review the Healthcare Budget Request Workbook Step-by-Step Guide found in the Resources.Follow the instructions in the guide, which will help you: 

· Create a workbook tab for each analysis you will conduct in subsequent parts of your Healthcare Budget Request. 

· Format your spreadsheet and presentation of results. 

The instructions from the Healthcare Budget Request Workbook say:

Part 2: Workbook Template

As you progress through this course on the development of your Healthcare Budget Request, you will apply financial ratios and other calculations to make the business case for your idea. In this Part 2 of this Assignment, you will develop a workbook that will be used in subsequent Assignments for use in your analysis. To do this: 

1) Open a blank Excel workbook. Name this “lastname_firstname_assn2part2.xlsx” (where “lastname_firstname” is your last and first name).

2) Create a worksheet for each analysis you will conduct in subsequent parts of your Health Budget Request. Name each worksheet as follows:

· A3 Estimated Expenses 

· A4 Budget Development

· A5 Ratio Analysis

· A6 Financial Statement Analysis

3) On each worksheet, include a title/header that reads similar to the following:

You may format these however you see fit, but you should make each worksheet presentable as these will be used by stakeholders considering your budget request.

REFERENCES:

Penner, S. J. (2016). Economics and financial management for nurses and nurse leaders (3rd ed.). New York, NY: Springer Publishing Company.

· Chapter 10, “Writing a Business Plan” (pp. 249–292)

· Chapter 11, “Health Program Grant Writing” (pp. 303–350)

Clark-Burg, K., & Alliex, S. (2017). A study of styles: How do nurse managers make decisions? Nursing Management, 48(7), 44–49. doi:10.1097/01.NUMA.0000520721.78549.ad

Waxman, K.T., & Massarweh, L. (2018). Talking the talk: Financial skills for nurse leaders. Nurse Leader, 16(2), 101–106. doi:10.1016/j.mnl.2017.12.008

Health Budget Request Workbook: Step-by-Step Guide

NURS 6211: Finance and Economics in Healthcare Delivery

Healthcare Budget Request Workbook: Step-by-Step Guide

Healthcare Budget Request Workbook: Step-by-Step Guide

COURSE

Table of Contents

Introduction

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

Section 1:

Spreadsheet Orientation (optional) . . . . . . . . . . . .

3

Section 2:

Assignment 1: Spreadsheet Fundamentals . . . . . .

11

Section 3:

Assignment 2: Healthcare Budget Request and Workbook Template . . . . . . . . . . . . . . . . . . . . . . . .

13

Section 4:

Assignment 3: Healthcare Budget Request – Estimating Expenses . . . . . . . . . . . . . . . . . . . . . . .

15

Section 5:

Assignment 4: Healthcare Budget Request – Budget Development . . . . . . . . . . . . . . . . . . . . . . .

17

Section 6:

Assignment 5: Healthcare Budget Request – Ratio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

Section 7:

Assignment 6: Final Healthcare Budget Request . .

27

As is the case with any organization, healthcare organizations establish strategic goals in support of their vision and mission. In turn, initiatives are pursued in hopes of achieving goals.
Introduction

In a perfect world, every initiative that the organization values would be pursued. But healthcare organizations have limited resources. Hence decisions must be made about which initiatives to pursue. Such decisions are typically based on several factors, including:
· the perceived value of the initiative
· how strongly the initiatives support organizational missions and goals
· potential for return on investment
· resources required.
Nurse leaders and others who drive the pursuit of these initiatives need to be sensitive to these factors. Value, support of objectives, and return on investment are usually communicated by developing a
business case
for the initiative. The need for resources is typically communicated by developing a formal budget request.
A
budget request
is a formal document that most organizations require from those seeking resources (funding) for various projects and initiatives. When successful, a budget request results in the initiative being included as part of the organization’s
budget
; a planning tool that allocates resources (such as money or personnel) to the activities and capital needed to support the pursuit of strategies for a given time period (typically a year).
Throughout this course you will work on the development of a budget request for a healthcare product or service you propose to the leadership of your organization. As you do so, you will consider your audience for that request, financial and other resources you will need to launch the initiative, and other factors. You will utilize spreadsheets to help you analyze the financial impact, and you will develop a business case to advocate for your proposal to the leadership of your organization.

Spreadsheet Orientation (optional)
Section 1

A
spreadsheet
is a category of software designed to help analyze numeric information.
Microsoft Excel
is the most common spreadsheet tool used in business.
Spreadsheets like Excel are especially useful when performing financial calculations and analyses, such as those you will conduct in subsequent assignments in this course to analyze the financial impact of the initiative you propose. Spreadsheets enable the quick manipulation and calculation of large amounts of numeric data. When developed properly, they also help conduct “what-if” analyses, allowing users to change certain values to determine the impacts on results (such as profits).
The following material will guide you through completion of the Assignment
Spreadsheet Fundamentals
. To complete this assignment, you will need:
· This section of the Healthcare Budget Request Workbook: Step-by-Step Guide
· The Excel file “Clinic.xlsx”, located in the Learning Resources

The following is a practice exercise designed to introduce, or provide practice for, the following:
· Creation of worksheet tabs
· Navigation of a worksheet
· Management of various types of worksheet data
· Creation of Excel formulas and functions
This guided exercise is optional and will not be graded. If you are new to spreadsheets and/or Microsoft Excel, you are
strongly encouraged
to complete this exercise to familiarize yourself with important spreadsheet functionality that you will utilize throughout this course. If you are already familiar with these spreadsheet fundamentals, you may nevertheless benefit from this activity as a refresher. Depending on your comfort level with the material, you may choose to skip the practice exercise and proceed to the next section, titled
Assignment 1: Step-by-Step Guide
, to begin work on Assignment 1.

