1. F BUDGET Cancer Center Emerging Leader Program Ely Kuo-Vasher, MBA Finance Director

2. Budget Definition - from French bougette or purse -a list of all planned revenue and expenses Used as a tool to assist in making operating decisions and provides a framework for future growth Assists in setting expectations, targets and goals Used to forecast or model based on strategies, events, plan or projects

3. Budget – Nuts & Bolts Revenue/Income Expenses Margin Metrics

4. Revenue/Income Definition – income or expected income from activities related to an organization including goods and services Patient Services Research Investments Donations Other income

5. Gross vs Net Revenue/Income Gross is total revenue/income generated. Net is the gross revenue/income less taxes, allowances and deductions. Net pay is gross income less taxes Net revenue is patient charges less insurance allowance/reimbursement and bad debt Research fund less indirect costs

6. Expenses Definition – outflow of money to pay for an item or service, or for a category of costs Payroll Benefits Supplies Other Operating Building

7. Expenses Direct vs Indirect Direct are expenses attributable to providing or producing specific product/service Indirect/overhead are fixed or general expenses, examples include utilities, depreciation, management costs

8. Margin – Profit/Loss Net Revenue/Income Expense = Margin -

9. How do you build a budget Revenue Define activity – patients, grants, gifts Breakdown of specific activity Develop revenue/income per activity, total gross revenue/income Include growth/increase projections and assumptions Calculate net income/revenue based on projected collection

10. How do you build a budget Expenses Develop cost/expense per activity Breakdown into specific expense categories Include growth projections/assumptions and inflation Calculate the total cost/expense

11. How do you build a budget Time frame will vary depending on the type of budget Operating – 1 year New programs/projects – 1 to 3years

12. Budget Review Review actual versus budget variances periodically, monthly, quarterly, yearly Use year end actual to plan for the next year Review processes or strategies to increase income/revenue or decrease expenses

13. Budget vs Forecast Budget is a static plan, does not change throughout the plan period until the next period. Forecast is an updated plan and a prediction of performance. Supports flexibility to incorporate changes that may occur throughout the plan period.

14. Budget Cycle 7/1/09 Budget 7/1/09 Budget 1 st Quarter Actual 7/1/09 Budget 2 nd Quarter Actual 7/1/09 Budget 3 rd Quarter Actual 7/1/09 Budget 4 th Quarter Actual

15. Forecast 7/1/09 Forecast 1 st Quarter Actual 2 nd Quarter Forecast 2 nd Quarter Actual 3 rd Quarter Forecast 3 rd Quarter Actual 4 th Quarter Forecast 4 th Quarter Actual Forecast

16. Metrics If you cant measure it, you cant manage it Develop measurements to evaluate performance, key performance indicators are used to develop targets/objects Metrics are used to assess current financial position Metrics are ratios that present financial information and makes it easier to compare/benchmark Metrics can be a combination of operational and financial indicators Represented by ratios, example: Operating Margin = Net Income Sales Productivity = Sales Revenue FTE

17. Questions? Metric Exercise