Capital Budget Vs Operating Budget Essay

The two of the budgets that are commonly used in the health care organizations are capital budget and operating budget. Capital budgets consider equipment and building acquisitions that the hospital will be using for over a year. The operating budget is part of the master budget and is the day-to-day revenues and expenditures for the facility. Reviewing these two types of budgets meet the American Organization of Nurse Examiners Competency business skills, in “developing and manage an annual operating budget and long-term capital expenditure plan” (2015, p. 10). Capital budgets can be as small as an EKG monitor or as large as renovating a patient's hospital room or even rebuilding the facility, usually the cost is $2,500 to $5,000. The lifetime of the equipment is longer than one year.
Since these items for purchase have a long-term investment, they are also known as capital investments or capital assets. Equipment purchases are replacing older outdated items and can increase productivity, quality of care, or expanding service (Finkler, Jones, & Kovner, 2013). However, if the item is a more costly investment such as a vehicle, the finance department may use an approach to evaluative the capital project, return on investments (ROI). ROI is a ratio of profits from the investment over the amount invested. If this is a positive number, then this is good. The higher the number, the better the ROI. The disadvantage to the ROI is that it does not take into account the available cash on hand. Each nursing unit is considered a cost center and has an operating budget.
As mentioned earlier, operating budget is the day-to-day revenue and expenses for the year. It is very time-consuming for the manager, especially during the planning phase. Remembering that cutting in one area can affect another area. For example, the pharmacy asking nurses to reconstitute medications, will cost nursing time. However, it will save dollars in product. The difficult task is estimating for work volume for nursing whether in patient days, treatments, procedures, patients, or deliveries. Finance may tell some nursing units what that base number is. Calculate for full time equivalents, but for the most part, finance will dictate to you what that number is. It is your job manage and follow hospital policy on the overtime practices. An outline for the employee position’s budget is a way of detailing the amount it costs for each person in each position. Top management may just build raises into the operating budget. Included in the operating budget are the fringe benefits. The disadvantages are if the nurse manager made any mistakes in the budget, she will need to cut back costs to make up for
it.

Have you been involved in the budgeting process at your facility? If so, If not, do you think that you are comfortable with the budgeting process? If so, which one? References
American Organization of Nurse Examiners (2015). Competencies. Retrieved from http://www.aone.org/resources/nec.pdf
Finkler, S., Jones, C., & Kovner, C. (2013). Financial management for nurse managers and executives (4th ed.). St. Louis, MO: Elsevier Saunders.