Description
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Overview. will submit a draft proposal for Section I, parts C and D (see below) of your final project. Using your healthcare organization and the information you have gathered, identify the capital budget item or items that will be used as the basis for the written capital budget proposal. You should include how the proposal recommendations reflect the big-picture view of healthcare.
Using your approved healthcare organization and the knowledge you have gained on capital budgets, identify what capital budget item or items will be used as the basis for the written capital budget proposal. Include how the proposal recommendations will reflect the big-picture view of healthcare. Please refer to the HBR Coursepack: Notes on Operational Budgeting in Healthcare for final project budget guidance. (pdf file uploaded )
Prompt:
Specifically, the following critical elements must be addressed:
Introduction
c.Opportunities: Based on your analysis of the major forces, impacts, and opportunities provided, consider the specific organization that you selected. What opportunities exist for this organization, and how do these opportunities relate to the big-picture view of healthcare?
D. Proposal: What is your proposal for addressing identified issues or improvements within your organization? In other words, what changes are you trying to incorporate in your selected organization?
What to Submit
Your paper must be submitted as a Microsoft Word document and should be a minimum of one page in length, with double spacing, 12-point Times New Roman font, one-inch margins, and at least two sources cited in APA format. Your paper must use APA formatting throughout, including headings, references, citations, and cover page.
Milestone Three Rubric
Criteria Proficient (100%) Needs Improvement (85%) Not Evident (0%) Value
Opportunities Translates the big-picture view of healthcare to the selected organization to identify areas of opportunity Identifies areas of opportunity within the selected organization, but without the connective detail to the big-picture view of healthcare Does not identify areas of opportunity within the selected organization 45
Proposal Conceptualizes reasonable change(s) for proposal within the organization based on the identification of opportunities Conceptualizes change(s) for proposal within the organization, but changes are not reasonable or not based on the identification of opportunities Does not conceptualize changes for proposal within the organization 45
Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10
Total: 100%
Unformatted Attachment Preview
HBSP Product Number TCG321. Rev. Nov22
THE CRIMSON PRESS CURRICULUM CENTER
THE CRIMSON GROUP, INC.
Note on Operational Budgeting in Health Care
As long as there are scarce resources and alternative uses, an organization will face financial
constraints. Most deal with this by means of an annual budgeting activity. In contrast with pro
gramming, which looks ahead several years, budgeting generally is for a single year. Ordinarily,
it uses the new programs or product lines that emerged from the programming phase, along with
existing programs and product lines, and attempts to determine the revenues, expenses, and,
sometimes, the nonfinancial (or programmatic) outcomes associated with each.
In some organizations, programs fall neatly into responsibility centers, so each responsibility
center manager prepares a budget for each of his or her programs. Alternatively, it also is possi
ble that each program is a separate responsibility center, most likely a profit center. When neither
of these arrangements is possible, a more complex, matrixlike structure may be needed,.
It is important for the budgeting phase to fit with the organization’s responsibility center
structure and strategy. To accomplish the latter, line managers must budget for nonfinancial as
well as financial goals and objectives. Senior management then can link each responsibility cen
ter’s activities to the organization’s overall strategic direction.
Most organizations have two budgets. The operating budget, discussed in this note, focuses
on revenues and expenses on an accrual basis, and is used to measure the financial performance
of line managers. The cash budget forecasts the cash inflows and outflows associated with both
ongoing operations and financing; it is used by the controller or treasurer to help manage the or
ganization’s cash.
ORGANIZATION OF THE NOTE
The note looks at operational budgeting through several lenses. The discussion begins with
the nature of the operating budget, and the broad context in which budgeting takes place, distin
guishing between budgeting’s behavioral and mechanical aspects. It then looks at the compo
nents of the operating budget, and the steps involved in formulating a budget. An appendix to the
note discusses some budgeting misfits, or areas where the budgeting phase may be poorly
aligned with other organizational activities.
GENERAL NATURE OF THE OPERATING BUDGET
It is during the budgeting phase of the management control process that an organization sets
out its plans for the upcoming year, and attaches monetary amounts to its various activities and
programs. Additionally, in many organizations, the budget is used as a central aspect of measur
ing managerial performance, which means that the budgeting phase has behavioral as well as
mechanical aspects.
