Skyline Hospital: Applying Zero-Based Budgeting in Finance Report

This report delves into the concept of zero-based budgeting (ZBB), a financial approach where each budget period starts from a zero base, requiring justification of all expenses and incomes. It contrasts ZBB with traditional budgeting, emphasizing the need for current data analysis instead of r...Read More

Running head: FINANCE
FINANCE
Name of the Student
Name of the University
Author note

1
FINANCE
Zero based budgeting (ZBB) is a method of budgeting where; the expenses and incomes
for each new period must be justified and started from the scratch. Here, the main factor lies in
the fact, that each new period is treated as a zero base. Each year the budget starts with a zero
base. Each and every cost and incomes related to every organisational department are justified
with a zero base for every year ("Forbes Welcome", 2018). Consequently, the budget is prepared
for the New Year, regardless of the amount of costs and expenses of the previous budgets. It is
based on the basic premise that the costs and the expenses associated with the New Year will be
based on the actual data and not on the basis of the previous budget’s historical data. It is
assumed that there are no balances which are to be carried forward in the next year.
The steps are as follows:
 Identification of the decision units.
 Creation of decision packages.
 Ranking and choosing of packages.
 Allocation of resources.
 Consistent monitoring and controlling.
Examples of Zero based budgeting:
John is the owner of a café in Miami. Recently, his business has been losing money and it
has hit him hard. Consequently, John has decided to look at the various costs and incomes
associated with the current year and analysing the same. Instead of looking into the previous year
data, he starts from the scratch and looks into the current data for the analysis of his business
problem. Thus he starts at zero for this.

2
FINANCE
In this paper, special emphasis will be thrown on the implementation of zero based
budgeting in Skyline hospital. ZBB will be implemented into two sections:
 Medical programs
 Healthcare programs
A budget has been provided below through which a better understanding can be
provided in respect of the adjustments for the zero based budget of the hospital.
The net revenue of the hospital stands at 88, 55, 640 $. For zero based budgeting, the
management must start from the scratch for all these items for making adjustments for the
increasing operating expenses.

3
FINANCE
For Zero based budgets, he following steps should be implemented:
 Orientation and planning- Initially, the leaders of all the medical sections of the hospital
would be made oriented with ZBB and consequently decision units need to be
ascertained. In the medical section, decision units would be determined, where costs need
to be minimised (Miller, 2018). It can include areas such as emergency medicine,
paediatrics, anaesthesia, Psychiatry, where unwanted costs should be avoided. These
supplies should be analysed and adjustments should be made for the zero budget. In the
healthcare section, services like patient care, therapeutic, diagnostic and administrative
should be looked into. Initially a review of all these activities should be done for decision
units.
 Decision packaging: The hospital management should now create the necessary
packaging for the implementation of the budgeting procedure. The core work areas of the
decision units should be analysed (Réka, Ştefan& Daniel, 2014). The costs, purpose,
alternatives, consequences and the various measures are to be analysed in detail.
 Selection of packages: The hospital authorities should make a proper evaluation of the
various packages. The financial implications of the various services and their
optimisations are to be looked into. The type of services required by patients, scope for
using selected services for emergency cases only should be look into, which can reduce
unnecessary costs.
 Resource allocation: The application of resources for implementing the various decision
packages is the next step. The current monetary funds should be used instead of previous

4
FINANCE
year’s estimates to implement the changes. Prompt disease management, active care
management in Medicare are needed to be implemented.
 Monitoring and controlling: The continuous controlling and measurement of the
implemented steps should be regularly done and the deviations should be regularly
addressed.

5
FINANCE
References:
(2018). Wrh.on.ca. Retrieved 22 March 2018, from http://www.wrh.on.ca/webbuild/site/wrh-
internet-upload/file_collection/WRH%20Medical%20Departments
%20Orientation%20Session%20V6.pdf
Forbes Welcome. (2018). Forbes.com. Retrieved 22 March 2018, from
https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.co
m/sites/theyec/2018/03/21/zero-based-budgeting-how-to-cut-down-on-
unnecessary-line-items-in-your-business/&refURL=https://
www.google.co.in/&referrer=https://www.google.co.in/
Miller, G. (2018). zero based budgeting. Routledge.
Réka, C. I., Ştefan, P., & Daniel, C. V. (2014). TRADITIONAL BUDGETING VERSUS
BEYOND BUDGETING: A LITERATURE REVIEW. Annals of the
University of Oradea, Economic Science Series, 23(1).