Understanding management of finances and resources
Every Hospital and Health Service (HHS) is required to plan the predicted cost of delivering on their strategic plan. This is called the budget. The total health service budget then gets divided across the organisation into cost centres.
As a leader, you’ll play an important role in managing the resources of the health services, and many leaders are also cost centre managers.
Note
Labour expenses make up approximately 70% of the budget, with non-labour expenses accounting for about 30% - including drugs, clinical supplies, outsourced service delivery, repairs and maintenance, electricity, travel and other operational costs.
Manage your budget
The preparation of a budget enables managers and employees to consider the impact of different activities and the cost of those activities. This can provide an incentive for these managers and employees to reduce costs. Budgets communicate the expected financial performance of the cost centre for the year. This allows the owner to determine whether they need to obtain additional financing for that time frame. Budgets can provide a benchmark of costs; it is the responsibility of the budget holder (cost centre manager) to manage costs.
Managing costs includes:
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Approving and verifying costs
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Looking for cost efficiencies
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Being able to explain any variances in budget
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Remaining within budget allocation.
Tips to ensure you're on top of your budget:
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Pro-actively ask for information and make informed decisions.
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Understand the expectations of your business managers; do they expect you to own the numbers?
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If numbers aren’t your strength, find someone in your team who excels in this area and can help you.
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Understand the levers that you may need to pull if you need to change your cost base.
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Understand what reports you can get and what they mean.
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Understanding your direct and indirect costs and how to allocate them accurately.
Why it's important
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Ensuring that the health service is financially responsible and uses allocated resources in the most effective and efficient way is part of all our roles.
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There can be unexpected reasons that the predicted budgets and actual spends are different. Often this is because of vacancies in staffing, unexpected overruns and additional savings.
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However, as much as possible, it’s important to predict how much it will cost to run a service/team and monitor spend carefully.
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There are a number of aspects to managing resources, which include:
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Financial delegations
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Business Planning Framework (BPF)
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Cost centre management
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Procurement and Contract management
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Business Cases and Concept Briefs.
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Note
It can be very helpful to speak to your finance team early if you think there might be variances to your budget.
