It doesn’t matter who control the budget but the main thing is how the management in a hospital is devoted to provide utmost service to the citizens. I can feel your concern. If the budget is controlled by individual departments, they can make purchase and expenditure when required timely. This is true when the system of a hospital is bureaucratic and follows a cumbersome procedure to make decision and make delay in providing required inputs. Moreover, the lengthy procurement procedure of the government (referring to Ethiopia) also makes its own contribution to the inefficient utilization of budget. Yet, In my opinion, departments should be trusted and enabled to handle their own budget for fast and effective utilization of their budgets. 

In my opinion, it should be a combination of both in order to achieve the best results. With central control remaining in the hands of finance department, individual departments should be provided with autonomy for making purchases. 

In case of bureaucratic control, situations of emergency can't be handled effectively as it will involve cumbersome and time consuming procedure. Whereas, democratic control can lead to mishandling of expenditure, hence impairing the budget of hospital.

Thus, at end if we have to look it from both economic as well social point of view, balanced approach between bureaucratic and democratic can yield best results, but practically to achieve such a balance is indeed a challenge.

The BUDGET is the most important tool for managing the organization. The organization must have a strategic map where all the goals must be deployed. After this deployment, the organization builds yearly budget that it includes the department budgets.

They are two levels of control:

1) Department: It is a control in detail, it should be diary or at least weekly.

2) Centralized: Not only under the responsability of finance department. This control is the support to the CEO and in accordance with the new techniques of management it is proactive in order to help to the other departments to take decisions.

Based on my experience I think that every department should hold their own budget. My experience in one Institution where I worked for just one academic course was awful. The budget was centralised by the Dean of the Business School. To ask for a tiny money, the amount of papers; permissions, etc. we had to go through was not worth it. By the time that the yes was awarded, conferences were passes, networking opportunities, etc. etc. The standarization of processes means a lost of flexibility. If in Higher Education is necessary, you can image in Health. There is not time to lose.

I think hospital budgets should be centrally managed by the finance department. Since one department may be cash generator, but other requires more investment. Central management may control whole system more efficient. 

Hello Gedion Firdawek ,

In my opinion Budget is a very important issue in this case but not the only one - so, I think that the envolved departments should not only participate in the process of building the budget, but also they should appoint some non-financial measures, in order to asses their own activity.

I think that is important that the financial department coordinates the construction of the budget, but also is very important that all this process is closely related, acompanied and participated in its definition, by each one of the departments.

Best regards.

Dear Gedion:

In my experience (related to public health policy), individual departments should not define unilaterally their budgets. This task requires a dialogue between each specific department and the finance office, plus a third area with authority over the specialized departments to control in real time how the budget is being executed. 

Dear all

In my opinion, responsibility for managing budgets should lie with each individual department and not solely with the finance department. Because, in addition to  those reasons mentioned by others, hospital costs are heavily determined by clinical activities or decisions. Therefore, putting the individual  (clinical) departments closest to the patients in control of their own budgets  will make them more financially responsible and cost conscious in their decisions in provision of care . By means of departmental budgeting, the  manager at the department level will carry responsibility and will be directly and personally accountable for the department's budget performance. Being held accountable accountable means that his/her performance can be evaluated based on his/her ability to meet formally specified budget target in managing his/her unit. Therefore, I think though it is a bit complex as Mr Jose said, and time consuming, if appropriate system is in place the advantages of giving departments the authority to manage their own budgets outweigh the disadvantages.

Interactive, adaptive, responsive n decentralized budget works the best. Most budget items are non discretionary n more functional of level of activity. Maybe # of patients, process, treatment etc. Participative budget is preferable with a mix of top d own n bottom up approach. Budget drpt n finance guys provide over all frame work, guidelines etc n department make sure there is no gaming, slack etc.

Department head responsible for setting up and implementing the budget in its department, but entire control of budget implementation should be controlled by top management for evaluating company performance.

Dear Gideon,

Either solution carries advantages and disadvantages. Placing budget responsibility on the individual department level will promote confidence and a sense of self-identification with the job done. From a more practical point of view, budget needs and budget handlig might be better understood at department level. However, there is a trade-off between department knowledge, expertise and experience on the one hand and the risk of slack and budget gaming on the other hand.

Budgeting on centralized level can reduce the above mentioned risks, but at the cost of less precision and more bureaucracy.

Finally, it depends on how the entity is organised and managed in terms of hierarchy and management culture. For example, a flat structure would benefit from budgeting at department level.

Also, the current financial situation must be considered. If the entity struggles economically, it might make sense to implement a hierarchical line of command with strict top-down budgets, to prevent further deterioration at department level and to achieve a turn-around.

Regarding management attitudes towards budget responibility I would like to refer you to the following literature:

- Hopwood, A., G. (1974). Leadership climate and the use of accounting data in performance evaluation, The Accounting Review 49 (3), pp. 485 -495.

- Jensen M., C. (2003). Paying People to Lie: the Truth about the Budgeting Process. European Financial Management 9 (3), pp. 379-406.

- Schweitzer M., Ordonez L., Douma B. (2001). The dark side of goal setting: the role of goals in motivating behaviour. Working Paper. Retrieved from: http://opim.wharton.upenn.edu/~schweitz/papers/AoM_Proceedings_Goal_setting.pdf

I am going to publish a research paper on budgeting, motivation and performance measurement in the near future. For your convenience, I will make a reference to my paper here.

Paul   

Dear Gedion,

I agree with Paul Eisenberg and would like to add my field experience which comes from 2 decades in management positions:

- every manager with budget responsibility has to plan his/her budget and presents it to at least 2 management levels above his own where he/she is questioned. But any changes to any detail of the budget are implemented by the responsible manager to foster his/her commitment to the budget.

- When the economical situation is tough the budget responsible managers have to face restrictions upfront hence they now the limits when they start planning.

- At the end all the budgets are aggregated according to the organizational structure of the group/company/enterprise and every manager of a legal entity takes part in the final budget presentation and repeats the relevant parts of the budget presentation for his/her budget responsible managers in his/her entity.

In other words: its a bottom-up planning process combined with a top-down controlling and communications process.

If you have questions, feel free to contact me.

- Christian

Adding to all the above experiences I have seen companies relying more on finance department analysis for the various company's activities based on forecasts concerning the future of such activities without a very detailed information provided from the various departments. In this respect the need to provide a more general budget which can be modified throughout the year based on changes occurring in the company's financial and other issues conditions. The disadvantages of such process is sometimes the significant deviations from the budget figures, a matter which does not help the achievement of the monitoring role of such documents.

Hi Gedion,

Budgets are prepared by accounting and/or finance department according to certain analysis and guidelines from top management and board. However, all relevant departments within the entity should provide their feedback and experience which should be taken into consideration when preparing the budget. As we all know, budgeting starts from the Sales Budget on which all other budgets are built upon.

I think it might a good idea that the decision to centralize the preparation of the budget should be linked with the preparation of the Balance scorecard for performance evaluation. Based on the need to link the company's strategies with the various elements of the BSC, the importance of budget objectives achievements are considered an important criteria at which all departments might participate in the formation of the budget within the customer, internal process, financial and growth and innovation perspectives. Here the centralization versus decentralization would not represent an important issue as long as all departments would participate in this respect.