Lomita Hospital Case Solution

2. Steps of Budgetary Process

The budget was dependent on the justifications provided at each level of lime management. Historical data was used for projections utilizing techniques like trend analysis and simulations. The department-wise projections were made by the fiscal affairs department. The projections were counter check with the services department and revised if there is any discrepancy between the two. The department chiefs, along with the administrators and sometimes laboratory administrators, were responsible for comparing the volume of projections with the accounting department. If both departments agreed on the projections, and the expense figure was finalized. The methods used by the accounting department for expense calculation was weighted average cost, which can be different from reality. So, contestation was performed by the relevant department based on experience. The accuracy in projected volume and expense was the responsibility of the service department. Once the departments submitted their projections, a pro forma budget was prepared by the Fiscal Affairs division, containing expenses and revenues. After the necessary adjustments, the budget was forwarded to the hospital's director Henry Burton. Finally, the budget was presented to the Budget Finance committee, comprising Mr. Burton, Colin Raymond (Associate director for Fiscal Affairs) and other board members. The budget was mainly initiated by the services department, pass through Fiscal Affairs division, revised by Dr. Burton, and presented to the budget committee.

3. Key Actors in the Process

The budget was initiated by the relevant departments, and they were responsible for the volume and expense of the projections. The accounting department runs the projections that were counter checked by the services department and were open to changes. Any demands initiated by the departments have to be justified to both Fiscal Affairs division and Mr. Gunderson, who reported directly to the Associate Director of administrative services. He was in the position to approve and disapprove of any additional demand. He evaluated and analysed data and required quantitative justifications. The Fiscal Affairs division mainly performed the function of coordinating, but they made all necessary cuts before presenting the budget to the committee.

Dr. Burton played a role in the revision of the budget and was also included in the budget committee. The chiefs could address their concerns to the budget committee directly if they were not satisfied with the pro forma budget. The departments can initiate the budget but are not involved in decision making. The fiscal affairs division plays a crucial role in coordinating but is not making decisions. The most significant players are Mr. Gunderson and Dr. Burton, along with the budget committee. Colin Raymond, directors of the fiscal division, was also part of the budget committee and in the position to influence the decision. All recommendations for any change, however, have to be justified.

4. Request for Additional Technician

There are certain identifiable issues with the need assessment criteria of the hospital. While it is understandable that the hospital cannot make any budget decisions without the relevant data, the procedure needs to consider the ground realities. Every increase needs to be justified by the increase in volume; while this sounds logical, it did not capture the intricacies of the diagnostic procedure. Because of a change in techniques, the workload may have increased without a significant increase in patient volume. Secondly, there is little regard for improvement in the quality of care, although it can also increase patient volume in the future. Given the scenario, Mr. Gunderson required the quantitative analysis justifying the demand for additional staff. The department failed to convey their message properly with relevant details. From the Gunderson perspective, he did not have the inside details of the laboratory and was relying on accounting methods or the justification of a technician. As mentioned in the case, the weighted average cost method was utilized for the cost calculation.

Similarly, he was averaging out the surgical and autopsies data and was making his decision on the mean figure. A better way to handle the situation could have been to understand the problem from a laboratory perspective. The budgeting process should also be more customized to cater to department needs.

5. Role of Mr. Gunderson

Mr. Gunderson's duty is to justify the costs before forwarding the requests or any additional staff. That requires quantification of additional demand, and that is justified. But the problem with the method of analysis is that they have some oversimplified assumptions. First of all, he believes that if a department can work without a position for a few weeks, it is not needed at all. In fact, in the short run, people can manage the additional workload, but in the long run, it will impact their efficiency. Secondly, the data of stained slides was calculated on an average basis, while the volume of special stain slides was increasing and impacting the workload significantly. Mr. Gunderson was unable to find that, because of his traditional methods of calculation. There was a problem at the department's end as well, because all relevant details were not provided timely. But Mr. Gunderson could have analysed the situation from the department's perspective. Perhaps, a meeting with Dr. Russell to better understand the minute details about the additional workload and strategies of the department to cope with it. Being in the services sector, the little regard to the quality of care was not a good approach from the business perspective, since the increase in patient volume is directly proportional to the quality of services being offered. 

6. Kinds of Responsibility Centres

The problem is the bifurcation of responsibilities at the cost and revenues sides. The services department is involved in the cost procedure but practically let out in revenues projections. This can be solved by establishing the following departments.

Cost Centres:

The cost centres should involve people from both sides, accounting and services departments. The misallocation of cost as a result of using the weighted average costing method can be rectified in this manner. The number of labour hours allocated to different activities can also be calculated efficiently.