Practice Exercise (Optional): Spreadsheet Fundamental
The following exercise will help orient you to the basic functionality of Microsoft Excel in preparation of Assignment 1. To complete this optional exercise, you will need:
· This section of the Healthcare Budget Request Workbook: Step-by-Step Guide
· The Excel file “Clinic.xlsx”, located in the Learning Resources
1) Download and open the file “Clinic.xlsx” located in the Learning Resources.
Note
: An open Excel file is also referred to as a workbook.

2) Spreadsheets organize screens of data by using columns and rows. Columns are labeled with letters and rows with numbers. The intersection of a row and column is referred to as a
cell
. Cell locations, or
addresses
, are identified based on the letter of the column and the number of the row. For example, the first cell in the spreadsheet is referred to as “A1”. Cell addresses are always shown in the Address box near the top of the screen.

3) Notice the tabs at the bottom of the screen that read “HealthWaysBudget” and “HealthwaysFinancials”. When clicked, these tabs open separate
worksheets
(individual pages used to organize different categories of data within a workbook).
4) In Excel, you can create many different worksheets within a single workbook. For example, in this workbook the HealthWaysBudget worksheet presents a budget report for the organization, while the HealthwaysFinancials worksheet presents several financial statements for the organization.

Note
: Financial statements will be discussed in more detail later in the course.

5) Create a new tab in this workbook. To do so:
a. Click the New sheet (“+” symbol) at the bottom of the screen.

b. To name the worksheet, double-click the tab and type “Practice”.

Note
: You can also rename the new tab by right-clicking the tab and selecting “Rename”.

6) Note that there are various types of data used in Excel:
· Text is data that utilize letters. Numbers can also be used in text data. However, these numbers must be used in conjunction with letters, or must manually be set to text.
· Numerical data utilize numbers exclusively. Unlike text data which can use numbers, numerical data cannot contain letters.
· Currency/Accounting data utilize numbers in conjunction with a currency marker.
· Dates are pieces of data that denote a date and/or time. There are multiple formats for dates within Excel.
· Percentage data are a subset of numerical data that is converted into a percentage. Percentage data can be converted back into numeric, and vice versa. Converting to numeric from percentage will display the number as a decimal. For example, 89% would be converted to 0.89.
7) Enter the following text and numeric values on the Practice worksheet in the cell locations shown below:

8) Note that the text in columns H and I may be cut off as you type in adjacent columns. This is because the column is not currently wide enough to display the text without overlapping into the next column. To adjust column widths:
a. Place your mouse pointer between the two columns in the header area between any two columns that you wish to adjust; the column to be increased should be on the left. Double-click the mouse and the column will automatically adjust to the required size to display the results.

b. Using the same approach above, you can drag your mouse (instead of double-clicking) to manually adjust the column to your preferred width. Note that the precise size is displayed as you drag your mouse.
c. You can also click the entire column by clicking the column header. This highlights the entire column. From here you can then right-click anywhere in the column and choose “Column Width”, then replace the current value with a desired value.

Note: If a column is too narrow to display numeric values, a series of repeating “#” symbols will appear.
9) Save your work by clicking the SAVE icon in the title bar (or by choosing ‘File’ and ‘Save’).

Note: Be sure to save your work frequently.
10) Excel allows for most primary formatting of text and numeric data, such as typeface (bold, underline, etc.), font size and color, cell color, etc. Most of these options are available in the menu ribbon on the top of the screen (much like MS Word). If you like, make various formatting changes, such as boldface for column headings.
11) One of the most important features of Excel is the ability to use formulas and functions. An Excel
formula
is a statement you enter in a cell to calculate a value or perform some similar action. Formulas contain a combination of operators and operands. In effect you write a formula to “teach” Excel how to calculate a value.
12)
Functions
are similar to formulas, but they are prewritten formulas that are “built into” Excel, via the
function bar
. You only need to populate certain elements of a function, such as the
range
of cells (typically a contiguous group of cells) needed to calculate the value.

13) Use the SUM function to calculate totals. To do this:
a. Navigate to cell C10.
b. Click the AutoSum button from the task bar

c. Drag your mouse pointer over the range of values to be summed (in this case, C4 through C8)
d. Hit the ENTER key. The result in cell C10 should be 1221, meaning 1,221 units were sold across all product lines in January.

Note: Excel contains the AutoSum key as a shortcut because the SUM function is used so frequently. You can also manually type the sum function as =SUM(C4:C8)
, yielding the same results.
e. Calculate totals for February and March (cells D10 and E10). If you are successful, your results should be 1970 (for cell D10) and 894 (for cell E10).
f. Calculate total units sold of Product A for the quarter (cell F4). If you are successful, your result should be 2036.