Relationship Between Programming and Budgeting
In concept, operational budgeting follows programming but is separate from it. Ideally, the
budget is a “fine tuning” of an organization’s programs for a given year, incorporating the final
decisions on the amounts to be spent for each program, and specifies the organizational units that
are responsible for carrying out each program. In most organizations, however, there is no clean
_____________________________________________________________________________________________
This background note was prepared by Professor David W. Young. It is intended to assist with case analyses, and not
to illustrate either effective or ineffective handling of administrative situations.
Copyright © 2022 by The Crimson Group, Inc. To order copies or request permission to reproduce this document,
contact Harvard Business Publications (http://hbsp.harvard.edu/). Under provisions of United States and in
ternational copyright laws, no part of this document may be reproduced, stored, or transmitted in any form or by
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TCG321 • Operational Budgeting in Health Care
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separation between programming and budgeting. Even organizations that have a welldeveloped
programming phase occasionally discover circumstances during the budgeting phase that require
revision of programming decisions. In organizations that do not have a clearly defined program
ming phase, program decisions are made as part of the budgeting phase.
Despite this overlap, these two activities have different characteristics, and it therefore is
useful to think about them separately. Programming decisions usually have multiyear conse
quences, and occasionally include rough estimates of the associated revenues and expenses.
Budgeting, by contrast, requires careful estimates of revenues and expenses, and usually is for
mulated within a ceiling of estimated available resources.
Since a budget is a plan against which actual performance is compared, senior management
must be certain that it corresponds to individual responsibility centers. As such, it provides a ba
sis for measuring the performance of responsibility center managers. If a program is to be used
as the basis for performance measurement, senior management generally must designate it as a
responsibility center. Otherwise, responsibility for many of a program’s elements may be too dif
fused throughout the organization to permit the measurement of any given manager’s perfor
mance.
EXAMPLE
A hospital may have a teenage substance abuse program. To be successful, the program may need con
tributions from the departments of pediatrics, psychiatry, obstetrics, emergency medicine, and social work.
If the program is not set up as a responsibility center, each department likely will do its best to provide the
services within its capabilities, but those services may not be well coordinated. As a result, it will be diffi
cult to measure the performance of the program’s manager.
Contrast with For-Profit Companies
Budgeting is perhaps more important in a healthcare organization than in a forprofit compa
ny, due largely to a contrasting cost structure. In a forprofit company, especially a manufacturer,
many costs are engineered. The amount of labor and the quantity of material required to make a
product are determined within close limits by design and engineering specifications. By contrast,
in most healthcare organizations many costs are discretionary—the amount to be spent can vary
widely depending on decisions by program managers, physicians, and other professionals. Many
of these decisions are made during the budget formulation phase of the management control
process.
EXAMPLE
Many hospitals have developed “clinical pathways” for patients with different diagnoses or diagnosis
related groups (DRGs). A clinical pathway is like an engineered cost, in that it specifies the ideal mix of
resources for a “typical” patient with a given diagnosis: length of stay, laboratory tests, radiology proce
dures, physical therapy sessions, and so forth. However, unlike a manufacturing company, where the prod
ucts of any given type are identical, all patients are not the same. Therefore senior management must be
willing to accept some deviation from the standard. How much of a deviation, under what circumstances,
and for what kinds of patients are topics that must be addressed during the budgeting phase.
MANAGERIAL CONTEXT FOR THE OPERATING BUDGET
Clearly, budgeting has mechanical aspects. Revenue forecasts must be made, the associated
expenses must be estimated, and the resulting surplus or deficit figure must be calculated. For
organizations to use the budget as a managerial tool, however, they must view it from a broader
perspective than just its mechanics. We will look first at this “contextual perspective,” and then
use it as a basis for discussing the mechanical side of budgeting. In this regard, it is important to
emphasize that the management control process has both a budget formulation and a reporting
(or budget monitoring) phase. In this note, the emphasis is on budget formulation. Nevertheless,
to put operational budgeting in context, we need to look at both phases. Doing so allows us to
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view budgeting’s mechanical and behavioral aspects in a more holistic context. Further, the
whole process exists in an organizational context, which explains why different organizations
have different budget formulation activities. This idea is shown schematically in Exhibit 1, and
explained below.
Organizational Context
One way of thinking about the context for a budget is in terms of the organization’s envi
ronment, strategy, and culture.
