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BHA FPX 4008 Assessment 1 Attempt 1 Developing an Operating Budget


BHA FPX 4008 Assessment 1 Attempt 1 Developing an Operating Budget

The purpose of this assessment is to understand the importance of the budgeting process to a health care organization, as well as demonstrate an understanding of the differences between an operational budget and a capital budget. I will create a comprehensive analysis of the budget and my interpretation of the numbers and what the numbers mean to me. By the end of this assessment, you will have a better understanding of how and why budgeting is essential and how it can impact healthcare organizations.


Budgeting is an important consideration in strategic planning for any healthcare organization. The most basic definition of a budget is a plan that identifies expected financial inputs and outputs. In this assessment, I will be explaining the importance of the budgeting process to a health care organization, as well as demonstrating an understanding of the differences between an operational, project, and a capital budget. I will also go over the budget for the medical-surgical department at the St. Anthony Medical Center and explain the correct revenue and expenses and discuss how I arrived at my calculations. 

BHA FPX 4008 Assessment 1 Attempt 1 Developing an Operating Budget

Why Budgets Are Important

A budget indicates the amount of money that an organization expects to earn and receive from all sources for the period it covers, which is usually a year. It also indicates the number of resources the organization expects to use in its operations and the amount of money that it will pay for those resources. Therefore, it provides managers with a detailed action plan. Based on the information in the budget, managers make decisions that they believe will help them carry out the plan and therefore accomplish the organization’s objectives. A budget helps create financial stability by tracking expenses and following a strategic plan. Also, budgeting allows you to oversee and better understand whether a business has enough revenue to pay its expenses. Using a budget helps you make more informed financial decisions and puts you in better financial standing day to day and in the future. For example, St. Anthony Medical Center’s operating budget show that there was a decline in revenue in inpatient services therefore they had to alter the plan and budget by cutting operating expenses by five percent for the next fiscal year because of the downward trend in revenue. 

Difference Between Operating, Project, & Capital Budget

The operating budget is a plan for expected revenues and expenses. In healthcare operating budget would be the process of determining the funding planned for facility operation and personal costs, such as staffing and training. Staffing is usually the largest cost in a healthcare operational budget. An example of an operations budget would not only account for fixed costs such as salaries but also overtime hours, potential overstaffing, and other variable costs. A project budget is the total projected cost to complete a project over a defined period. It’s used to estimate what the cost of the project will be for every phase of the project. Creating a project budget is a critical part of the project planning process. An example of a project budget would be an initiative for feeding the homeless, an expansion of a business, or rehabbing a building. Capital budget in terms of healthcare is the process of allocating funding to the purchase of durable goods, such as beds, equipment, or improvements to buildings or infrastructure. The hospital’s capital budget is important because the purchases made from this pool of resources (surgical equipment or updated technology) can directly impact a healthcare system’s ability to provide better care to more patients.

Provide Correct Revenue & Expenses

For the total operating revenue, I estimated that it would be $46,247,032. I calculated this by taking the July-December revenue, $23,123,516, and multiplying it by 2. So, in mathematical form it would be: $23,123,516 x 2 = $46,247,032. Because the operating revenue is projected to be lower than expected, operating costs must be cut to compensate for this year’s loss. Total operating expenses are at $22,433,565 year to date. Total years actuals estimate is $44,867,130. I calculated this total by multiplying the total operating expenses by 2.

 $22,433,565 x 2 = $44,867,130. This calculation tells me that this organization is projected to be over budget by the end of the year.

Estimate the Correct Revenue & Expenses

With operating expenses cut by 5% for the next fiscal year, I calculated that the total operating expenses would have to be $38,850,250. I arrived at this calculation by taking the current year’s total operating expenses ($40,895,000) and multiplying by 5% which is $2,044,750 then subtracting that number from the current year’s total operating expenses ($40,895,000). In mathematical form it would be $40,895,000 x 5% = $2,044,750 then $40,895,000 – $2,044,750 = $38,850,250 (next year’s total operating expenses). What this means is that salaries, wages, supplies, and other expenses will have to be cut which could be an issue of quality for the organization.

BHA FPX 4008 Assessment 1 Attempt 1 Developing an Operating Budget

Balanced Budget for the Next Fiscal Year

With operating expenses being cut by 5% this could negatively impact the operations of the organization but also prevent the organization from going over budget. This cut impacts salaries, wages, benefits, supplies, utilities, insurance, licenses, and taxes. Although it may impact a great deal of areas it is necessary at least for the next fiscal year for the organization to stay under budget and see if the operating revenue goes back up. My only concern would be if the quality would drop because of the cut. Paying quality healthcare professionals and providing the supplies they need to do the best job for patients is also important.


Healthcare is a rapidly changing industry that must continuously adapt as new patient needs emerge, technologies and techniques are updated, and reimbursement models evolve. A strong budgeting process allows leaders to plan for the future and establish priorities around care and clinical departments. Budgeting is important to understand where funds are best spent and how to allocate capital among various departments and projects. As a healthcare administrator understanding and explaining a healthcare budget is essential to running a successful organization.


Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2018). Financial Management for Public,

 Health, and Not-for-Profit Organizations (6th Edition). SAGE Publications, Inc. (US). https://capella.vitalsource.com/books/9781506396804

Mukherjee, T., Al Rahahleh, N., Lane, W., & Dunn, J. (2016). The capital budgeting process of healthcare organizations: A review of surveys. Journal of Healthcare Management, 61(1), 58-77. http://library.capella.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Fscholarly-journals%2Fcapital-budgeting-process-healthcare%2Fdocview%2F1772809895%2Fse-2%3Faccountid%3D27965

BHA FPX 4008 Assessment 1 Attempt 1 Developing an Operating Budget

Peacock, S. J., Mitton, C., Ruta, D., & Donaldson, C. (2010). Priority setting in healthcare:

Towards guidelines for the program budgeting and marginal analysis framework. Expert Review of Pharmacoeconomics & Outcomes Research, 10(5), 539-52. https://doi-org.library.capella.edu/10.1586/erp.10.66

Szpiro, D. A., & Dimnik, T. (1996). Capital budgeting in multinational organizations: Exploring the strategic context. Managerial Finance, 22(1), 58-74. https://doi-org.library.capella.edu/10.1108/eb018543

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