Note: If you click cell F4 after you have entered your function, you will see the result. If you examine the formula bar near the top of the screen, you will see the actual contents of the cell, which is your function (=SUM(B4:E4) ).
g. A powerful feature of Excel is the ability to copy formulas and functions. This enables you to create a formula or function once but use it many times without retyping. Using this you can copy your function from cell F4 and paste it in cells F5 through F8. To do this:
i. Click on cell F4.
ii. Hover the mouse pointer on F4 until you see a small square in the bottom right corner of the cell. This is referred to as the “fill handle”.
iii. Click and drag the fill handle (your mouse pointer will change to a crosshair “+” symbol) until you have highlighted Cells F5 through F8.
iv. Release the mouse button. The function will now be pasted in the highlighted cells.

Note: If you click cell on any cell in your pasted range, you will see the function displayed in the formula bar near the top of the screen.
h. Your worksheet should now look as follows:

14) SUM is just one of many Excel functions. Another in the AVERAGE function, which will calculate the average of a range. To calculate the average number of products across all product lines sold in January, do the following:
a. Navigate to cell C11.
b. Enter the following text:
=AVERAGE(
c. Highlight the range C4 through C8 (or type =AVERAGE(C4:C8) )
d. Hit ENTER
e. If you are successful, C11 should contain the value 244.2.
15) Using the AVERAGE function (or copying the function from cell C11), calculate averages for March and April in cells D11 and E11. Similarly calculate average units sold per product line by using or copying the AVERAGE function in cells G4 through G8. If you are successful, your worksheet should now look as follows:

16) You can also use the SUM function to calculate the total number of products sold in Q1. Use the SUM function in cell D13 to calculate this value by summing the values in C10 through E10. If you are successful, the result will be 4085.
17) You can write a formula to calculate revenue, which is price/unit times number of units sold, by using the asterisk “ * ” symbol for multiplication. To do this:
a. Navigate to cell H4.
b. Enter the formula =B4*C4 and press ENTER
18) Copy or retype the formula to calculate appropriate revenue values for all product lines in all months in cells H5 through J8.
19) Lastly, navigate to cell D14 and calculate the total revenue in Q1 by using the SUM function to add all values between H4 through J8. If you are successful, your worksheet will look as follows:

Note
: You have completed the practice exercise. Return to the Healthcare Budget Request Step-by-Step Guide Section 2 when you are ready to begin work on Assignment 1.

Assignment 1: Spreadsheet Fundamentals
Section 2

Spreadsheet software like Excel is widely used when making proposals like the one you are preparing for a new healthcare product or service. Spreadsheet skills are valuable whenever there is a need to develop, analyze, and/or present financial and other numeric information.
In
Assignment 1 Spreadsheet Fundamentals
, you will analyze data pertaining to a fictitious healthcare organization, HealthWays Clinic Inc. You will perform various calculations and analyze the results.
The following material will guide you through completion of the assignment. To proceed, you will need:
· This section of the Healthcare Budget Request Workbook: Step-by-Step Guide
· The Excel file “Clinic.xlsx”, located in the Learning Resources

Assignment 1: Step-by-Step Guide

1) If you have not done so already, download and open the file “Clinic.xlsx” located in the Learning Resources.

Note
: Be sure to save the file to the location you typically save documents and resave after each step to avoid losing work.
2) Navigate to the worksheet labeled “HealthWaysBudget”
3) Develop formulas or functions that calculate totals for the budgeted and actual encounters for June 2018, May 2018, and 2018 Year-to-Date (YTD) in the appropriate shaded cells of row 12.
4) Develop formulas or functions that calculate the variance between June 2018 budgeted and actual amounts in the appropriate shaded cells in Column D.
5) Develop formulas or functions that calculate totals for personnel expenses and non-personnel expenses in the appropriate shaded cells in rows 17 and 24.
6) Develop formulas or functions that calculate totals for health center expenses and their variances in the shaded cells in B25 through G25.
7) Create a new worksheet tab titled “Assignment 1”.
8) On the Assignment 1 Worksheet, answer the following question related to the results of your calculations:
a. What interpretations can you make based on the data? What is happening in regard to such measurables as:
i. The full-time equivalents (FTE) for HealthWay employees
ii. The number of encounters, both new and established
iii. Non-personnel expenses
iv. Total expenses
b. If these trends continue, what could it mean for HealthWays? What strategies might they employ to address any issues your analysis suggests?
9) Save and submit your file to the Assignment 1 submission link by the due date specified in the classroom.

Note
: You have completed Assignment 1. Return to the Healthcare Budget Request Step-by-Step Guide Section 3 when it is time to begin the next Assignment.