Environment. In many respects, an organization’s environment governs much of what hap
pens in its budgeting phase. If, for example, the organization is operating in a highly regulated
environment, like that of a public utility, its budgeting phase must be geared in part to the needs
of the regulatory agencies and the constraints they place on its decisionmaking. On the other
hand, if it operates in a more competitive environment, as do many healthcare organizations, it
quite likely will need to eliminate as much “slack” as possible. By contrast, an organization that
is the sole provider (or one of only a few providers) of a particular service may not need to pay
much attention to its budget, perhaps using it as a rough guide only.
Exhibit 1. The Context for Budgeting
ORGANIZATIONAL CONTEXT
ENVIRONMENT
Regulators
Clients
Competitors
Suppliers
STRATEGY
Programs
Markets
Financing
CULTURE
What senor management
wants the organization to
stand for
BUDGETING CONTEXT
Cost
Structure
Strategic
Success
Factors
Organizational
Structure
Motivation
System
OPERATIONAL BUDGETING
I
FORMULATION
BEHAVIORAL ASPECTS
• Controllable versus NonControllable Items
• Responsibility Center
Design
• Degree of
Participation
REPORTING
MECHANICAL ASPECTS
BEHAVIORAL ASPECTS
• Preparation of
• Assessment of
schedules, estimates, etc. performance
vis a vis
• Undertaking sensitivity
scope of responsibility
analyses with alternative • Superior-subordinate
scenarios
relationships
MECHANICAL ASPECTS
• Measuring results
• Preparing flexible budget
• Calculating variances
• Preparing and distributin
reports
Strategy. An organization’s strategy will also have a great deal to do with the way it prepares
its budget. A home health agency operating in a rural area, focusing on assisted living, and using
many unskilled laborers is likely to prepare its budget differently from a similar agency located
in an urban area, focusing on nursing and physical therapy visits, and using highly trained pro
fessionals. Shouldice Hospital, whose strategy is to offer only one service—a hernia operation—
will prepare its budget in a quite different way than a major teaching hospital with several cen
ters of excellence.
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Culture. Finally, an organization’s culture influences its budget. If, for example, a medical
school values a highly collegial atmosphere among its faculty, it likely will budget differently
from a medical school that thinks of its faculty as “hired help.” Johnson and Johnson, the phar
maceutical manufacturer with a wellestablished commitment to quality and customer satisfac
tion, will likely budget differently from a pharmaceutical company that puts less emphasis on
these matters. Moreover, senior management’s choice about the nonfinancial information it will
include in the budget can have an important impact on the organization’s culture.
EXAMPLE
A health maintenance organization, a physician group practice, or any other healthcare organization that
collects and regularly reports on matters of patient satisfaction and holds line managers and care providers
responsible for achieving certain threshold scores can expect to have a culture that places a greater empha
sis on satisfied (as well as healthy!) patients than an one that does not collect and report on such informa
tion.
Budgeting Context
The budgeting context follows from the organizational context and consists of four features
that influence and constrain how the budget is prepared: cost structure, strategic success factors,
organizational structure, and motivation systems.
Cost Structure. An organization’s cost structure influences its budget largely in terms of the
split between fixed and variable costs. For example, a visiting nurse association that believes it is
important to have a fulltime, salaried labor force will have a different cost structure than one
that chooses to use many parttime, hourly workers. Fulltime, salaried labor generally can be
considered a fixed cost, whereas parttime, hourly workers can be thought of as variable costs.
Strategic Success Factors. Most organizations have two or three activities that are crucial to
their success. For an HMO, hospitaldaysper1,000enrollees is important. For many home
health agencies a strategic success factor is the number of visits per nurse per day. How the or
ganization deals with these factors relates directly to its budget.
Organizational Structure. The way the organization is structured also will influence how it
goes about formulating and monitoring its budget. Some healthcare entities are organized into
departments, while others are organized into product (or service) lines, or are programbased.
Others have a matrixlike structure. Budget formulation will differ in each type, especially if
transfer prices are used for intraorganizational transactions.
Motivation Systems. Some organizations have reward systems that pay bonuses to key oper
ating managers. Others encourage managers to behave in an entrepreneurial way, and provide
extra budgetary resources to those who are successful. There can be a link between these kinds
of motivation systems and the way the budget is formulated. Indeed, in many organizations, the
budget is used along with actual results as a major performance evaluation tool. When this is the
case, managers’ annual bonuses, salary increases, and promotions may be closely linked to how
well they perform against their budgets.
