HOSPITAL TRUST CASE STUDY

Hospital Trust Case Study

Hospital Trust Case Study

Introduction

The hospital's organizational architecture is comprised of several systems where decision rights, performance and measurement rewards are gauged and administered. Within the confines of the organizational architecture is the process of budgeting. Although budgets and their corresponding systems are accounting by nature, they also provide a measure to partition decision rights and control behavior, and are used more often than not as a managerial, rather than solely an accounting function (Zimmerman, 2003).

There are clearly established budgeting rules within the accounting industry. Typically, budgets are used to filter and analyze information throughout the organization, not necessarily to create more information for dissemination. The budgeting process utilizes what information is already available. The focus of budgets and the planning process are often based on the drivers of sales, profits and expenses, relying on historical performance and demand data to forecast future monetary requirements. It is an imprecise activity at best, yet an important action for the successful tactical operation of a business. On a strategic level, budgeting clarifies its competitive priorities, advantages and strategies for the future, employing cost forecasts and demand limits to quantitatively measure the feasibility of capital expansion projects (The Controller's Report, 2001).

For tactical purposes, budgets provide useful information tools and control mechanisms to company leaders, as well as partitioning decision rights with those holding specific knowledge about the operation. The advantages of budgeting (Zimmerman, 2003) include:

* coordination of sales and production;

* formulation of a profitable sales and production program;

* coordination of sales and production with finances;

* proper control of expenditures;

* formulation of investment and financing programs; and

* coordination of all operations within the business).

Surveyed Businesses

An investigation was undertaken to expose tactical budgeting patterns and behaviors of some central Georgia businesses. These businesses vary in size from an independent insurance company, to a 100-employee sole proprietorship healthcare company, to larger businesses where over 500 employees earn their livings at a non-for-profit University System of Georgia Hospital and a for-profit hospital that is owned and operated by a large multinational corporation. Are there any commonalities in the budgeting processes these businesses employ? Are budgets useful in the tactical decisions these companies pursue? Does the company employ vertical or horizontal techniques in determining budget requirements? Is budgeting even relevant within the parameters of the business's functioning?

Focus was placed on the tactical aspect of budgeting within the parameters of the investigated businesses.

Each interviewee was asked to comment on several questions posed:

1. Do you use budgets to assign decision rights?

2. When preparing a budget, is the information used in a vertical or horizontal manner as a source of communication (i.e. information shared among peers or on a top-to-bottom basis)?

3. Do you set goals internally through the use of a budget?

4. Do you use budgets to measure performance?

Information gleaned from each business revealed that budgets are used in diverse manners, typically catering to the unique structure of their operation. All the businesses interviewed responded that they did indeed use budgeting to a degree, in one form ...