Assignment 2: Healthcare Budget Request and Workbook Template 
Section 3

This assignment has two parts. Part 1 is the development of an executive summary. Part 2 is the development of an Excel workbook template to be used throughout the course and you analyze data related to your proposed healthcare product or service. Be sure to read the details and directions as presented in the Blackboard classroom for this week.
Part 1: Executive Summary
Your executive summary will be a critical first component of your formal healthcare budget request. It will be your first real opportunity to sell leadership and other stakeholders on the value of your proposed product or service. Hence it should be persuasive. It should also be informative without explaining every facet in more detail that anyone cares to read up front. It should outline why the organization should invest resources in your idea. It should be specific and focus on results.
For the purposes of this Assignment, your executive summary should be 1-2 pages in length. Be sure to review the Learning Resources and conduct your own research to review samples of executive summaries (many examples can be found online).
Be sure to save your Executive Summary and submit it to the appropriate Assignment 2 Part 1 submission link by the due date specified in the classroom.
Part 2: Workbook Template
As you progress through this course on the development of your Healthcare Budget Request, you will apply financial ratios and other calculations to make the business case for your idea. In this Part 2 of this Assignment, you will develop a workbook that will be used in subsequent Assignments for use in your analysis. To do this: 
1) Open a blank Excel workbook. Name this “lastname_firstname_assn2part2.xlsx” (where “lastname_firstname” is your last and first name).
2) Create a worksheet for each analysis you will conduct in subsequent parts of your Health Budget Request. Name each worksheet as follows:
· A3 Estimated Expenses 
· A4 Budget Development
· A5 Ratio Analysis
· A6 Financial Statement Analysis
3) On each worksheet, include a title/header that reads similar to the following:

You may format these however you see fit, but you should make each worksheet presentable as these will be used by stakeholders considering your budget request.
4) Save and submit the workbook to the appropriate Assignment 2 Part B submission link by the due date specified in the classroom.

Note
: You have completed Assignment 2. Return to the Healthcare Budget Request Step-by-Step Guide Section 4 when it is time to begin the next Assignment.

Assignment 3: Healthcare Budget Request – Estimating Expenses
Section 4

One aspect of your proposal that will be of particular interest to decision-makers is expense. New products and services come with a myriad of costs associated with development, launch, and implementation. These costs may include human resources/personnel, equipment and supplies, marketing, training, and many more. Leadership and other decision-makers must fully understand these costs to make informed decisions about which initiatives to pursue and what level of resources commit the provision of resources.
What is Return on Investment?
An estimation of expenses provides a significant component of potential return on investment. As discussed in the Learning Resources,
return on investment

(ROI)
is a financial measure that attempts helps evaluate profitability of an investment or a project. ROI seeks to quantify the amount of return on a particular investment in light of the total cost (expense). ROI is calculated as:
ROI = (Value of the investment – cost of the investment) / Cost of the investment

The total value of the investment represents revenues and other quantifiable value and the total cost of the investment represents expenses. When working with a proposal, as you are doing in this assignment, estimates must be used for these values.

Note
: ROI is usually expressed as a percentage (multiplying the above formula by 100).
ROI is one of the most popular profitability ratios because of its flexibility and versatility. Essentially, ROI can be used as a gauge of an investment’s profitability. It is a relatively easy calculation and can be clearly interpreted. If an investment’s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help decision-makers eliminate or select the best options. Likewise, negative ROIs imply a net loss and should be avoided.

Part 1: Expense/Revenue/ROI Analysis:
For this Assignment, you will estimate the expenses associated with your proposed healthcare product or service. You will also estimate the value of the investments and calculate the return on investment. To do this:
1) Open the lastname_firstname_assn2part2.xlsx file you created in the previous Assignment.
2) Navigate to the A3 Estimated Expenses worksheet.
3) Identify each estimated expense associated with your proposed idea. Be sure to include every expense you can legitimately estimate, including startup expenses needed to launch your proposed product or service. Label each appropriately, with enough description to make it clear what the item is and what the estimated cost involves.
4) Identify each of the estimated revenues associated with your proposed idea. Be sure to label each appropriately, with enough description to make it clear what the item is and any necessary details regarding sources of revenues (including reimbursements).
5) Write a function or formula that calculates the total estimated expenses and revenues for the next 5-year period.
6) Write a function or formula that calculates the estimated return on investment (ROI) for your proposed idea.
7) Save the workbook as lastname_firstname_assn3part1.xlsx and submit the workbook to the appropriate Assignment 3 Part 1 submission link by the due date specified in the classroom.

Part 2: Summary of Analysis and Interpretation of Results:
1) In a separate Word document, create a brief (1- to 2-page) description of your analysis that clearly describes the estimated financial impact of your proposed idea. Interpret the results by explaining what your ROI calculation means to the organization.
2) Save the document and submit the to the appropriate Assignment 3 Part 2 submission link by the due date specified in the classroom.

Note
: You have completed Assignment 3. Return to the Healthcare Budget Request Step-by-Step Guide Section 5 when it is time to begin the next Assignment.

Assignment 4: Healthcare Budget Request – Budget Development
Section 5

This section will help prepare you to complete Assignment 4: Healthcare Budget Request – Budget Development. But before beginning work on the assignment, it may be helpful to review budgets and the role of the budget request you are developing.
What is a budget?
When you set a personal objective like purchasing a new car, you need a plan to make your dream a reality. When organizations make plans to make objectives, they establish
strategies
to achieve them. And just as finance plays a major role in achieving your personal objective, so too does accounting and finance impact organizational objectives.
Accounting has two important functions that directly impact strategy: planning and control.
Planning
is the process of establishing and communicating goals. Organizations do this in several ways, often beginning with organizational vision or mission statements that are reflected in subsequent goals. As goals are considered, the organization begins evaluating the resources needed to make goals a reality. Once a goal is established, an important part of the planning is creation of a
budget
, a planning tool that allocates resources (such as money or personnel) to the activities and capital needed to support the strategy. As discussed throughout this course, resources are limited so strategic planning requires effective resource allocation.
A budget is an estimation of revenue and expenses over a specified future time. Because they project to a future point, budgets are considered plans. Budgets are an integral part of running any organization efficiently and effectively, whether they be private, public, profit, nonprofit, or government organizations.
Budgets enable the actual financial operation of the business to be measured against the forecast. If a detailed budget is created properly, it makes it easier to follow up on what had gone as expected and what hadn’t.
In short, budgets enable the following activities:

·
Planning
: Budgets are planning tools necessary for building a framework for the organization and its finances. Combining past trends with realistic forecasts for the fiscal year, a budget provides a detailed view of assets, realistic revenue expectations, and how those balance against anticipated expenses.
·
Evaluation
: Budgets are necessary for evaluating organizational performance. Part of budgeting responsibly is tracking actual revenue and expenses and comparing them to what was budgeted. This helps to assure that the organization is adhering to its plans, while also helping to identify problems and opportunities.
·
Financing
: Budgeting helps show lenders or potential investors evidence of strong fiscal practices, which can help raise the money needed to acquire goods and services needed for growth.
·
Staffing
: Budgeting helps identify and plan for staffing needs. Very often an organization will not create openings and actively recruit until the budget for staffing has been developed and approved.

Just as there are short-term, long-term, and strategic plans, there are short-term, long-term, and strategic budgets. Organizations also create budgets to monitor sales growth, track cash within the organization, and acquire capital and other goods and services.

Types of Organizational Budgets

Cash (or cash flow) budget

Projects how and when cash comes in and flows out of the organization within a specified time period.

Master budget

Aggregate of the organization’s individual budgets designed to present a complete picture of its financial activity and health.

Sales budget

Estimate of sales for a future financial period.

Direct staffing budget

Calculates the number of staff/labor hours that will be needed to operate at anticipated capacity. 

Selling and administrative expense budget

Comprised of the budgets of departments such as the sales, marketing, accounting, engineering, and facilities departments.

Capital budget

A budget allocating money for the acquisition or maintenance of fixed assets such as land, buildings, and equipment.

Operation budget

A forecast and analysis of projected income and expenses over the course of a specified time period.

Organizations develop several types of budgets, each with different needs in mind. While not every organization will need every type of budget, it should be clear that budgeting can impact every facet of an organization.

The Budgeting Process
The process of creating and maintaining budgets is referred to as
budgeting
. Budgeting is often a collective process in which the different operating units within the organization prepare their plans in alignment with the corporate/strategic goals.
Budgeting is part planning, part controlling. In the planning phase, the organization prepares budgets by projecting needs. In the controlling phase, organizations compare budgets to the original projections to evaluate performance.
The process organizations use to develop their budgets is usually referred to as the
budgeting process
. This process can vary by organization. Large hospitals, for example, approach budgeting as a collective process, with each department or unit contributing goals and budgets that align with the achievement of the corporate goals. Department or unit managers prepare projections of sales, operating costs, overhead costs, and capital requirements. They calculate operating profits and returns on the investment they intend to use. The budget itself is the projection of these values for the next calendar or fiscal year. As part of this process, each unit presents its plans and budget to a reviewing upper management panel and may, thereafter, make whatever changes result from instructions from or negotiations with the higher level. Approved budgets then become the “road-map” for operations in the coming year. Ideally regular reviews track performance against the budget. As part of such reviews, changes to the budget may be approved.
In smaller organizations, like small clinics, the process is typically less structured. Some small organizations may not even develop a budget or, if they do, they may fail to consult it on a regular basis. For others, a single master budget may be appropriate, developed by the owner or a small budget or leadership team.

Note
: Your healthcare budget request is a step in the budgeting process. By making a case for your ideas, you are requesting that resources be accounted for when new budgets are made.

What is Capital?
One specific type of budget is the capital budget. Every organization requires money to carry on its activities.
Capital
is a broad term that represents the financial assets of the organization. Included under this umbrella are such items as money the organization holds, and certain types of equipment and facilities. There are two categories of capital: fixed capital and working capital.

Fixed capital
refers to the capital invested in fixed, long-term assets for business.
Long-term assets
are durable items with a useful life of more than one year. Hence fixed capital is the money invested in purchasing assets like facilities, equipment, land, furniture, fixtures, vehicles, and other similar items.

Working capital
is used to finance day-to-day business operations. Working capital is invested in
current assets
, which are sold, consumed, or used through operations of the organization. Hence working capital is invested in materials, work in progress, finished goods, receivables (money owed to the organization), cash, and other items. Working capital is necessary to make appropriate use of fixed capital.
The elements of capital complement each other in a sense that fixed capital is needed to launch a business or a project/proposal (such as your new healthcare product or service), and often is required to meet long-term strategic objectives. Working capital is needed to use the fixed assets of the business, as there is no use for facilities and equipment if there are no materials to maintain development and provision of goods and services. So, working capital ensures the profitable use of fixed assets of the company.

Note
: Your proposal for a new healthcare product or service may call for a capital expenditure, possibly on fixed capital. This means that your organization will have to account for at least some of the expense in the capital budget.