Budget Formulation
As indicated earlier, the budget formulation phase has both mechanical and behavioral as
pects. Although they are related, we will discuss them separately.
Mechanical Aspect. All budgets have a mechanical aspect, in which schedules, estimates of
revenues, hours of service, unit costs, and the like are made. In the last 30 years or so, the use of
spreadsheet technology has greatly facilitated the mechanical side of budget formulation. Man
agers can incorporate key budget drivers into a spreadsheet program in such a way that “what
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if?” scenarios can be tested for their budgetary implications. Moreover, when spreadsheets are
used, decisions made in budget meetings about reductions (or increases) can be incorporated into
individual managers’ budgets quickly and accurately.
Behavioral Aspects. If a budget is to be useful as a management tool, its formulation must be
more than a purely mechanical exercise, with arbitrary reductions across line items when the first
pass leads to unacceptable bottomline results. Indeed, if the budgeting phase is to be useful for
managers at all levels in the organization, it must assist them in making a commitment to achiev
ing a set of agreedupon results. Because the surplus or deficit in a healthcare organization does
not fully measure performance, these results need to be of a strategic as well as a financial na
ture. In most instances, if managers are to commit themselves to achieving the strategic and fi
nancial aspects of the budget, they must have some degree of participation in setting the budget
targets, and they must be held accountable only for those items over which they can exert a rea
sonable degree of control.
EXAMPLE
In preparing its annual budget, a rehabilitation hospital that had designated its programs (e.g., spinal cord
injury) as profit centers, asked its program managers to budget for both revenues and expenses. As might be
expected, each program presented a budget with a surplus (even though most had incurred deficits the prior
year). The finance committee of the board then asked the program managers to indicate which budget driv
ers they expected to change to achieve the surplus, and by how much. The budget drivers were case mix,
volume, payer mix, reimbursement rates, resources per case, variable cost per resource unit, and fixed costs.
Once this activity had been completed, the committee asked the program managers to determine the
milestones associated with each budget driver and to timephase them. For example, one milestone was to
recruit and hire some foreign nurses, which would relieve the need to use comparatively expensive agency
nurses. The milestones included such activities as obtaining visas and work permits, arranging for trans
portation, finding housing, and engaging in training activities. Each program manager was then asked to
stipulate the resources needed for each milestone and to take ownership for achieving the milestones. In
undertaking these activities, the finance committee had injected a significant behavioral component into
what otherwise might have been a quite mechanical (and optimistic) budget formulation exercise.
Reporting
The mechanical side of monitoring the budget consists of measuring the same elements as
were used to formulate the budget, and structuring the information in a way that is useful for
program and department managers to take action to deal with problems. Reports are then dis
tributed to managers on a regular basis or as needed.
EXAMPLE
In the rehabilitation hospital example above, an important part of monitoring the budget was use of the
“milestone report.” By reviewing the milestone report monthly, the board’s finance committee was able to
learn of milestones that were not achieved by the target date, and thus had advance notice that some bud
getary goals might not be achieved. The committee then was able to work with the program managers to
determine what sorts of corrective action would be needed to bring the budget back in line.
COMPONENTS OF THE OPERATING BUDGET
In all but the simplest of organizations, the mechanical side of preparing the operating bud
get is performed in a context like the one described above. It also is conducted in light of the de
cisions that senior management has made about the organization’s responsibility centers. For ex
ample, profit center managers will build their budgets differently from standard expense center
managers, whose budgets will be different still from those of managers who run discretionary
expense centers. These budgets, in turn, will be quite different from those of managers of rev
enue centers. In general, however, the mechanical aspect of preparing the operating budget con
sists of addressing three factors: revenues, expenses, and output (or programmatic) measures.
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Revenues
The general purpose of a healthcare organization is to provide as much service as it can with
available resources. In some healthcare organizations, such as a public health agency or a man
aged care plan, the total amount of revenue in any given budget year is, for all practical purpos
es, confined within quite narrow limits. The goal in preparing the operating budget, therefore, is
to decide how best to spend it.
Most managers would agree that the budgeting phase should anticipate revenues first, and
then estimate the related expenses. This policy provides a bulwark against arguments, often
made by highly articulate and persuasive people, that an organization should undertake a pro
gram even though it cannot afford it.
