Analyzing Budgeting Systems for Emilia Healthcare's Business Finance

This report provides a detailed analysis of business finance and budgeting, specifically in the context of Emilia Healthcare Management, a private hospital. The report begins with an introduction to business finance, emphasizing its importance for operational continuity and resource allocation. Part 1 focuses on understanding the purpose and objectives of budgeting, the application of traditional budgeting approaches, and an analysis of the suitability of traditional systems for Emilia's current form. The report explores the role of budgets in allocating resources, predicting income and expenses, monitoring performance, and controlling spending. Part 2 delves into alternative budgeting systems, such as zero-based budgeting and rolling budgets, evaluating their potential application to Emilia. It analyzes whether these alternative methods, or a combination thereof, would be more appropriate. The report highlights the advantages and disadvantages of different budgeting systems, considering factors such as resource allocation, financial decision-making, and the need for adaptability in a dynamic business environment. The analysis considers the context of the healthcare industry and the specific challenges faced by Emilia Healthcare Management.

BUSINESS
FINANCE
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Table of Contents
INTRODUCTION................................................................................................................................3
PART 1..................................................................................................................................................3
1. A understanding of the purpose and objective of preparing a budget for business like Emilia's 3
2. Explaining the the application of traditional budgeting approaches to a business such as
Emilia’s............................................................................................................................................4
3.Analysing whether a traditional budgetary system is appropriate to the business in its present
form..................................................................................................................................................5
PART 2..................................................................................................................................................6
4.An understanding of alternative budget systems..........................................................................6
5. The potential application of the alternative budget system methods to Emilia’s .......................7
6. Analysing whether one of the discussed methods (or a combination) would be more
appropriate to Emilia’s ....................................................................................................................9
CONCLUSION..................................................................................................................................10
References...........................................................................................................................................11
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INTRODUCTION
Business finance is term that involve broad range of functions and disciplines turning around
the administration of money and other worthy assets. Without the availability of finance,no
company can continue its operations. In addition to this aspect, to assure production and distribution
of wide range of offerings, business needs monetary resource which is regarded as business finance.
Thus, business finance is refereed as life blood of any company. The business finance is mainly
used to meet fixed and working capital requirements( Zikmund,Babin,Carr,and Griffin, 2013).
Furthermore, it can be stated that business finance is important functions which is related with the
acquisition and conservation of capital funds in attaining financial requirement and overall strategic
aims and purpose of company.
In this report, various aspect of business finance will be studied in the context of provided
case study of Emila healthcare management. It is private hospital established in 1954. It further
render range of non urgent outpatient treatment including diagnostic, psychiatric and clinical
services . In this report, learning will be shown regarding the objective of developing a budget for
healthcare business. Thereafter, learning regarding traditional budgeting approaches to develop
business will be shown. Further, understanding regarding alternative budget system will be
provided.
PART 1
1. A understanding of the purpose and objective of preparing a budget for business like Emilia's
Budget can be refereed as quantitative manifestation of a plan for particular period of time.
It may involve planned sales volume and profit, quantity of resources etc. A budget is
approximation of the revenue and expenses over a particular future period of time and is compiled
and re-evaluated on a periodic basis. The Emila health care management prepares budget with
different purpose. The main objective of preparing budget is that it help in allocating resources to
varied activities and functions ( Arrfelt,Wiseman,2015). Thereafter, budget is prepared to predict
income and expenses in future on the basis of which company can facilitate decision making.
Further, Emila healthcare management use budget to monitor business performance. It
compare the forecast business performance with actual performance and estimate whether a
business is making profit or not. On the basis of this aspect, company can determine whether entity
is meeting the expectations of top executives or not. Other than this, the main objective of preparing
budget by Emila healthcare management is related to management and control resources and their
use. Such as, in case of cost budget the actual performance is more than planned one. In that case,
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company can identify the areas where they are spending more than needed (Asongu, 2016).
Therefore, by identifying wasteful expenses and making changes in spending level, company can
improve the efficiency of business thereby using funds in right direction (Cassar and Ittner, 2015 ).
