Professionals must become aware of the necessity of using quantitative data in budgetary justifications. Very often I will get four or five justifications before one is finally written in terms of numbers which I can then relate to the administration. If the request cannot be put in terms of generating income or increasing productivity, the justification must be even more convincing. These statements can be in terms of loss of time, ease in handling, or better service. But none of these justifications can be emotional.
The speaker was Charles Russell, M.D., Chief of Pathology at Lomita Hospital, who was in the process of formulating his budget for the upcoming fiscal year. He had just received statistics from the Fiscal Affairs Department detailing the number of discharges, patient days, and clinical support services used in the past two years, and estimating the figures for the upcoming year (Exhibit 1). One of Dr. Russell’s responsibilities was to review these estimates and make whatever revisions he deemed appropriate. Once he and the other department heads had completed this process, the Fiscal Affairs Department would aggregated the totals and make overall hospital volume projections. The volume projections then would be used to estimate hospital revenue which, in turn, determined the costs that the Fiscal Affairs Department allowed each of the hospital’s departments.
Since the beginning of intensified cost control measures by Lomita several years ago, a tight rein had been put on departmental costs. Therefore these statistics became highly meaningful to Dr. Russell as well as other service chiefs in the hospital. Each service chief had his or her own set of statistics which had to be analyzed in light of the hospital as a whole.
Dr. Russell's primary objection to fiscal affairs’ statistics was that they were aggregated figures and thus did not show the distribution of procedures undertaken by the various sections within his department. As a result, fluctuations within these sections were concealed. Since he felt that realistic projections of future volume could only be made on the basis of statistics for each section, he kept his own record of procedures, broken down according to section and specific laboratory process (Exhibit 2).
Dr. Russell was especially concerned with the hospital’s projections of expenses insofar as they related to the cytology section of his department. There was a quite reliable rumor that the staff of the Gynecology Department would be leaving Lomita to set up their own clinic. If this should happen, it was likely that the new, perhaps lesser known, staff would not have the same volume of patients so as to generate the cytology work that the present staff gave to the Pathology . . .
- Trace through the steps in the budgetary process at Lomita. Who are the key actors in this process and how can/do they influence the final budget?
- What is your assessment of the way in which the request for an additional technician was handled? How, if at all, would you have changed the role that Mr. Gunderson played?
- What kinds of responsibility centers have been established at Lomita? How do they influence the budgetary process?
- What changes, if any, would you make to the budgetary process at Lomita? The responsibility center structure?