BOOKS OF RtfiDIfGS - PAHO/WHO

and charges set at a level to co. r total
financial requirements [58]. Total financial
requirements are the sum of
operating expenses (patient care, teack
ing, research, etc.) and capital needs
(working capital, purchases of plant
and equipment, etc.). The setting of
charges involves decisions about crosssubsidization
of departments and input
from responsibility heads. Integrating
these two budgets yields the pro forma
income statement which can be used in
preparing the cash budget, finalizing
the capital budget, and preparing the
pro forma balance sheet.
This package of budgets should be
viewed as a model of interrelated decisions
where one financial decision influences
a number of others (see Figure
4). For example, decisions regarding
long-term financing directly influence
the cash budget, the expense budget,
and the revenue budget (in particular
the setting of charges). Understanding
these interrelationships enables the
budget package to be used as a simulation
device whereby a set of programming
decisions can be used to estimate
activity levels, and resource requirement
assumptions can be examined in
terms of the financial consequences
displayed in the budget package. Computerizing
such a model can enhance
its usefulness 159).
Controlling Phase
The concern in this section is with
the control of performance at the responsibility
center level rather than
the more general management control
process shown in Figure 1. The focus
is on evaluation of operational performance
where the results ,! the planning
phases are considered "givens"
[1, Chap. 1]. It is important that both
financial and nonfinancial performance
be evaluated in this retrospective
analysis. The evaluation of financial
performance generally begins with
- 194 -
Programing, Budgeting, and Control
an analysis of operating .rd financial
budgets relative to actual performance.
Typically, this so-called Budgetary
Control process stops with the financial
review. However, for nonprofit
health care organizations, nonfinancial
objectives are often key elements of
strategic plans and programming decisions.
Consequently, a valid analysis
of performance miust include an evaluation
of nonfinancial characteristics
of operations.
Management must develop the structure
and processes of its control systems,
taking into consideration the ability
to detect deviant behavior as well as
the systems' effect on emplcyee behavior.
The detection concerns are disc.ssed
below. The behavioral concerns
inciude the following: 1) Does the
control system induce behavioral patterns
that are conducive to achieving
organizational objectives? 2)What unintended
behavioral effects does the
control system have? and 3) What latitude
does the system provide for
people to implement ploys? These behavioral
concerns have been explored
in the literature 19, p. 75; 25,53,60].
These studies, and others, emphasize
the importance of such elements as
participaticn, Pccurate information systems,
communication, and incentives.
This last consideration is receiving
considerable attention in the hospital
industry and a number of hospitals
have explored profit sharing or incentive
payment programs with their employees
161-63). I
The major elements of the controlling
phase are summarized in Figure 5. At
the heart of this phase is an analysis of
performance in which expected outcomes
are compared with actual outcomes.
For the operation and financial
aspects of the organization, the operating
and financial budgets generally provide
the expected outcomes. They represent
the best plans resulting from
1