Discipline Required for a Revenue-First Policy. Carrying out a revenuefirst policy re
quires considerable discipline in two respects. First, it requires a careful and prudent estimate of
total revenues from all sources, including patient copayments, gifts, grants, contracts, thirdparty
payments, and endowment earnings. Once this figure has been established, it is “locked in.”
Second, it requires a commitment to engage in cost cutting if the first approximation to the
budget indicates a deficit or a surplus that is not sufficiency large. Although the least painful
course of action is to anticipate additional sources of revenue, this can be highly dangerous. If
the original revenue estimates were made carefully, all infeasible sources were included. New
ideas that arise subsequently may produce additional revenue, but the evidence that they will do
so frequently is not strong. If the additional revenue, does not materialize, financial problems
will result. The safer course of action is to take whatever steps are necessary to reduce expenses.
Exceptions to the Revenue-First Policy. The policy that budgeted revenue sets the limit on
expenses is not applicable under some of the following conditions:
Discretionary Revenue. In some organizations, senior management may be able to increase
revenues by, for example, intensifying its fundraising efforts so as to increase gifts and dona
tions. This idea of “spending money to make money” is the health care counterpart of a forprofit
company’s marketing activities. To the extent that this argument is valid, it is appropriate to
speak of discretionary revenue as well as discretionary expenses.
Such opportunities are not of major significance in many healthcare organizations, however.
Ideally, the organization has already incorporated into the budget all the fundraising devices it
can think of, and managers must take the revenues from such efforts as a given.
Anticipated Grant Revenue. Some organizations, such as universities and research institutes,
include anticipated grant revenues in their budgets. This is because they frequently apply for
grants, but do not learn whether they will be approved until well into the fiscal year. If the budget
were prepared only on the basis of known revenues, key professional staff might be laid off, ob
tain employment elsewhere, and not be available when the grant is awarded. Thus, some organi
zations decide to incur deficits in anticipation of receiving grant awards. Such a strategy is risky,
and clearly can be sustained only if grants of sufficient magnitude are received.
Short-Run Fluctuations. When managers expect shortrun revenue fluctuations around an
average, it is appropriate to budget for the average revenue, rather than for a specific level of
revenue anticipated in a given year. In some years expenses may exceed revenue and in others
revenue will exceed expenses. Over time, the two should net out. Clearly, this strategy must be
carefully managed to make sure the organization can weather the bad times.
The Promoter. Occasionally, the amount of revenue available can be increased by a dynamic
individual. The governing board then may authorize an operating budget with a deficit in antici
pation of the new resources this person will bring in. Such a decision obviously is a gamble. If it
works, the organization may be elevated to a higher plateau. If it doesn’t, painful cutbacks may
be needed to bring expenses back in line with revenues.
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Hard and Soft Money. If it has a reasonably consistent pattern of patient flows from one
year to the next, a health care organization can count on a certain amount of patient care revenue;
this is hard money. Income from endowment investments is also hard money. It is prudent to
make longterm commitments, such as tenured faculty appointments, when they will be financed
with hard money. By contrast, revenue from annual gifts or grants for research projects is soft
money. In an economic downturn, gifts may drop drastically and grantors may decide not to re
new their grants. Managers must be careful about making longterm commitments that are fi
nanced with soft money.
Expenses
There are two general formats for the expense portion of the budget. The traditional for
mat—the line-item budget—focuses on expense elements such as wages, fringe benefits, sup
plies, and other similar items. The program budget, by contrast, focuses on programs and pro
gram elements. The difference between the two for a public health department is shown in Ex
hibit 2.
Exhibit 2. Line-Item and Program Budgets for a Public Health Department ($000)
Last Year Actual
Line Item Budget
Wages and salaries
Overtime
Fringe benefits
Retirement plan
Operating supplies
Fuel
Uniforms
Repairs and maintenance
Professional services
Communications
Vehicles
Printing and publications
Building rental
Other
This Year Budget
$4,232
217
783
720
216
338
68
340
71
226
482
61
447
396
$8,597
$4,655
72
861
792
220
410
70
392
0
236
450
65
450
478
$9,151
Program Budget
Community Health and Prevention
$2,677
Emergency Preparedness
1,610
Environmental Health
470
Family Health and Nutrition
320
Healthcare Safety and Quality
182
Health Information, Statistics, Research, and Evaluation 680
Infectious Disease Prevention, Response and Service
64
State Laboratory Institute
86
Public Health Hospitals
1,427
Substance Abuse Services
236
Regional Offices
563
General administration
282
$8,597
$2,845
1,771
482
347
180
704
70
92
1,530
260
560
310
$9,151
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The program budget permits a decision maker to judge the appropriate amount of resources
for each activity. It also permits senior management to match planned spending with measures of
planned outputs. Importantly, however, although the focus of a program budget is on programs,
there almost always is a lineitem listing of the various expense elements within each program.
