Main Types of Financial Plans, Research Paper Example

Operating budgets

An approach to budgeting that runs on annual projections based on categories of expenditure is operating budgeting. Most operating budgets are used to deal specifically with the demands of a system that controls and forecasts costs pertinent to such activities as salaries and payments (Reider & Heyler, 2003). Under operating budgets, the production budget is prominent. This budget outlays the projected level of units that must be produced in a given year of production. The production budget sets the basis for the projection of all other costs that are associated with the activities of the firm. The purpose is to provide a base for accounting for operational expenses anticipated. They manage the running of the firm ensuring constant funding for continuous operation of a firm.

It is crucial to ensure that a concern is well catered for in terms of operating finances, and expenses. They are crafted in such a way that the expenses will be utilized in the most efficient manner possible. The budgets allow concerns to understand how much income they have to rake in order to operate without any anomaly (Reider & Heyler, 2003). The budget is made by estimating all the resources required to maintain and sustain a project. The cost outlay is then estimated on the resource demand.

Capital budgeting

Capital budgeting is used to appraise projects that encompass capital expansion. New construction projects and acquisition of new assets falls under this division. In the interest of sufficiency and efficiency, a number of tools are used to assess the viability of such outlays (Baker & English, 2011). There are two broad categories of techniques used to determine the viability of projects. The first method is broadly determined by the period it takes the project to recoup its costs. The second category takes into account the time value of money. These discounted techniques prove to be more reliable where a sumptuous deal of accuracy and accountability is required (Peterson & Fabozzi, 2002).

The easiest approach to budgeting under this method is the payback period method. Appraisal under this method takes into account the number of periods a project will take to pay back its investment. Under the cash discounted methods, an investments future value expresses the anticipated returns from the future cut down on the accounting basis of the interest rate. This establishes the amount of future receipts in terms of the current value. The interest rate discounting gives rise to the present value. The estimation of the current value is done versus the investment in order to determine whether it is worth the project (Baker & English, 2011).

Facility budgets

The facility budgets are ideal for a hospital setting. Hospitals have numerous departments and facilities that are hard to consolidate into one budget. Most facility budgets break the year into quarters or months. Facility budgets for hospitals are tailored to ensure that revenues are more than expenditure. The excess money is ploughed back. Alternatively, the money is used to facilitate the improvement of facilities. Facility budgeting is more reliable for a flexible organization or concerns that have constant anticipation of change (Cotts & Rondeau, 2004). Quarterly budgets are reliable in such aspects because they allow the budgeters to adopt changes on a quarterly basis. It is difficult to work out the revenue schemes for hospitals and nursing homes because they have to be harmonized with insurance companies. The flexible facility budgeting is suited for medical concerns because it facilitates constant reviews (Leonard, 2004).

References

Baker, H. K, & English, P. (2011). Capital Budgeting Valuation: Financial Analysis for Today’s Investment Projects. Upper Saddle River, NJ: John Wiley & Sons

Cotts, D. G. & Rondeau, E. P. (2004). The Facility Manager’s Guide to Finance and      Budgeting. AMACOM Div American Mgmt Assn

Leonard, B. (2004). Veterans’ Health Care: Facilities Resource Allocations Could Be More        Equitable. DIANE Publishing

Peterson, P.P. & Fabozzi, F. J. (2002). Capital Budgeting: Theory and Practice. Upper   Saddle River, NJ: John Wiley & Sons

Reider, R., & Heyler, P. B. (2003). Managing Cash Flow: An Operational Focus. Hoboken,      N.J: Wiley