Budgeting Interview

The leader I interviewed has had a variety of experience with budgeting, including a multi-business company called financially fit. I talked with a leader who tracks the budget monthly. He said that weekly isn't a big enough sample size and quarterly is too long. They get monthly statements showing how they are doing compared to their budget. For the entire company, he oversees multiple departments. Labor is always their biggest expense and when they need to cut costs, inventory gets cut on some items, employee travel expenses or sometimes they cut employee education. They try to avoid cutting labor, because once it is cut, it is really hard to get it back even if you can justify it. Typically he is am told that he needs to make a cut and it is up to him to decide where best to cut it instead of a whole team consulting. He will usually consult his team and a financial analyst before making a final decision on what to cut. When asked if he is under budget one year, does that new number become the new budget number for the next year, he answered yes and no. When they do the budget they usually use a run rate of the prior year. So if that year shows a reduction in expenses then the new budget would reflect that. Working with the financial analyst they determine if the amount is something they permanently reduced or if it was an anomaly. If it was an anomaly they keep it in. Rarely their expenses are reduced on a budget. Usually revenue is increased to offset the expenses, i.e. providers seeing more patients or introducing a new service. Once the budget is set it doesn't change, when they are off budget they usually need to explain the reason and make a plan to get the budget back on track.When reviewing the budget to make cuts, he usually tries to make the cut where it makes the most sense. If they are paying too much for a supply, they look to find cheaper alternatives. If they are paying overtime to staff, they look at staffing models to reduce the overtime. They may even hold off on purchasing items if they can get along with out them. Do you only worry when you are spending more than you have budgeted for or is it also a problem when your spending is under budget? Depending on the expense, they may worry if they are spending over or under budget. It worrisome if they are spending under on a variable expense, like a supply, that means their volumes are down and they need to know why they are seeing less patients than they budgeted for. When dealing with unexpected expenses, if the expense is to repair equipment, then it is an unavoidable expense and they just make the finance department aware of the expense so they know it is coming. The important thing is to know your budget well enough and to review it so you know where you are high and where you have some give.