Capital Budgets
If you were to purchase exercise equipment for a home gym, the expenditure could be considered an investment in your long-term health and fitness. Similarly, capital represents investments in the long-term health and fitness of the organization. Because of the nature and importance of these investments, they must be evaluated and planned for. This planning is manifested in special budgets called
capital budgets
.

Capital budgeting
is the process in which an organization identifies and evaluates potential capital expenses and investments, particularly large investments. This include investments in projects such as building a new facility or potentially investing in a long-term venture. Resources are limited and organizations cannot make every investment that may add value. Through capital budgeting, organizations decide which long-term investments to make.
Capital Budgeting projects are expected to generate cash flows over several years. The decision to accept or reject a project such as the one you are proposing throughout this course depends on an analysis of the cash flows generated by the project and its cost.
One way this evaluation is conducted is by calculating the payback period of the investment. The
payback period
represents the time required for a capital expense to recover its initial cost and is based on
net cash flows (NCF)
. The payback period is calculated as:
Final year with a negative cash flow

Absolute value of NCF in that year

Total cash flow in the following year

+
Payback period =

Consider a capital investment with the following cash flows:

Year

Cash Flow ($)

Net Cash Flow ($)

0

-1000

-1000

1

500

-500

2

400

-100

3

200

300

4

200

300

5

100

400

For this investment the payback period, or
breakeven point
, occurs sometime during the third year. The payback period can be calculated as 2 + (100)/(200) = 2.5 years. So it will take the organization 2.5 years to recover the initial costs of that capital expenditure.

Note
: Providing this type of analysis in your proposal for a new healthcare product or service will help decision-makers see the financial impact of your idea when making budgetary plans.

Budgeting Variances
A
budget variance
is the difference between the budgeted values (amounts of expenses or revenues) and the actual amounts. The budget variance is
favorable
when the actual revenue is higher than the budget or when the actual expense is less than the budget. However, sometimes good budgets go bad and a budget variance is negative. These variances are referred to as
unfavorable
because the actual revenue is lower that the budgeted amount, or the actual expense is higher than the budgeted amount.
Budget variance is frequently caused by bad assumptions or inappropriate budgeting. For example, developers of the budget may purposely develop budget targets that are easy to reach to manipulate successful outcomes.
Organizational leadership takes great interest in budget variances, particularly if it is a recurring issue. If the variance is the result of a change in some business condition, there is likely no cause for alarm. For example, if a supplier raises the price of a component, the organization’s costs will increase as a reflection. This is likely a one-time happening that does not indicate a budget issue long-term. But when the issue surfaces often, it could mean the budget process is ineffective or worse – that management is ineffective.

Assignment 4: Healthcare Budget Request – Budget Development

Part 1: Develop the Budget Worksheet

For Part 1 of this Assignment, you will develop a sample budget for the healthcare product or service you have proposed. You will also apply ratios to analyze the budget and provide information that can guide choices. To do this:
1) Review the Learning Resources, particularly those on creating budgets.
2) Open the lastname_firstname_assn3part1.xlsx file you created in the previous Assignment.
3) Navigate to the A4 Budget Development worksheet.
4) Create a 5-year budget for the healthcare product or service that records the projected expenses and revenues associated with the healthcare product or service you have proposed. Be sure to include startup and operating expenses in your budget.
5) Develop formulas or functions that calculate the following:
a) The total estimated startup expenses (those occurring in year 0) for your product or service. Be sure to label each appropriately, with enough description to make it clear what the item is and any necessary details regarding sources of revenues (including reimbursements).
b) The total estimated expenses and costs per year and for the five-year period for your product or service

Note
: “Total estimated expenses” should match those you presented on the A3 Estimated Expenses worksheet (from the previous Assignment).
c) The payback period for your product or service idea

Note
: The values used for this calculation – including estimated revenues, should match those you presented on the A3 Estimated Expenses worksheet (from the previous Assignment).
d) Include any other ratios or other analyzes that you believe will strengthen your business case or help inform the decision-making process.
6) Save the workbook as lastname_firstname_assn4part1.xlsx and submit the workbook to the appropriate Assignment 4 Part 1 submission link by the due date specified in the classroom.

Part 2: Summary of Analysis and Interpretation of Results

For Part 2 of this Assignment, you will describe your budget and analysis. To do this:
1) Create a brief (1- to 2-page) description in a Word document of your budget and analysis. Your description should clearly describe the budget.
2) During the course of five years, is there an estimated surplus or deficit?
3) What percentages of the budget are dedicated to various categories you have defined, such as startup costs, etc.?
4) What are some risks that could create budget variances over the five-year period of your analysis? Are there any strategies that can help mitigate the risk of unfavorable variances?
5) What does this budget mean for your organization?
6) Save and submit the document to the appropriate Assignment 4 Part 2 submission link by the due date specified in the classroom.

Note
: You have completed Assignment 4. Return to the Healthcare Budget Request Step-by-Step Guide Section 6 when it is time to begin the next Assignment.

