Financial Finesse

As we move from field provider to supervision and management, our duties and responsibilities shift from a focus on direct patient care and clinical practices to more general duties across a broader range of issues. One of the most dramatic changes we encounter is the increased focus on management of financial matters, including monitoring daily, weekly and monthly financial performance indicators, and development and monitoring of operational and capital budgets, special projects and programs.

Considering these responsibilities, it is essential that front-line supervisors know how to:

1. Play a role in developing and managing a budget
2. Develop budget requests, especially for special projects and events
3. Provide justification for budget requests
4. Plan and execute major equipment purchases (capital expenses)
5. Focus on allocation of resources.

BUDGETING CONCEPTS

STANDARD FORMAT (CHART OF ACCOUNTS)

Budgets are assembled using a standardized format that is divided into income and expense sections. Once the budget is established, periodic reports are generated (usually at least monthly) and sent out for review to compare actual expenses against projected expenses (is what we actually did close to what we said we would do?). The task of reviewing monthly expenses (profit and loss statements; monthly expense report) may fall to the supervisor.

One of a new supervisor's first tasks should be to develop an understanding of financial reports. One place to start is by reviewing the Chart of Accounts, which is simply a listing of all categories used by accounting to identify income and expenses. The expense category, for example, may include personnel, with subcategories of salaries, wages and benefits.

It is not necessary to memorize the Chart of Accounts. Knowing that it exists and where to find it can shorten the time it takes to identify expenses in your reports.

TYPES OF BUDGETING

Experience-based budgeting

Sometimes called cost plus, this is the most common form of budgeting. It involves taking the history for a specified period, analyzing the information to determine "average cost," then adding estimated amounts for projected cost increases. This amount is then used to estimate projected costs for a future time period (usually one year). This estimate is frequently based on average costs. In a more sophisticated budgeting process, adjustments are made for seasonality, demographic variability, projected growth or decline, or other special considerations.

Zero-based budgeting

While zero-based budgeting has been applied to larger budgets, it tends to be associated with special projects or new undertakings. In those circumstances, there may be no experience base to draw from. Using a standardized budget format and experience from other areas, cost estimates are made based on projected activities.

One of the best examples of zero- based budgeting done on a regular basis is providing cost estimates for special events. The first step is to identify requirements for the event: What level of personnel is required? Does this require transport capabilities, and, if so, at what level? What are the anticipated medical needs? Can you use existing resources, or do you need additional help? Once you have established the full parameters, you can use the costs for each (such as payroll) to apply to the event to estimate actual costs. Be sure to include all possible costs, such as recurring maintenance, wear and tear, hourly expenses, administrative costs (such as billing and supplies), etc.

Zero-based budgeting can also be applied to the planning process for things like disaster management and phased implementation. Using standardized cost estimates developed from actual experience allows you to attach fairly accurate cost estimates for planning purposes.

Whether you use cost plus or zero-based budgeting (or any other format), some common elements of budgeting remain the same:

1. Budgets are based on assumptions and estimates -- in other words, guesses.
2. Using standardized formats allows you to play the "what if" game, comparing apples to apples. You can then exercise different options and scenarios for different operational or administrative alignments.
3. When you use past performance to estimate future expenses, you generally have to assume there will be no substantial change in your operations. This means your service area remains unchanged, volume remains unchanged, and so forth. You can sometimes make informed estimates when changes are about to occur, but the accuracy of estimates will be uncertain.

CONTROLLING DAILY EXPENSES IN ACCORDANCE WITH EXPENSE PROJECTIONS

The monthly expense report is usually divided into columns and contains information in at least two or possibly three categories:

• Actual
• Projected (or budget)
• Variance YTD (year to date)

The report format usually reports expenses using the identifier in the Chart of Accounts and in the same sequence.

Front-line supervisors are often called upon to explain unanticipated variances in financial reports. This can apply to increased revenues as well as increased expenses. Budget projections become the performance measure. Following are some basic things to keep in mind when reviewing income/expense reports:

1. Never rely on a report from one month to make major operational changes. There may be many reasons why individual "spikes" occur during any single month. An unscheduled stand-by that results in a large number of transports can throw the entire monthly report out of sync with the budget.
2. Use trending. Generally review at least three months' comparison before making any major changes.
3. Be mindful of changes to your basic assumption set. Remember, you made these projections based on assumptions that may have changed. When you know the basic assumptions have changed, anticipate changes to the income/expense report ahead of time, if possible. Not only should you be able to anticipate the change to expenses, you should also be able to identify with some degree of accuracy changes to other operational reports, such as volume or other key performance indicators. Using experienced-based costs (cost per unit hour, cost per transport, cost per payroll hour, etc.), you can provide another level of comparison: budgeted—with baseline assumptions; actual—with both the revised baselines and actual results.

