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A hospital or healthcare budget is an approximation of the expenses and revenues within a particular timeframe. Healthcare budgets enable health systems to understand the amount of funding that should be planned in several areas including capital equipment and operational costs. A well-organized budget enables health systems to make appropriate plans for the future to offer quality care. There are two basic types of budgets in healthcare namely operational budgeting and capital budgeting, and the third type of budget that is not commonly used is a rolling forecasting budget. This paper will discuss the various types of budgets and their examples, the advantages and disadvantages of these budgets, and the responsibilities of a department director with the creation of a budget and budget monitoring.

Healthcare operational budgeting is the process whereby the funding allocated for a facility’s annual operational expenses and personnel expenses such as training and staffing, is determined (“The Basics of Healthcare Budgeting and Capital Budgeting,” 2021). Staffing is normally the largest expense in an operational budget and not only does it account for fixed expenses such as salaries but also it should account for possible overstaffing, and overtime hours, among other variable expenses. According to the WalkMe Team (2022), an operational budget is critical in healthcare because it would be impossible for a hospital to function without it as it involves the daily expenses of running a healthcare facility, which also involves information technology like software. The WalkMe Team (2022) explains that an operational budget can include the following examples of items depending on the specialism of a healthcare facility: cotton swabs, alcohol wipes, non-sterile and sterile gloves, fluid bags, cloud-based platforms, and software as a service (SaaS) among others. An operational budget enables health systems and hospitals to balance and monitor expenses and revenues.

On the other hand, capital budgeting involves allocating funds for purchasing durable goods like equipment, and beds, and improving buildings and infrastructure. As explained in “The Basics of Healthcare Budgeting and Capital Budgeting” (2021), a hospital’s capital budget is crucial because the items purchased from the pooled resources for instance updated technology or adding surgical equipment might directly impact the ability of a health system to offer improved medical care for more patients. Generally, a capital budget is associated with a health system or hospital’s strategic vision. Additionally, when comparing a capital budget to an operational budget, it should be noted that the two influence each other even though they are separate (“The Basics of Healthcare Budgeting and Capital Budgeting,” 2021). For instance, capital investments like updated technology or new facilities might impact future operational and staffing expenses, although funds for these purchases might need to be acquired from the operational budget.

According to the WalkMe Team (2022), the difference between capital and operational budget is that capital budget provides for more important costs which hospitals use for a very long time and their value depreciates with time. An example of an item that would be included in a capital budget is specialized technological equipment, and more precise examples include messenger RNA (mRNA) technology, telemedicine, artificial intelligence (AI), virtual reality (VR), current infrastructure maintenance, new projects of infrastructure, robotic process automation (RPA), and health wearables (WalkMe Team, 2022). Capital expenditures benefit a hospital by facilitating the provision of improved quality healthcare at a particular standard compared to other healthcare providers. The budget manager should ensure to measure every cost against the analyses of data conducted to ascertain its long-term value and guarantee that it is a practical investment. During the process of planning for hospital budgets, involved leaders need to balance the effects of both capital and operational budgets.

Another type of budget used in healthcare is known as rolling forecasting, which involves updating financial projections on a quarterly or monthly basis, by using historical data to constantly make and update near and/or long-term forecasts (“The Basics of Healthcare Budgeting and Capital Budgeting,” 2021). Rolling forecasting budgets enable leaders to adjust their strategies as situations change and make efficiently make data-driven and agile decisions.  Unlike capital and operational budgets, a rolling forecasting budget does not involve the purchase of small or large goods but rather it involves predictions. Examples of events that can be included in a rolling forecasting budget as WalkMe Team (2022) mention include planning for unexpected pandemics like COVID-19, policy changes like Obama care, and available drug materials for various regional reasons which affect supply.

Budgeting in healthcare is significant because as the industry keeps growing and changing rapidly, there is a need to keep up with the emergence of new techniques and technologies, patient needs, and evolving reimbursement models. Healthcare budgets enable leaders to make critical healthcare decisions and the advantages of using various budgets as stated in “The Basics of Healthcare Budgeting and Capital Budgeting” (2021) include; (1) aligning operational strategies with financial planning targets, (2) prioritizing capital investments to correspond with strategic initiatives, (3) ability to effectively manage cash flow and capital spending, (4) helps to better comprehend the allocation of funds to individual clinical departments, projects, and initiatives, and (4) it helps in minimizing purchasing errors.

Despite budgets being helpful in healthcare facilities, there are several challenges or limitations associated with using various types of budgets in the healthcare industry including (1) unforeseen economic events like the COVID-19 pandemic that might render fixed budgets inaccurate and outdated, (2) increasing expenses and labor shortages, (3) acquisitions, mergers, and an increase in market competition from new models of healthcare delivery, (4) supply chain interruptions and issues like shortage of prescription drugs or personal protective equipment (PPE), (5) growth and adoption of innovative technologies like home-based medicine and telehealth, and (6) changes in payment and reimbursement models, comprising the decline of Medicaid and Medicare reimbursement (“The Basics of Healthcare Budgeting and Capital Budgeting,” 2021). Other external factors that may affect healthcare budgets include higher costs of capital acquisition, increasing interest rates, inflation, and changes in the volume of patients across different departments which might affect service line budgets.

The responsibilities of a department director with the creation of a budget and budget monitoring include (1) developing strategic plans to achieve organizational objectives and goals by identifying for increasing revenues or reducing costs, (2) appraising financial statements, budgets, and reports prepared from other departments, (3) preparing predictions of upcoming cash flow necessities and identifying methods of meeting the needs, (4) maintaining affiliations with vendors and creditors to ensure all bills are timely paid, (5) overseeing the process of preparing the organization’s annual budget, comprising the review of expense estimates and revenue predictions to conclude whether they are realistic, and (6) offering leadership by ensuring that departmental objectives are realized within budget restrictions.



The Basics of Healthcare Budgeting and Capital Budgeting. Syntellis. (2021, December 16). Retrieved November 9, 2022, from

WalkMe Team. (2022, August 17). Capital expenditure budget examples in the healthcare management industry. WalkMe. Retrieved November 9, 2022, from


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Write a 4 page paper to include the following:  compare and contrast the type of budget used in a physician’s office vs an acute care hospital.

  1. What are the types operational budgets may be used in healthcare?
  2. What are the advantages and disadvantages to using a certain type of budgeting?
  3. Give examples of what should be included in an operational budget and what should be included in a capital budget.
  4. If you were a department director, what would your responsibilities be with the creation of a budget and budget monitoring?
  5. Include any other material that is relevant to the budgetary process.


APA 7 Format

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