Assignment 5: Healthcare Budget Request – Ratio Analysis
Section 6

New initiatives like the one you are proposing in this course are expected to generate value (such as cash flows) over several years. Therefore the decision to accept or reject a project depends on an analysis of the cash flows generated by the project and its cost.
One way this evaluation is conducted is by calculating the payback period of the investment. The
payback period
represents the time required for a capital expense to recover its initial cost and is based on
net cash flows (NCF)
. The payback period is calculated as:
Final year with a negative cash flow

Absolute value of NCF in that year

Total cash flow in the following year

+
Payback period =

Consider a hospital making a capital investment with the following cash flows:

Year

Cash Flow ($)

Net Cash Flow ($)

0

-1000

-1000

1

500

-500

2

400

-100

3

200

300

4

200

300

5

100

400

For this investment the payback period, or
breakeven point
, occurs sometime during the third year. The payback period can be calculated as 2 + (100)/(200) = 2.5 years. So, it will take the hospital 2.5 years to recover the initial costs of that capital expenditure.
Providing this type of analysis in your proposal for a new healthcare product or service will help decision-makers see the financial impact of your idea when making budgetary plans.

Assignment 5: Healthcare Budget Request – Ratio Analysis

Part 1: Develop the Ratio Analysis Worksheet

For Part 1 of this Assignment, you will use ratios to determine the break-even point and payback period for your proposed healthcare product or service. To do this:
1) Review the Learning Resources.
2) Open the lastname_firstname_assn4part1.xlsx file you created in the previous Assignment.
3) Navigate to the A5 Ratio Analysis worksheet.
4) Develop formulas or functions that calculate the following:
a) The total estimated startup expenses (those occurring in year 0) for your product or service. Be sure to label each appropriately, with enough description to make it clear what the item is and any necessary details regarding sources of revenues (including reimbursements).

Note
: “Total estimated expenses” should match those you presented on the A3 Estimated Expenses worksheet (from the previous Assignment).
b) The break-even point for your product or service
c) The payback period for your product or service idea

Note
: The values used for this calculation – including estimated revenues, should match those you presented on the A3 Estimated Expenses worksheet (from the previous Assignment).
d) Include any other ratios or other analyzes that you believe are applicable and will strengthen your business case or help inform the decision-making process.
5) Save the workbook as lastname_firstname_assn5part1.xlsx and submit the workbook to the appropriate Assignment 5 Part 1 submission link by the due date specified in the classroom.

Part 2: Summary of Analysis and Interpretation of Results

For Part 2 of this Assignment, you will describe your ratio analysis. To do this:
1) Create a brief (1- to 2-page) description in a Word document of your budget and analysis. Your description should clearly describe the budget.
2) When will your organization’s investment(s) in the healthcare product or service break even?
3) What is the payback period?
4) What assumptions have you made in your analyses?
5) What do these analyses mean for your organization?
6) Save and submit the document to the appropriate Assignment 5 Part 2 submission link by the due date specified in the classroom.

Note
: You have completed Assignment 5. Return to the Healthcare Budget Request Step-by-Step Guide Section 7 when it is time to begin the next Assignment.

Assignment 6: Final Healthcare Budget Request
Section 7

A healthcare budget request has one primary purpose; to convince leadership to dedicate necessary resources to a project. But there are multiple challenges that must be met along the path toward achieving that goal. Those behind the budget request must demonstrate sensitivity toward budget concerns across the organization while also trying to sell their own initiative.
Understanding the financial health of the organization can provide helpful insight that may in turn help better develop the business case for a proposal. Among the ways to do this is by reviewing and analyzing an organization’s annual financial statements. These “organizational selfies” provide a financial snapshot of the organization, with the organization’s income, liabilities, equity, cash flows and more serving as the backdrop to give readers a view into the status of the organization.

What are Financial Statements?
There are three financial statements used for reporting an organization’s financial performance over time; the income statement, the balance sheet, and the cash flow statement. These three statements comprise the
statement of financial performance
, an accounting summary that details a business organization’s revenues, expenses and net income.
Of these three statements, the income statement is most closely aligned with performance. The
income statement
measures an organization’s performance over a given period by presenting the organization’s revenues and expenses, with the difference being the organization’s income. The basic equation on which an income statement is based is:

Revenues – Expenses = Net Income

Because of this, the income statement shows the organization’s “bottom line”, revealing how profitable the organization is over a certain period of time. The income statement takes into account sales revenue, cost of goods sold and other operating expenses and income.
The income statement is also known as a
profit and loss (P&L) statement
,
statement of earnings
,
statement of operations
or
statement of income
.
These statements are prepared monthly, quarterly or annually, and give businesses a big picture of where they stand financially. A corporation’s accounting department may prepare a statement of financial performance at any given point in time or throughout the year, depending on business requirements.

Typical Income Statement

The information contained in the income statement is critically important to the organization, investors, and other stakeholders. An organization’s ability to generate earnings over the long term is the key driver of stock prices. Net income is also the source of compensation to shareholders (owners of the company), and if a company cannot generate enough profit to compensate owners for the risks they’ve taken, spending and budgets are likely to decrease. Conversely, if a company is healthy and growing, higher stock prices will reflect the increased availability of profits. The information in the income statement also can help determine if an organization will be able to pay its debt obligations.
Another important financial statement is the balance sheet.
Balance sheets
reflect where the organization stands financially at a certain point in time. This statement of financial performance presents assets, liabilities and shareholder equity to make sure assets are equal to the other two factors. The balance sheet incorporates the net income determined on your income statement.
The basic equation on which a balance sheet is based is:

Assets = Liabilities + Shareholder’s Equity

Balance sheets provide a snapshot of what a company owns (
assets
) and owes (
liabilities
), as well as the amount invested by shareholders (
shareholders’ equity
). Like income statements, balance sheets are prepared monthly, quarterly and/or annually.

