BHA FPX 4008 Assessment 1 Developing an Operating Budget


The purpose of this paper is to describe some different budgets and note how they can affect the overall financial focus of an organization. The budgets that will be highlighted are the operating, project, and capital budgets. Each has its purpose and are utilized to manage different aspects of the organization.

Why Budgets Are Important

A budget is, simply, a financial plan. Leaders in an organization are responsible to achieve certain results and budgets are a necessary tool to get there. Looking at past performance can be vital in determining future forecasted performance. Preparing, revising, implementing, and evaluation are key parts of the budgeting process. Including those most closely involved in managing a budget may be a key to success by providing individual motivation and accountability to the budget (Walsh, 2016). There are many types of budgets, and they may be used to manage the expense of a specific project, such as remodeling an office, or it could be an annualized budget that looks to plan for an entire year (Finkler, et al, 2022). Understanding the desired goals and outcomes of an organization is important when preparing a budget, as is the type of organization, for instance a not-for-profit organization may post a deficit whereas a government cannot, by law, exceed their budgeted spending (Finkler, et al, 2022).

Difference Between Operating, Project, & Capital Budget

Three common budget types are operating, capital and project budgets. Operating budgets focus on just that, the income and expenses that are attributed to operating a business. Healthcare examples could be revenue from insurance reimbursement, gift shop sales, or grants, if the organization is not-for-profit. In turn, expenses could be wages, marketing, and utilities. The goal of an operating budget is to plan the resources that will be needed to accomplish the intended outcome (Finkler, et al, 2022).

Capital budgets focus on strategic planning of the long-term needs (Ward, 2015). They are different than some budgets and don’t often show an “income” column as they track an organization’s assets, such as equipment that is used to generate revenue. A capital asset is anything that is expected to generate revenue for more than one year (Finkler, et al, 2022). The capital budget will consider an annual analysis of depreciation and the life span of equipment. A sound understanding of which equipment may need to be replaced and figuring that into the capital budget can make or break an organization’s financial outcomes (Finkler, et al, 2022).

Project budgets may be like capital budgets in that there is a set number of monies to be used for a specific project. The cost of the project comes from a fixed amount in the project “income” column and a list of expected expenses in the expense column. An example might be adopting a new EMR system. The expenses in such a project might be the cost of the software itself, the IT labor to install, as well as the cost of implementing and training of staff. [Explain the difference between operating and capital budget and provide examples of each.]

Provide Correct Revenue & Expenses

The ask of this assignment was to use the Medical-Surgical Department Budget to estimate the revenue and expenses for the remainder of the current fiscal year, assuming the revenue and expenses would be unchanged from the first 6 months. The current year to date actual revenue from July through December is $23,123,516. To estimate the total year, this number is multiplied by 2 to account for the second six months, $46,247,032. Obviously, this is an oversimplification of the process. The same equation was followed to determine the current year’s actual operating expense. The July through December total operating expense is $22,433,565 and multiplied by 2 gives the full hear total operating expense of $44,867,130. Overall, this is a favorable outcome for the entire year leaving the Med-Surg department with a net revenue of $1,379,902. The net revenue was determined by subtracting the total current year actual operating expense ($44,867,130) from the current year total operating revenue ($46,247,032).

Estimate the Correct Revenue & Expenses

In addition to estimating the rest of the current fiscal year, this assignment asks to develop an operating budget for the next fiscal year, assuming revenue was unchanged and budgeting a 5% decrease in operating expenses. For the total revenue, the number remains the same as the same as this year’s actual, $46,247.032. The next task is to assign a 5% decrease in total operating expenses for next year. Using an oversimplification, and basic math, this number was determined by taking the current year year’s total operating expense ($44,867,130) and multiplying it by 0.95 to determine the 5% reduction. This would make the total operating expense budget for next year $42,623,773.50, or, rounded, $42,623,774. Using this information, the outcome for the Med-Surg department for next year is even better than this year, with an overall net revenue of $3,623,258.

Balanced Budget for the Next Fiscal Year

In a real-life scenario, I’m sure the 5% decrease would not be taken across the board because not everything is completely controllable, for example, the cost of license and taxes are not likely to be 5% cheaper because there is a budget reduction – the cost is, usually, the cost. The effect of the 5% budget decrease may be felt more in salaries and wages as the budgeted revenue did not change so, in essence, the ask is to do the same volume with less staff. Leadership would have to be “on purpose” and look for ways to streamline operations and processes to allow this to be effective.

Conclusion BHA FPX 4008 Assessment 1 Developing an Operating Budget

Understanding the goals and desired outcomes of the organization as well as the organization type, be it not-for-profit, government, etc., is the first step in understanding how to plan a budget. Determining the desired outcome will allow a starting place for the plan, or budget. Understanding there may be a need for several different budgets and utilizing each of them as necessary will allow the best opportunity to achieve desired results. Implementing the budget plan and revising as necessary is a key step as well.

Looking at the Medical-Surgical Department Budget exercise, there is a great deal that isconsidered when budgeting and understanding how budget changes affect daily operations and processes is vital to delivering on expected outcomes.


Finkler, S., Calabrese, T., &Smith, D. (2022). Financial Management for Public Health, and Not-for-Profit Organizations (7th ed.). SAGE Publications, Inc.

Slyter, M. (2016). How well do hospitals budget operating results? The relationship between budget variances and operating margin .

Walsh, K. (2016). Managing a Budget in Healthcare Professional Education. Annals of medical and health sciences research, 6(2), 71-73.

Ward, W. (2015) Health care budgeting and financial management . ProQuest Ebook Central

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