Mentor Interview Paper
Business acumen is one of the most important competencies of individual nurse leaders. Project management and Financial management are components of business acumen. Business acumen is vital for advancing nursing practice and the entire healthcare delivery (Raftery Sassenberg & Bamford, 2021). A nurse leader is expected to be well versed in the concept of budgeting, including the development and management of operating and capital budgets.
This paper analyzes capital and operating budgets based on an interview I conducted with our institution’s former nurse manager. It will also focus on allocating resources and contributing to planning for profitability and financial success and nurse leaders’ approach to budget management.
Comparison of the processes of managing an operating budget and a capital budget
An operating budget is a financial plan of the daily activities of an organization. In contrast, a capital budget in healthcare is the process of allocating funds to purchase major capital items/durable hospital goods such as hospital equipment, beds/improve hospital structures (Petersen, Dhalla & Hellsten, 2019).
The processes of managing the capital and operating budgets have some differences and similarities. An operating budget is prepared and applied in less than a year, while a capital budget is used for more than a year. The healthcare institution uses an operating budget to project its expenses and revenue.
On the other hand, the capital budget is used by the healthcare institution to determine the improvements needed for their success in the future. In the operating budget, project activities are one throughout the fiscal year, while in managing the capital budgets, capital acquisitions are made from one to three years. However, managing the operating and capital budgets have some characteristics in common.
Both processes help the healthcare institution track and predict the growth. Both management processes also help healthcare institutions determine how to pay their routine expenses and plan on purchasing upgrade equipment to benefit the institution in the long term.
Process of Allocating Resources for labor, Equipment, and Services
According to Ordu et al. (2020), resource allocation in healthcare is the process of assigning assets to support the healthcare organization’s objectives. Resource allocation for labor, equipment, and services entails five detailed steps. The first stage is timeline mapping. Timeline mapping identifies the project’s current phase, thus establishing the amount of time required to meet the project objectives.
The second stage involves identifying the resources required to meet the objectives. The third step entails mobilizing the resources to meet the objectives. Healthcare institutions are funded by public and private funding. The fourth step is assigning resources. It entails placing the resources where they will be used to meet the project objectives, for instance, making procurement and paying for the labor, equipment, and services.
The fifth stage is tracking the project’s progress. It involves regularly monitoring the project’s schedule since any changes may alter the allocated resources. The process discussed applies to allocating labor, equipment, and services resources. When allocating resources, one should consult with the managers, members of the board, and the directors of the healthcare institutions.
The finance department should also be involved in resource allocation. Effective decision-making in resource allocation is realized when all the key stakeholders are involved, taking into consideration their concerns and using them to make the best decision for the institution. The process assumes that the resources required for acquiring labor, equipment, or services are readily available for the healthcare institution to mobilize.
Effective Approach Contributing to Planning for Profitability and Fiscal Success
The most effective approach that contributes to planning for profitability and financial success is the strategic management approach. According to Esfahani, Mosaedeghrad & Akbarisari (2018), strategic management aims to achieve an organization’s vision and long-term goals through a rational, systematic, and logical approach. Strategic management involves assessing an organization’s external and internal environment, setting a clear vision, goals, and objectives, formulating strategies and action plans to achieve them, allocating resources to implement the action plan, and evaluating performance.
It is an effective approach that contributes to planning for a healthcare institution’s profitability and fiscal success. Since strategic management enhances hospital managers’ focus on a defined goal, they can mobilize and manage resources, thus ensuring profitability and financial success. Improved patient satisfaction levels realize profitability through a strategic management approach, low employee turnover, and profitability. Strategic management also contributes to fiscal success by ensuring the healthcare institution is financially stable in the short term and has the resources to sustain itself in the long term (Esfahani et al., 2018).
However, there are alternative approaches that effectively contribute to the planning for the profitability and fiscal success of a healthcare institution. For instance, the supportive planning approach contributes to the planning for profitability and fiscal success by integrating individual planning and central planning; the major merit of the approach is the maximization of efficiency while maintaining care provider-client relationships.
Nurse Leaders Approach to Budget Management
Nurse leaders and nurses, in general, have an integral role in budget management. Among the approaches that nurse leaders use for budgeting are the rolling forecast, baseline budgeting, initiative/priority-focused budget, and the innovative budget. The most common approach to budget management is the initiative/priority-based budget. The priority-based budget management approach prioritizes the impact a specific initiative may have on a budget, thus allocating the budget to specific priorities and initiatives.
The approach is effective for nurse leaders since it helps reduce high-level initiatives into actionable and operational plans that suit the current budget. However, this approach can also be ineffective since initiatives may increase or decrease revenue, thus impacting care delivery costs. The aspect of this approach that can be adopted as a best practice for other nurse leaders is the ability of a healthcare organization to identify the factors associated with a specific initiative and model its financial and operation impact after a while.
A criterion used to evaluate the performance of a budget proposed by Wagner et al. (2021) involves testing the budget’s efficiency, the level of flexibility, ability to address the institution’s goals, whether it has support from the management, and whether it conveys a sense of ownership. Using these criteria, a budget is said to be effective if it is efficient, flexible, addresses the healthcare institution’s goals, is supported by the management, and conveys a sense of ownership to the members.
As discussed above, financial management skills are essential for efficiency in nurse leaders. Business acumen is one of the competencies of a nurse manager. Operating and capital budgets are the responsibilities of a nurse manager. The process of preparing the two types of budgets has differences and some things in common, as seen in the comparison above. The budget management approach that a nurse manager uses should be the one that suits their institution best since each approach has its advantages and disadvantages. Also, the budget’s effectiveness should be evaluated and changes made where necessary.
Esfahani, P., Mosadeghrad, A. M., & Akbarisari, A. (2018). The success of strategic planning in health care organizations of Iran. International Journal of Health Care Quality Assurance, 31(6), 563–574. https://doi.org/10.1108/ijhcqa-08-2017-0145
Ordu, M., Demir, E., Tofallis, C., & Gunal, M. M. (2020). A novel healthcare resource allocation decision support tool: A forecasting-simulation-optimization approach. Journal of the Operational Research Society, 1–16. https://doi.org/10.1080/01605682.2019.1700186
Petersen, S., Dhalla, I., & Hellsten, E. (2019, November). Pushing the envelope: Advancing Canadian healthcare payment models through evaluation. In Healthcare Management Forum (Vol. 32, No. 6, pp. 299-302). Sage CA: Los Angeles, CA: SAGE Publications. https://doi.org/10.1177%2F0840470419859388
Raftery, C., Sassenberg, A. M., & Bamford-Wade, A. (2021). Business acumen for nursing leaders, optional or essential in today’s health system? A discussion paper. Collegian, 28(6), 610-615. https://doi.org/10.1016/j.colegn.2021.08.001
Wagner, J., Petera, P., Popesko, B., Novák, P., & Šafr, K. (2021). Usefulness of the budget: the mediating effect of participative budgeting and budget-based evaluation and rewarding. Baltic Journal of Management, 16(4), 602-620. https://doi.org/10.1108/BJM-02-2020-0049