Typical Balance Sheet

Several ratios can be derived from the balance sheet that help investors get a sense of how healthy a company is. They do not give a sense of the trends that are playing out over a longer period and therefore should be compared with those of previous periods.
The third primary financial statement is the cash flow statement.
Cash flow statements
look at how money moves through the organization. This statement shows increases and decreases in cash from operations, investing and financing over a period of time. In particular it takes the net income from the income statement and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, it shows the net change in cash balance. Cash flow statements contain three sections: cash from operations, cash used in investing, and cash from financing.

Typical Cash Flow Statement

Financial Statement Analysis
Note that the income statement terms “earnings”, “net income”, and “net profit” are not the same as the statement of cash flow terms “cash” or “cash flow”. It is possible for an organization to be profitable on the income statement, but not be generating cash flow, and vice versa. For this reason and others, to see the most informative picture of the organization’s financial status it is necessary to consider all three financial statements.

There are several methods used to analyze financial statements. One of the most common is to conduct a
horizontal analysis
, which is basically a comparison of various values over 2 or more years. For example, a 2016-1018 horizontal analysis of ABC Corporation’s Net Revenue would yield a result of (131,345 – 102,007) = $29,338.00. As this is a positive number, net revenue has increased over this time which might suggest that the organization is growing.
Another valuable analysis tool is the
Return on Assets
ratio or
ROA
. Return on assets is an indicator of how profitable the organization is relative to its assets. ROA suggests how efficient a company’s management is at using its assets to generate earnings. Return on assets is displayed as a percentage, and is calculated as:

Return on Assets = Net Earnings / Total Assets

For example, ABC Corporation’s 2016 ROA would be calculated as 2,474 / 226,376 = .011, or 1.1%. This means that every dollar that ABC Corp. invests in assets generates $1.10 of net income.

Note: Horizontal analysis and ROA analysis are important for projects as the one you are proposing because financially healthy organizations (such as those with growing income statement “bottom lines” and those with higher ROA values) are more likely to seek investment opportunities, while those less financially healthy may need to see the value beyond the expense.

Assignment 6: Final Healthcare Budget Request
Recall that the budget request is a formal document that you’ll need when seeking funding for your project or initiative. You should write your budget request clearly and concisely, with the goal of earning a place in the organizational budget for your proposal.
In this Assignment you will reflect on work you have done throughout the course and compile your efforts into a cohesive final budget request. To do this, complete the following:

Part 1: Financial Statement Analysis

For Part 1 of this Assignment, you will analyze financial statements to gain insight into how feasible your proposal is in light of the current financial health of your organization. To do this:
1) Secure the most recent two or three years of financial statements (Income Statement, Balance Sheet, Statement of Cash Flows) from your current organization, one you are familiar with, or one you research online (for public and many private healthcare organizations those statements are available publicly).

Note: If you cannot find appropriate statements, you may use the sample financial statements for HealthWays located in the Clinic.xlsx file you used in Assignment 1 (located in the Learning Resources). The financial statements for Healthways are located on the “HealthWaysFinancials” worksheet.
2) Open the lastname_firstname_assn5part1.xlsx workbook you created in the previous assignment, and navigate to the “Financial Statement Analysis” worksheet.
3) Enter the data from your organization (or the one you have researched) to create the Income Statement and Balance Sheet on the “Financial Statement Analysis” worksheet.

Note: If you have chosen to use the HealthWays financial statements, copy the Income Statement and Balance Sheet from their original worksheets to the “Financial Statement Analysis” worksheet.
4) Using formulas, conduct a horizontal analysis by calculating changes over the periods of time for which you have statements. Conduct your analysis for the following over the 2-3 years for which you have statements:
· Changes in Revenue
· Changes in Expenses
· Changes in Net Earnings
5) Calculate the organization’s Return on Assets (ROA)

Part 2: Summary of Analyses and Interpretation of Results

In a Word document, create a brief (1- to 2-page) description of your analyses. Be sure to address the following in your summary:
1) Describe the results of each statement analysis. What do the results of each analysis mean?
2) What does your complete financial statement analysis suggest about the financial health of the organization?
3) If using your current organization’s data, does your analysis help describe any observed organizational behaviors or actions? Explain.
4) What assumptions have you made in your analyses?
5) What implications do these analyses have for your proposed healthcare product or service?
Part 3: Summary of Work and Final Healthcare Budget Request
Compile and summarize your work in previous assignments. You may choose to use the Healthcare Budget Request template, located in the Resources, or create a format of your own. Your final Healthcare Budget Request should include:
1) A final version of your Executive Summary
2) A final version of your projected expenses and revenues
3) A product/service budget for the launch and the first 5 years
4) A 3- to 5-slide PowerPoint presentation containing an “elevator speech” highlighting the value of your proposal, incorporating selling points from your analyses that you believe make the business case for nurse entrepreneurship and leadership’s commitment to your proposed healthcare product or service.

Note
: You have completed Assignment 6. Be sure to submit all work by the due date identified in the classroom.

With this work submitted, you have completed the final course assignment. Congratulations!

NURS 6211 Finance and Economics in Healthcare 1
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