Chapter 11: Responsibility Budgeting
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Transcript of Chapter 11: Responsibility Budgeting
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Responsibility BudgetingChapter 11
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Learning Objectives
• Defining decentralization and its advantages anddisadvantages
• Identify the major types of responsibility centers in healthcare organizations
• Explain the relationships of responsibility, authority andaccountability
• Compute volume and rate variances for revenue
• Compute volume and cost variances for expenses
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Decentralization
• Degree of dispersion of responsibility within an organization
• Advantages-More efficient use of time, more relevant info,higher quality decisions, greater speed, better use of talent,increased motivation and allegiance
• Disadvantages-loss of control, decreased goal congruence,increased need for coordination and formal communication,lack of managerial talent
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Responsibility Center • An organizational unit formally given the responsibility to carry
out one or more tasks or achieve one or more outcomes, or both.
• Types of responsibility centers:1. Service centers
2. Cost centers
3. Profit centers
4. Investment centers
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Types of Responsibility Centers
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Types of Responsibility Centers
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Example 1
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Example 2
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Solution
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Measuring Performance
Basic Attributes:
• Responsibility-Duties and obligations of a responsibility center
• Authority-Power to carry out a given responsibility
• Accountability-Extent to which there are consequences, positive and negative attached to carrying out responsibilities
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Budget VariancesDifference between what is budgeted and what actually occurred.
• Revenue variances-positive called favorable
• Develop a Flexible Budget Estimate for Revenues
• Calculate the Revenue Variance Due to Changes in Volume Rate
• Expense variances-
• Identify the Amount of Variance Due to fixed costs
• Develop a flexible Expense Budget
• Calculate the Expense Variance due to Volume
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Example 3
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Example 4
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Solution:
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Beyond Variances
• Revenue Attainment
• Cost Containment
• Revenue Enhancement
• Cost Avoidance
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Beyond Variances
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Other Financial Measures
• Compensation Systems
• Salary Based Compensation System
• At Risk Compensation System
• Mixed Compensation System
• Compensation System Design
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Summary
• Decentralization a growing trend
• Advantages and disadvantages to decentralization
• Responsibilities centers include: service, cost, profit and investment
• Variances must be tracked and cause determined
• Compensation systems must be reviewed