Zero-Based Budgeting

Zero-based budgeting is one of the modern budgeting techniques that, if properly implemented, can result in reduction and elimination of unnecessary debts within hospitals. This paper through critical and qualitative analysis of the Report of the Executive Committee of Windsor Regional Hospital and other legitimate sources is going to describe zero-based budgeting in addition to various strategies through which this novel debt reduction technique can be implemented in a hospital setting. The paper will also outline reasons for various recommendations as well as the benefits associated with implementation of zero-based budgeting at Windsor Regional Hospital.

Introduction

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Physical growth in facilities, staffing, services and programs creation and expansion in healthcare facilities calls for increased funding and allocation of resources. Windsor Regional Hospital is one of the many hospitals that have experienced unprecedented growth over the last ten years. A portion of this growth was funded from internal resources. Internal funding of expansion of healthcare facilities is one of the major factors that results in accumulation of debts (Windsor Regional Hospital, 2010). In order to minimize spending and get rid of the existing debts, a number of strategies can be employed. One of these strategies is proper budgeting that ensures allocation of funds and resources to activities that are relevant to growth and efficient provision of services to the public. Zero-Based Budgeting is one of the most effective budgeting modalities that can be employed to get rid of unnecessary debts (Scarlett, 2009).

Zero-Based Budgeting

Zero-Based Budgeting is a methodology through which the traditional process of budgeting is reversed. It is a helpful planning as well as decision making technique used in budgeting (Windsor Regional Hospital, 2010). As clearly pointed out in the conventional budgeting modalities, managers in various departments approve only increases in budgets in addition to what has been automatically sanctioned. The past level of expenditure is not given reference in conventional budgeting (Windsor Regional Hospital, 2010). On the contrary, in Zero-Based Budgeting, the functions of each and every department are comprehensively reviewed and all forms of expenditure are approved, instead of only increases. Zero-Based Budgeting process calls for complete and detailed justification of the budget request through each program beginning from zero-base. Scarlett (2009), states that the zero-base is however, different to whether the overall budget is on the rise or decreasing. Zero-Based Budgeting differs from conventional incremental methodologies because the latter only calls for the explanation of the amounts required in excess of the funding in the previous years. In traditional incremental budgeting technique, budgets are prepared based on actual performance or previous budgets. More funds are given to departments that need increments. Allocation of resources is also based on performance and previous budget. A major disadvantage of incremental budgeting method is that it fails to take into consideration some of the factors that may have changed over time. It also encourages unnecessary spending, where departmental heads make use of all resources allocated to their departments (Windsor Regional Hospital, 2010).

In Zero-Based Budgeting, managers are required to justify their need for funding each year. Funding therefore has a base at zero. Each and every department is required to give a good reason why its funding would result in efficient running of the hospital or any other organization (Advameg, 2010). While using Zero-Based Budgeting, departmental managers can overlook the previous years and work with the program assuming it is brand new. Assuming that the program is new enables one to determine whether he/she can provide a detailed description of the expenses that would be required to effectively implement the program (Finkler, Ward and Baker, 2007). This would enable managers to come up with an all inclusive picture of the requirements of the program in terms of cost and not just what the program may have cost in the previous years (Windsor Regional Hospital, 2010). Zero-Based Budgeting is a clean schedule that can be developed to revive an organization that is languishing in debts. It calls for justification in addition to prioritization of activities before funding is done. In Zero-Based Budgeting, relevant activities are grouped into decision packages and a good explanation is given for their importance to the organization. The other strategy that can be utilized in order to effectively implement zero-budgeting is outlining the sources of funding to the hospital both yearly and monthly. Outlining the sources of funding to the hospital would enhance effective allocation of funds to relevant activities and thus reduce unnecessary debts (Dropkin, Halpin and Touche, 2007).

The two fundamental steps in Zero-Based Budgeting process, according to Finkler and Ward (1999), are development of decision packages and classification of decision packages. Decision package is very important in this process as it helps identify and give an explanation for specific activities, principle objectives, cost, advantages, measurement of performance, and optional courses of action. Classification of decision packages helps prioritize activities (Finkler, and Ward, 1999). By putting the burden of proof on departmental heads, each of them is required to give good reason why the department is in need of money (Dropkin, Halpin and Touche, 2007). Implementing Zero-Based Budgeting, through putting the burden of proof on departmental heads would have a variety of benefits to the hospital. It would culminate in efficient allocation of resources as this would be based on relevance of activities and needs. Departmental heads will be compelled to come up with operational strategies that are cost effective (Scarlett, 2009). This would enhance the overall performance of the staff. Implementation of Zero-Based Budgeting through putting the burden of proof on departmental heads would result in drastic reduction in debts as it helps detect and eliminate forecasts that are inflated (Advameg, 2010). Hospital staffs would be provided with an environment that results in greater initiatives in addition to increased responsibility in hospital activities decision making (Finkler, Ward and Baker, 2007). As a result, the hospital staff would be greatly motivated. Coordination and communication would also be enhanced within the hospital. Wastage and obsolete activities would be easily identified and eliminated. Zero-based budgeting acts as a channel through which opportunities for outsourcing can easily be identified (Windsor Regional Hospital, 2010).

Hospital managers would be encouraged to critically analyze the running of various services provided in the hospital.  Implementation of Zero-Based Budgeting in the hospital would redirect efforts in addition to finances from lower priority current activities to higher priority novel programs, minimize spending, and enhance effectiveness and efficiency (Advameg, 2010). Zero-based reviews of baseline expenditure in various departments in the hospital would act as an effective strategy of assessing long-term delivery of services (Advameg, 2010). Through zero-based reviews of departmental expenditure, managers can obtain detailed information that would assist in identification of redundant activities in addition to duplication of endeavors within the hospital (Dropkin, Halpin and Touche, 2007). Zero-Based Budgeting also serves to focus attention on the actual resources needed so as to bring about an output or outcome, instead of the fractional decrease or increase compared to the previous period. Zero-Based Budgeting is a user friendly practice whose implementation is easy as compared to incremental budgeting. It is also an important debt reduction strategy due to the fact that it helps enhance good planning as well as decision making for all hospital activities. It reverses the conventional forecasting methods that working process is accustomed to (Finkler, Ward and Baker, 2007).

Conclusion

Zero-based budgeting is one of the modern budgeting techniques that, if properly implemented, can result in reduction and elimination of unnecessary debts within hospitals. Zero-Based Budgeting process calls for complete and detailed justification of the budget request through each program beginning from zero-base. In Zero-Based Budgeting, departmental heads are required to justify their need for funding each year. Each and every department is required to give a good reason why its funding would result in efficient running of the hospital or any other organization. Putting the burden of proof on departmental heads culminates in efficient allocation of resources as this is based on relevance of activities and needs. Zero-based budgeting calls for justification in addition to prioritization of activities before funding is done.

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