Zero-based budgeting is the process of budgeting where each single item must re-justify itself so as to het approved. It is a serious approach for costs cutting, creating more profits, and enhancing cash flow. Zero-based budgeting success depends on a clear firm’s concept, explicit short-term goals, long-term objectives, and financial resources that are available. In addition, every analysis of the expenditure has to include an analysis of expected benefits, purpose, cost, measures of review and performance, and analysis of alternative courses of action. This exercise strengthens the decision-making and planning of the firm by concentrating on the kind of expenditures which enhances the organizations operations and moves the business into attaining its goals (Chinniah, 2013). This paper focuses on providing guidance to Windsor Memorial Hospital on how they can implement a zero-based budget to enhance successful operations in the Hospital.
Windsor Memorial Hospital has been experiencing growth in the facilities, staffing, patient volume, services, volume and also revenue. This growth has yielded to operating losses an aspect that has resulted to capital deficit. Although the organization has managed to reduce its operation cost by 16%, it has not managed to attain its best level of efficiency. The organization has been using adjustment of the previous year budged to develop new-year budget. In this regard, the organization budget has not been reflecting what is needed currently in the organization. In this regard, the organization wishes to adopt the zero-based budgeting technique which will help it to consider all budgeting aspects that will enhance the current needs and operation of the organization. The elimination of the previous budget adjustment technique aims at increasing the organization efficiency. This is an advisory guidance that will assist the organization in developing effective and functional zero-based budget.
Zero-Based Budgeting for Windsor Memorial Hospital (WMH)
The best strategy to employ to develop a zero-based budget in WMH is by understanding the general organization objective and working towards attaining this objective. The organization’s main objective is to accelerate vision realization. In this case the organization vision is providing outstanding care without any exception. Others include improving customer services and care quality, improving work life quality and reducing service costs. Thus the budget should be structured to enhance the attainment of the hospital objectives. It should therefore consider all aspects that need to be accomplished to enhance quality care. This include provision of the right work equipment and materials to all personnel, provision of the right medical and chemical reagents required to enhance care, and also provision of the right work gears to enhance safety during the operation process. It will also consider the workforce compensation to ensure that they offer quality services due to great work satisfaction.
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In this case the main objective is to enhance efficiency at a reduced cost. In this regard, the budget process will involve identifying unnecessary activities that have been costing the hospital and eliminate them. It will also involves identifying the inefficient processes and establish a way in which their efficiency can be enhanced at a reduced cost. The process will center on reducing the operation cost without interfering with the efficiency of the operations that were already functioning efficiently. In this regard, the budget will not only focus on financial allocation, but it will focus on allocating finances where it is most needed and in sectors that finances will create a difference to the operation of the organization. Thus, every department will be anticipated to present its expenses and justification of those expenses, as well as the strategies that the department will employ to enhance efficiency based on the amount they are claiming. Only those operations that are justifiable will be funded or considered in the budget. In addition, the quoted amount can be reduced or increased based on the justification given and the weight of the case with regard to enhancing the hospital operation efficiency in that particular department or sector (Lunenburg, 2011).
To enhance effective zero-based budgeting, the organization should forget about adjusting cost of operations and come up with new operations based on the need of the organization. In this regard, the organization will have to forget its budget history and start from zero to restructure a new budget based on its current needs. In zero-budgeting, processes and operations are not funded because it is an organization norm, but because an operation is viable and its expenses and operations can be justified (Chinniah, 2013). In this case, Windsor Memorial Hospital can employ the zero-based budget by scraping the old budget that was based on adjustment and establishing a new budget which will require each department to present their intended operations or processes and their cost, followed by the justification of the cost. The budget committee will review these presentations and determine the ones that are viable and those that are not. The evaluation will also consider the possibility of an alternative that is cheaper or more viable. In this evaluation, the budget committee will also evaluate the proportionality of the stated cost to the operation it is intended to address (Lunenburg, 2011). Each case must be proportional to the requested money. The budget committee will also have to check on priorities of the presented operations. Only those with high priority should be considered first. Other operations that are not regarded to be necessary should be left aside or be allocated minimal amount. The committee will also be required to challenge assumptions presented to justify costs in various cases. This will help in enhancing the efficiency of the operations approved to be funded. In addition, it will be required to establish if there could be other way of funding the presented operations other than the use of the available cash (Deloitte, 2015).
Zero-based budget is hard to develop since it is not based on simple adjustment of the cost of previous budget but development of a new budget from the scratch. In this regard, I would recommend the budget committee to conduct a thorough study of the organization and its current needs to be aware of all its necessary needs and estimated cost they would need to be run efficiently. This will increase their ability to review justification and ensure that only those necessary operations are funded. The budget development should involve all important departments in the organization. This will eliminate chances of omitting an operation which could not have been featured by the committee but it is important to the organization effective operations. Every presentation should be reviewed without making ignoring some, but only those convincing presentations will be considered. The organization should always be following this technique to create yearly budget as a way of enhancing operation efficiency in the organization.
Windsor Memorial Hospital has been using previous year budgeting technique to develop new-year budget. However, this has over year proved to be inefficient due to its inability to fund the current needs of the organization. It has also been found to escalate the cost of operation while interfering with the organization operation efficiency. To resolve this issue, the organization will need to consider employing zero-based budget which will involve the development of a new budget from the scratch. This new development will only consider operations that are necessary for the effective operation of the organization. Its development will only focus on fulfilling the organization objectives. In this regard, it is anticipated to increase the operation efficiency and to eliminate unnecessary cost.
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