Operational Budget Preparation in a Healthcare System

Operational Budget Preparation

  • Maintaining good financial planning in a healthcare system needs effective budgeting. The operational budget is an illustration of forecast expenditure for a certain period.
  • It is crucial in planning how revenues and expenses will be channeled appropriately to ensure effective operations amongst various healthcare departments.
  • The revenue and expense section includes units sold, sales revenue (which includes charge rates on patients), capital expenses, and the expenses to be incurred in health activities.
  • The revenue and expense section ensures that the healthcare system has the adequate capital to allocate resources efficiently to save time and money and ensure proper spending (Anderson et al., 2020).
  • Mainly, in operational budget planning, data from the previous year’s revenue and expense spending are usually used to develop a budget.
  • Short-term finance can be defined as the credit or capital in the form of a loan extended to a healthcare sector, usually for less than a year.
  • It is usually extended to help bridge the existing gap between expenses and income in the short-run (Clarke, 2019).
  • The long-term financing includes the resources raised for a long time, mainly over a year. These types of financing are necessary for the expansion of healthcare facilities, modernization, and diversification.

Direct cost

  • In the healthcare industry, direct costs are the costs that are attributed to patient care directly.
  • Examples include the costs of drugs, medical supplies, nursing services, food services, imaging, and rehabilitation.
  • Direct cost is significant in the healthcare operational budget as it aids in making pricing decisions, and the healthcare leadership gets to know the correct cost they will charge on their services.

Indirect Cost

The indirect cost is a cost that is not related to patient care directly. They are mainly the expenses that are made to ensure the effective running of healthcare. Examples include the cost of healthcare records, human resources, capital expenses, general administration, maintenance costs, volunteer and regional services.

Overhead as applied to healthcare

Overhead cost can be explained as the cost which is not attributed to the patient’s medical care directly. Examples include the cost of documentation, billing or supplies, and governance.

Fixed and the variable cost

  • Fixed costs are constant costs that remain the same irrespective of the number of patients a healthcare system receives in a year. They are costs that are time-related and remain the same for some time (Decker, 2020). Examples of fixed costs include rent, building maintenance, and utilities.
  • Variables costs keep changing with the sales volume; they usually change with a change in the output level. Examples include the hourly labor costs, supply costs which constantly varied based on the patient’s number.

Service revenue

Service revenue is the total income that the healthcare system generates from the services provided to its patients. The amount is usually displayed on an income statement, for instance, service charged on imaging, home care services, and physician services.

Non-service revenue

Non-service revenue in healthcare involves the capital earned from the side activities of the health system. Examples include income from the sale of goods or the service fees.

Total revenue

Total revenue illustrates the total income that the healthcare system generated during an accounting period. It can be the revenue generated from the primary sources of income in healthcare or the other income sources (Ross, 2020). Examples include revenue from services rendered to the patients and the revenue obtained from the sale of drugs.

Gross revenue as applied to healthcare

Gross revenue is a total record of all the healthcare sales, and it is accounted for in the income statement. It is the capital from the capital earned from the sales, for instance, drug sales.

Net revenue

This is the combined all actual revenue in the healthcare industry, which includes the capital collected for the paid medical bills and revenue from other sources such as gift shops and cafeterias (Anderson et al., 2020). It is entirely the amount of capital generated in healthcare, and it is essential to put them into considerations when establishing an operating budget.

How the realities of a budget might influence the strategic planning in a healthcare organization

  • Every organization to attain its success has to budget for its operations adequately.
  • Budgeting is the basis for all the successful operations of services in the healthcare industry (Anderson et al., 2020). It creates a spending plan.
  • The following are the influences brought about by a budget;
    • It ensures that capital is allocated to each department and only channeled to the necessary services.
    • Budgeting restricts spending that was not initially planned and ensures that the healthcare sector has capital for its future projects.
    • It enables healthcare to make confident financial decisions and meet its objectives.
    • Involving various employees in the budget-making process enables the sharing of ideas for the success of the organization.
    • The budget preparations can help the organization’s management teams know the strengths and weaknesses present in the healthcare industry and develop appropriate decisions.
    • A well-established budget helps employees know the priorities of the healthcare industry.


Anderson, D. M., Cronk, R., Best, L., Radin, M., Schram, H., Tracy, J. W., & Bartram, J. (2020). Budgeting for environmental health services in healthcare facilities: a ten-step model for planning and costing. International Journal of Environmental Research and Public Health. 17(6), 2075. Web.

Clarke, C. (2019). Strategic planning in healthcare. In Loh, E., Long, P. W., & Spurgeon, P. (Eds.), Textbook of Medical Administration and Leadership.

Decker, K. L. (2020). Impact of performance-based budgeting on quality outcomes in US military healthcare facilities. Web.

Ross, T. K. (2020). Practical budgeting for health care: A concise guide. Jones & Bartlett Learning.

Cite this paper

Select a referencing style


AssignZen. (2023, July 18). Operational Budget Preparation in a Healthcare System. https://assignzen.com/operational-budget-preparation-in-a-healthcare-system/

Work Cited

"Operational Budget Preparation in a Healthcare System." AssignZen, 18 July 2023, assignzen.com/operational-budget-preparation-in-a-healthcare-system/.

1. AssignZen. "Operational Budget Preparation in a Healthcare System." July 18, 2023. https://assignzen.com/operational-budget-preparation-in-a-healthcare-system/.


AssignZen. "Operational Budget Preparation in a Healthcare System." July 18, 2023. https://assignzen.com/operational-budget-preparation-in-a-healthcare-system/.


AssignZen. 2023. "Operational Budget Preparation in a Healthcare System." July 18, 2023. https://assignzen.com/operational-budget-preparation-in-a-healthcare-system/.


AssignZen. (2023) 'Operational Budget Preparation in a Healthcare System'. 18 July.

Click to copy

This report on Operational Budget Preparation in a Healthcare System was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.

Removal Request

If you are the original creator of this paper and no longer wish to have it published on Asignzen, request the removal.