ANATOMY OF A BUDGET

Cancer Center Emerging Leader ProgramEly Kuo-Vasher, MBA

Finance Director

Budget

Definition - from French bougette or purse-a list of all planned revenue and expenses

Used as a tool to assist in making operating decisions and provides a framework for future growth

Assists in setting expectations, targets and goals

Used to forecast or model based on strategies, events, plan or projects

Budget – Nuts & Bolts

Revenue/Income Expenses Margin Metrics

Revenue/Income

Definition – income or expected income from activities related to an organization including goods and services

Patient Services Research Investments Donations Other income

Gross vs Net Revenue/Income

Gross is total revenue/income generated.Net is the gross revenue/income less

taxes, allowances and deductions.

Net pay is gross income less taxes Net revenue is patient charges less

insurance allowance/reimbursement and bad debt

Research fund less indirect costs

Expenses

Definition – outflow of money to pay for an item or service, or for a category of costs

Payroll Benefits Supplies Other Operating Building

Expenses

Direct vs Indirect

Direct are expenses attributable to providing or producing specific product/service

Indirect/overhead are fixed or general expenses, examples include utilities, depreciation, management costs

Margin – Profit/Loss

Net Revenue/Income Expense = Margin -

How do you build a budget

Revenue

Define activity – patients, grants, gifts Breakdown of specific activity Develop revenue/income per activity, total gross

revenue/income Include growth/increase projections and assumptions Calculate net income/revenue based on projected

collection

How do you build a budget

Expenses

Develop cost/expense per activity Breakdown into specific expense categories Include growth projections/assumptions and inflation Calculate the total cost/expense

How do you build a budget

Time frame will vary depending on the type of budget

Operating – 1 year New programs/projects – 1 to 3years

Budget Review

Review actual versus budget variances periodically, monthly, quarterly, yearly

Use year end actual to plan for the next year

Review processes or strategies to increase income/revenue or decrease expenses

Budget vs Forecast

Budget is a static plan, does not change throughout the plan period until the next period.

Forecast is an updated plan and a prediction of performance. Supports flexibility to incorporate changes that may occur throughout the plan period.

Budget Cycle

Forecast

Metrics

“If you can’t measure it, you can’t manage it”

Develop measurements to evaluate performance, key performance indicators are used to develop targets/objects

Metrics are used to assess current financial position Metrics are ratios that present financial information and

makes it easier to compare/benchmark Metrics can be a combination of operational and financial

indicators Represented by ratios, example: Operating Margin = Net Income Sales Productivity = Sales Revenue FTE

Questions?

Metric Exercise