Domain V-Management

TOPIC B---Finance and Materials

  1. Budget development/resource allocation
  1. Budget procedures:

Definition of budget: A plan for operating a business expressed in financial terms or a plan to control expenses and profit in relation to sales.

Steps in budget planning

  • Review the mission statement of the facility
  • Review the mission statement of the department
  • Reviewing the goals and objectives (vision statement)
  • Collecting statistical data to use in making budget decisions
  • The development of the sales or revenue portion of the budget. This is the estimate of revenues expected during the budget period. Things to consider when estimating revenue: 1) changes in prices (look at new competitors, trends, economy) 2) the profit objective of the organization (consider seasonal changes)
  • Budget expenditures. This should be done for food, labor, and other operational expenses. Changes in food prices should be taken into account. Salary, wages, and payroll taxes should be examined when projecting a labor budget. Other changes in operation that could affect the amount of needed labor should be accounted for so an accurate estimate for labor needs can be formulated.
  1. Types
  1. Operational: Forecasts level of activity and develops the costs necessary to support this level of activity. This is developed for a predetermined level or annual volume (pt days, consults, activity level).
  2. Capital: Usually completed at the same time the operational budget is made. This budget includes costs for improvements, expansions, and replacements in building, equipment, and land. Capital expenditures may be prorated over several budget periods.
  3. Other:
  • Cash budget: An estimate of cash that will be needed in the budgeting period. Synchronizes cash resources and need, monitors cash inflow and outflow.
  1. Methods
  1. Incremental: Using the existing budget as a base and projecting changes for the ensuing year in relation to the current budget.
  2. Performance: SAME AS FLEXIBLE BUDGET???????????????????????? (this def is for a flexible budget) This type of budget is adjusted for various levels of sales or revenues throughout the year. A system may make budgets for 2-3 different levels of sales. Allows management to adjust expenditures in relation to occupancy levels.
  3. Zero-based: Budgeting method for a corporation or government in which all expenditures must be justified each year, not just amounts in excess of the previous year. This makes sure that existing programs are periodically reevaluated and costs are justified.
  4. Other: Forecast/Fixed Budget: Lists labor, supply equipment and other anticipated costs and the estimated dollar amount for each. Compares current budget with the projected estimates for the next year.
  1. Components:
  1. Direct costs: A cost directly attributable to the manufacturing of a product/service.
  2. Indirect costs: The cost not directly attributable to the manufacturing of a product/service. opposite ofdirect cost.
  3. Capital expenditures: Money spent to acquire or upgrade physical assets such as buildings and machinery. also called capital spending or capital expense
  4. Profit margin: Net profit after taxes divided by sales for a given 12-month period, expressed as a percentage. It is the most commonly used measure for profitability.

Profit margin = Net profit

Sales

  1. Revenue: Total dollar payment for goods and services that are credited to an income statement over a particular time period. Revenue figures will usually be net of discounts or any payments that are returned to the customer or client. By subtracting expenses from revenue, a company's net income can be calculated.
  1. Resource allocation: The process of allocating resources among the various projects or

business units.

  1. Fiscal/materials: The process of keeping paperwork, billing, payroll to keep track of assets/liabilities.
  2. Cost control mechanisms (e.g. purchase specifications, negotiating contracts): A cost-effective technique may be used. It provides a comparison of alternative courses of action in terms of their cost and effectiveness in attaining a specific objective.
  • Purchase specifications: Def: Statement understood by buyers and supplier of the required quality of products, including allowable limits of tolerance. There are three types of specifications that can be used in foodservice: 1) approved: Designating a product of known desirable characteristics by brand name. 2) Technical specifications: Can be used for items where quality may be measured objectively and impartially by an instrument. Ex: a detergent that can be chemically analyzed. 3) Performance specifications: When quality is measured by the measurable functioning of the unit. Ex: the number of dishes it can clean in a minute, etc.
  • Negotiating Contracts: Part of the purchasing, negotiating involves working out both a purchase and sales agreement, mutually satisfactory to both buyer and supplier w/ a common understanding of essential elements of a contract.
  • Product cost analysis: Different ways of preparing a food are compared for quality and cost. Ex: homemade brownies vs. boxed brownies.
  • Menu!!!
  • Make or buy decision: To 1) produce the item completely, starting w/ basic raw ingredients. 2) Purchase some of the ingredients and assemble them 3) Purchase the item completely from a wholesaler.
  • Standardization of food and drink recipes
  1. Factors affecting available resources (e.g., DRGs)
  • Diagnostic Related Group (DRG): A grouping of services provided to patients based on diagnosis of patients illness. With this system the hospital receives a certain amount of money for each pt depending on what DRG they are in. This amount of money does not change for the length of time the pt is in the hospital, etc.
  • Goals objectives/Policies procedures
  • Laws and regulations
  • contracts
  • Budget

This connects to Malina’s section 