Furthermore, with the help of budget Emila healthcare management can control its spending
level. Since it enable company in keeping a follow up where monetary resources are used and stick
to plan business can prevent itself from going into financial obligation. Therefore, entity will
consciously determine where to use funds. Overall, it assist the business of Emila to make effective
financial decision by assuring the expenses of business matches the priorities.(Activity based
costing, 2012). Thereafter, entity can ascertain the bottleneck areas of business it can cut down
expenses. The financial resources are limited however, they can be optimally used and managed
through budget. In this respect a specific budget renders information regarding how much business
can incur every month. Thereafter, to facilitate the attainment of financial objectives, it is important
for finance manager of Emila health care to prepare a budget (Chang and Fung, 2016 ). The another
main objective of preparing budget is that it assist in wealth building. It permits the entity to save
and start investing funds. By following the budget, entity can assure there are no idle funds in
business which are not needed and if it is so than they can be invested in fruitful areas.
( Zikmund,Babin,Carr,and Griffin, 2013). Thereafter, budget also act as base for developing future
policy. Thereafter,budget is communicated to different departments so that efforts are put in specific
direction only. Hence, budget act as a tool for communication and coordination and thus help in
improving the effectiveness of business.
2. Explaining the the application of traditional budgeting approaches to a business such as Emilia’s
Traditional budget is the budget where company allot money when financial situation occurs
such as rent, overheads, entertainment, and more. This budget is used when you have to spend
your income with plan. Many company adopt this budgetary system one of the company(hospital)
has been taken this is St. Emilia. But at present situation this hospital is facing a problems in
expenses related to past year budget and it effecting on present year budget also( Tirole,2010).The
company start this system because it manage the expenses and expense not exceed with the income.
By using this budget and with proper planning St. Emilia can solve all the obligations.
Company use budgetary system to flow of their work where in some cases traditional budgetary
creates problem also it takes very long period of time in starting of the month this budget is for no
use then it will use at the end of the month and when the budget is fixed it's like THE END it means
then no chances can be happened( Phelps ,Webb and Koh,2011).Economy, industry, marketing
factors also effect the budget system. Apart from them, managers of St. Emilia should concentrate
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on past year expenditure and try to make this year more profitable so it could be balance. Using this
budget system, St. Emilia comes to know that the amount of company is using for specific purpose
or not and make control over the financial account. It also support devolution where company get
more profit and work in effectively and efficiency (Serghiescu and Văidean,2014. ).If St. Emilia
not approaches this budgetary then again it will go on more loss expenses will be increase more,
sometime its may create a problem every good aspect has a bad aspect also some drawbacks like
difficulty in maintaining the formation, data entry error, control issue, some issues. Mostly the
organisation already adopt different budgetary system and it takes time to adopt traditional or any
other system (Montinari and Stracca,2016 ).
St. Emilia using this method control their financial activities. Sometimes this budgetary
system de motivate the people so it is the barrier of the company they don't focus to create value it
just focus on cost reduction only. Most of the company use this budgetary system so it is risky
sometimes and create more competition ( Tirole, 2010).This budgetary system generally worked in
public organisation. St. Emilia which is a private hospital should keep all these limitations into
mind and work accordingly and make budget financial year perfectly. St. Emilia hospital having
division of large department into having specific responsibility like reception, ward room, IT, staff
room, etc. so this system can manage all the budget without having any problem. But in present this
system is not appropriate but it is good for small scale organisation.
3.Analysing whether a traditional budgetary system is appropriate to the business in its present form
St.Emilia Healthcare Management Limited being a private hospital is using a traditional
method of Budgeting System. Budgeting is a crucial function performed by Finance Department of
an Organisation on a yearly basis following financial year of accounting. Appropriate amount is
allocated to each department for effective and smooth functioning of an entity namely Reception,
Human Resources, Administration and IT ( Chiang,and Chen,2016). It is crucial as well as
challenging job to assign and allocate finance into each of the Department which proves to be
success factors of an organisation as a whole.
 Incremental Budgeting System
As per Incremental Budgeting System prior year's budget is taken as base to the current year and
necessary amendments are incorporated into it to have the affect of changes in market and internal
parameters such as inflation, technological obsolescence etc.
