Continuous or Rolling BudgetsĪnother approach to improve forecasting accuracy and annual budget processes is to introduce a rolling budget concept into the annual budget cycle. Flexed budgets are based on what actually happened in hospital departments, as opposed to the original budgets, which are based on stale volume assumptions. Flexible budgeting takes the actual volumes experienced by organizations and flexes variable budget revenues and expenses-calculating variable budgets based on those actual volumes. Flexible budgeting assists in variance analyses (a process of breaking down budget to actual variances into their relevant components-volume, rate, and efficiency) by removing volume as a cause of the budget variance. Flex Budgetingįlex budgeting was developed to address the forecasting errors of extended budget cycles. Projections based on assumptions that are six months old often produce erroneous budget targets, primarily due to differences between volume assumptions and actual volumes and unanticipated changes in how services are provided throughout organizations. The net effect of this extended process often produces results that are out of date as soon as the budget is complete. This approach has institutionalized an extended budget process, Often, six months or more of the year is invested in budget development. This is true whether the approach is bottom up, zero based, volume driven, or top down. Most healthcare institutions today invest a significant amount of time and resources in an annual process, with weeks spent negotiating a budget between department management and administration.
An extended budget process often produces results that are out of date as soon as the budget is complete.īudget process evolution and maturity in healthcare organizations traditionally has lagged other industries, where leading-edge and data-driven forecasting approaches are currently evolving.
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