Output Measures
The third component of the operating budget is information on planned outputs. Output in
formation usually consists of process and results measures. Some organizations commit them
selves to specific output targets for each as part of the budgetary process.
STEPS IN FORMULATING THE OPERATING BUDGET
Although every organization formulates its operating budget somewhat differently, most
have an annual timetable that typically includes five steps.
Step 1. Disseminating Guidelines
Senior management usually begins the process by distributing a set of guidelines for man
agers to follow in preparing their budgets, such as dates when various documents are due. Some
times managers are asked to submit partial budgets (such as revenue budgets) before preparing
the remainder of their budgets. Sometimes, managers are asked to submit only complete budgets.
If approved programs exist, the budget should be consistent with them. This does not neces
sarily mean that the budget should consist only of approved programs since this can frustrate op
erating managers. Indeed, desirable innovations may come to light if managers are permitted (or
even encouraged) to propose activities that are not part of approved programs. These activities
should be clearly distinguished from those in the approved programs, however, and operating
managers should understand that the chances for approval of new programs during the budget
formulation phase are slight. Otherwise, senior management may be downgrading the program
ming phase of the management control process.
Senior management also must make sure that operating managers are aware of any other
constraints that exist, such as a requirement that the budget not be for more than 105 percent of
the prior year’s budget. Constraints also can be quite detailed, such as stipulating that the budget
must be consistent with: (1) senior management’s assumptions about wage rates and other input
prices, (2) the conditions under which new employees may be recruited, (3) the number of em
ployees who may be promoted, and/or (4) expected productivity gains.
In addition, there often are guidelines about the format and content of the proposed budget.
These are intended to ensure that the budget estimates are submitted in a fashion that both facili
tates analysis and permits the comparison between actual and planned performance.
Step 2. Preparing the Revenue Budgets
For managers of profit centers, the first step usually is to prepare a revenue budget. Doing so
provides the organization with some reasonable assurance that anticipated revenue is based on
the market. If expenses were estimated first, there could be a tendency to assume that revenue
would be high enough to cover them, which might be unrealistic.
In preparing the revenue budget, the manager of each profit center in a large organization
may ask his or her revenue center managers to estimate their revenues for the year. If a profit
center is responsible for several programs, the profit center manager may ask each program man
ager to estimate the revenues for his or her program.
Sometimes revenue estimates are reviewed and evaluated by senior management’s staff to
assure that they are realistic in light of general economic conditions, competitive forces, and oth
er external factors. In large, complex organizations, revenue budgets contain considerable detail
on exactly what types of products will be sold, to whom, in what quantities, and where. These
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projections may go through divisional management for approval before being sent to senior
management.
Step 3. Preparing Expense Budgets for Profit and Standard Expense Centers
Each program’s expense budget usually is constructed by beginning with the volume and
mix estimates used for the revenue budget, and attaching variable cost elements to the units. The
results are multiplied to give total variable costs, after which the appropriate stepfunction costs
and fixed costs are added. In the case of a standard expense center, although no revenues are re
ceived, the manager still will need to estimate expenses by beginning with the anticipated vol
ume and mix of the center’s outputs.
EXAMPLES
In a hospital’s dietary department, the total variable cost for food can be estimated by using the average
variable cost per meal, multiplied by the average number of meals served a day, multiplied by 365 days in
the year. If the variable cost is different for each meal (breakfast versus lunch and dinner), a mix factor will
be needed. To this total can be added the stepfunction costs of the department’s kitchen and service per
sonnel, various nonfood supply costs, and the department’s fixed costs (such as dietitians).
In a hospital’s social service department, if the number of cases can be predicted, the budget for social
worker salaries can be obtained by using a standard workload factor (cases per social worker) multiplied by
the average salary of a social worker. If there are are different levels of social workers (MSW versus BA,
for