 Advantages and Disadvantage of Incremental Budgeting System
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Since we take the previous year's figures of revenues, expenses and costs as a base to current year
Budget we can easily incorporate changes related to inflation rates , market demands and consumer
preferences that have evolved during this period. Using previous year's report provide us a clear
picture of funds required for the current year ( Cleary,and Quinn,2016).
 Appropriation in the current form of the business
However Traditional method of Budgeting is applicable and preferred only for small enterprises and
since St.Emilia is a big structured organisation other alternatives available for budgeting are
suggested such as Zero Based Budgeting .Traditional Budgeting may not be able to remove the risk
and threats associated with the changes in circumstances and would require extra efforts by
organisation to consumer services since there may be huge differences in the situations and
conditions (Fung,Zhou 2016 ). However experienced person can take care of all the fluctuations in
changing scenario and incorporate all the necessary changes to the budget but since new finance
officer Naida is appointed for the task she has to use full capability and analytical tools to make
effective budget with the help of guidance and suggestions of the experienced owners and
management of St.Emilia.
PART 2
4.An understanding of alternative budget systems
Since, its inception that budget plays a crucial role in management and control of funds
within the organization. There are various alternate methods that can be used to facilitate planning
of budget (Chang and Fung, 2016 ). The main reason for using the alternative ways is that
traditional approach of budgeting were time taking and outdated. In order to stay competitive in
present era, it is important for business entity to stay updated. Therefore, alternative budget systems
that can be considered by the Emila healthcare management are explained as follows:
 Zero Base Budgeting: As per this method, it is needed by entity to prudently examine the
existing financial status of the organization and apportion the resources accordance to that.
In this respect, the executives play an crucial role in acquiring needed finances for their
division ( Mingers, and Leydesdorff,2015). As per this aspect proposition of needed funds is
done by executives where the functions are catalogued starting with the task that have
maximum impact upon the income ratio. The functions arranged with fluctuating needs of
funds assist the budget division to acquire a finer apprehension on how to rank there
allocation of resources and funds. In zero based budgeting the expenditure are incurred
according to the way they match with the financial gain ( Guffey and Harp, 2016). Hence,
whatsoever be the outgo of the establishment it is completely used after resourcing the
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financial act until null is leftover. In simple words,zero based budgeting commence from a
zero base and every operation within a entity is assessed from its fund requirement and cost.
(Malik, 2015 ). Thereafter, Zero based budgeting does not consider the past performances
and thus concentrate on existing state.
 Rolling System Of Budget: The effective system that can be considered by Emila
healthcare management. In this method, the budget is modified and policies are developed
as per the needed changes. It act as link between the past or existing financial period with
that of forthcoming. It can be stated that it is only an additive extension of present period. It
needs care as compared to the other systems as few functions required to be well thought
out repeatedly. (Martin and Tian, 2016. )Therefore, on the completion of current budget
period, the rolling budget is constantly upgraded to ass a new budget period.
 Activity Based budgeting: It is effective method developed to render higher transparency
into the budgeting process. Therefore, in this method the planning is done where the costs
are related with varied business functions and budgeted outlay are then compiled as per the
expected activity level (Merigó,Rocafort,and Aznar-Alarcón, 2016 ) Activity-based
budgeting is beneficial as it permit the Emila healthcare management to have better control
over the budgeting method and to adjust the budget with total objectives of business.
5. The potential application of the alternative budget system methods to Emilia’s
The aforementioned alternative budget system methods have both pros and cons for the
business of Emila healthcare management. Therefore,it is significant for the finance manager to
make wise choice from the discussed methods. Discussion of which is provided as follows:
1. Zero Based Budgeting
Benefits Limitations
It gives a emphasis on executive to utilize the
secondary options of the work and impacts on
the different levels of the spending.
It concentrate on short term advantages to the
detriment of long term objectives.
It identify the redundancy ( Tirole,2010) The Zero based budgeting costly and complex
process
It help in reacting to changes in the business
environment
It need management skills which may not be
available.
It connects budget to a business objectives and
target plan.
It lack certainity and management may face
issues in implementation.
2. Rolling System Of Budget:
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Benefits Limitations
The planning and control are based on more
accurate budget.
The rolling budget are more costly and time
taking than incremental budget.
Rolling budget minimize the uncertainty level as
they emphasis on short term when the ratio of
uncertainty is less.
The rolling budget may become cause of
demotivation among employees as significant
part of time is spend on budegting ( Mingers,
and Leydesdorff,2015)
It extends the present fiscal period to future
financial period. Therefore, giving value to the
activities of immediate operational plan
( Stevenson,and Wolfers,2011)
The functions of rivals required to be monitored
continuously to determine upon the significance
of allotment of more monetary resource in
needed business activities.
3.Activity Based budgeting
Benefits Limitations
It connect finance to varied activities It complex function as it involve ascertainment of
activity level.
The realistic budget are set in comparison with
activity ( Montinari,and Stracca,2016)
The gross income may nt flex to balance
Data supported through activity based
budgeting is more reliable and understandable
which facilitate decision making.
The data can be misinterpreted which will have
impact on the overall decision making of business
( Serghiescu and Văidean,2014).
The activity base budgeting render improved
knowledge on the overhead expenditure
(Malik, 2015 ).
The data in the method fails to consider GAAP
principles which is crucial in present times.
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6. Analysing whether one of the discussed methods (or a combination) would be more appropriate
to Emilia’s
Summing up the above discussion, it can be stated that it is beneficial for company to
consider performance budgeting method. It further have significant number of advantages which are
discussed as follows:
 Transparency of budget is the leading benefit of this system, it will assistance to
comprehend the real outcome during the budgeting cycle. As per this aspect, the
organization will be competent to modify the plans.
 With the help of discussed method Emilia’s will be competent to measure the performance
easily so that its transaction and efficiency will get reinforced, if firm uses this budgeting
scheme in the workplace. ( SINGLETON,2016)
 Traditional budgeting system are time taking and there are greater possibility of errors.
However, with this system Emilia’s will be able to amend efficiency of the workplace. Data
error, control functions will be managed effectively.
 It is connected with the purpose of the Emilia healthcare management so that executives will
be capable to accomplish its objectives with the aid of performance budgeting system.
( Stevenson,and Wolfers,2011)
 It would be good for the health care service firm in enhancing the budget arrangement
procedure and it will assistance in minimizing the total operational cost of the business.
 It assist to amend legislative assessment process as it is developed by presenting a
comprehensive view of several departments of health care organization. So it first ensures
that budget plan will be worthwhile or not. By this way Emilia’s will be able to accomplish
its objective ( Phelps,Webb,and Koh,2011)
 It enhances efficiency of workplace thus, hospital will be able to develop strong relationship
with the patients. This will increase reputation of the organization.
 It helps to computation the possible results of the new funding decision. By joint in depth
information in the end set up plan of budget ( Serghiescu,and Văidean,2014.)
 It supports management to regulate and operate each activity according to the pre-determine
standards. By this way Emilia’s will be able to maintain service standards in the workplace.
This will enhance confidence and trust of patients on the health care organization.
 Performance budgeting will be the best suitable system for the Emilia’s Healthcare
Management Ltd and it will support to accomplish the objective of the firm in shorter time
duration.
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CONCLUSION
From the above report, it can be concluded that business finance is important aspect that
help Emila healthcare management in making optimum use of available funds and resources. The
business finance is required by entity to manage expansion and growth activities. Thereafter to
purchase physical assets, funds research and development and other activities finance are must.
From the report, it has been identified that budget play a crucial role in the working of entity. It
assist in making proper use of available funds. In addition to this aspect, with the help of budget,
company predict the possible expenses and revenues of business and thereby manage different
activities accordingly. From the report, it has been ascertained that incremental budgeting can be
used to anticipate their past finance year budget as a foundation and thereby determine their
present budget on the basis of the previous budget. From the report, it has been identified that there
are various alternative budget methods that can be used by company such as zero base budgeting,
activity based budgeting and rolling system of budget. However, all these methods have their
advantages and disadvantage which must be considered before selecting.
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