PROVIDE INPUT FOR UPCOMING BUDGET REQUIREMENTS

During the course of a year, we encounter changes and variances to operations budgets based upon variances encountered in our daily operations. Frequently, we are unable to make changes or shift funds from one category to another, or there are limits set on the amounts and categories that can be altered. This is especially true in government organizations. Remember, budgets are passed as a matter of law, ordinance or statute, depending on the level. Making changes may require approval of a governmental body, such as the city council or county board of supervisors. Some things simply can't be funded during the current fiscal year based on budget limitations. The challenge is to document those things as they occur over the course of the year, so when it is time to prepare the new budget request, those items can be included and adjustments made for the upcoming year.

RESOURCE ALLOCATION

Whether intentional or not, the budget is at least reflective of resource allocations. It may not be the actual dollar amount that sets the importance, but the percentage of the allocation requested certainly speaks to importance. So how do you go about resource allocation?

One premise of governmental budgeting is that funds are made available for goods mandated for essential services or projects established in law (ordinance, statute). The same underlying theme exists outside of government. We allocate resources to meet our mission statements, organizational goals and objectives. Using limited resources is usually through some form of cost-benefit analysis. Invariably, there are more projects/expenses than revenues can support. To address this disparity, some form of prioritization matrix or systematic evaluation process is applied.

PRIORITIZATION MATRIX

A basic matrix followed by many organizations may include:

Mission or mandate

This may come from a formal mission statement, directions from senior management, or be inferred by the nature of the organization. This is what makes the organization tick.

Regulatory requirements

In EMS we have regulatory requirements that demand compliance in many areas. Compliance issues may mandate types of equipment and personnel certification, as well as process requirements and administrative practices.

Safety

Safety may be driven by the laws and regulations under which an organization operates. One example is Occupational Safety and Health Administration (OSHA). Doing the right thing to protect our employees and customers often incurs expenses that may not be required under other circumstances.

Manpower

Ensuring that we have enough people to accomplish the assigned task is a basic requirement for all organizations. How we choose to meet the manpower requirement will have a significant impact on our financial status. This is almost always the largest single expense area in any organization. Schedules, the number of people assigned to a rig and use of overtime all significantly impact expenses, especially if not controlled.

Physical plant

This includes real property, rental locations, lease agreements, etc.

Resources

At the root level, this includes things like office supplies, medical supplies, and whatever resources are required to effectively meet operational requirements. This area is often broken down into at least three categories:

• Disposable office goods like paper, staples, tape
• Medical: bandages, IV supplies, tape, backboards, some splints, repeat-use items, etc.
• Durable office goods like staplers, scissors, more than one-use items.

Capital equipment

Usually items with a service life greater than one year and a dollar amount more than the organization can absorb without borrowing money. This varies from organization to organization.

Technologies

The investment in technology has increased significantly since we have become electronically dependent. The turnover period for information technology has continuously decreased with newer computer hardware and software and improved radios. Advances in patient care have also required an increased investment in new and more frequent technological upgrades.

Processes (the guidance or structure that provides the framework for our operations)

While it may not appear that the process of accomplishing a task would require financial support, we are purchasing custom and semi-custom hardware and software that require additional training and adjustments to procedures. Allowing for training time and development of new procedures may require time beyond what can normally be expected during regularly scheduled hours.

Other considerations include:

• Level of importance -- to whom is this important?
• What are the consequences if we don't take action/funding?
• What are the risks associated with inaction or denial of the request?

CAPITAL BUDGET REQUEST

Every organization has its own requirements for completing a capital budget request, including process and documentation.

If you are a new supervisor, become familiar with these requirements and the approval process or approval steps. Keep in mind that in a governmental organization, this may require approval at the local legislative level.

To help justify the request, consider the following:

• Acquisition cost: Does it require a bid or multiple bids?
• Purchase vs. lease
• Service life
• Technology advancements: Is this an upgrade or new technology?
• Projected use (frequency, risk reduction/improved employee or customer safety)
• Need vs. projected future needs
• If replacement, what is it replacing?
• Current maintenance costs
• Projected maintenance -- cost/benefit analysis
• Cost/impact to the organization if not replaced.

SUMMARY

The transition from field focus to supervisor can bring many surprises. One of the greatest changes for most new supervisors is learning a whole new area of financial management. This can become a major undertaking regardless of how high we go within the organization. Learning the organization's procedures and language are critical issues in order to succeed. Having a working knowledge of the budget, budget process and financial accountability can significantly improve operational effectiveness simply in your ability to obtain needed funds, shift found allocations to meet changing priorities and prepare for the future.

Forrest C. (Woody) Wood, Jr., is training manager of the Leadership Development Program at the Texas Engineering Extension Service (TEEX) in College Station, TX. TEEX is a member of The Texas A&M University System and offers a wide range of emergency services educational programs. For more, visit www.teex.com.

SIDEBAR: Promise to Pay Helping Economic Woes

ZOLL Medical Corporation saw the economic downturn long before it became a crisis for the EMS industry. In 2006, the company felt so strongly about its resuscitation device -- the AutoPulse -- it decided to offer help to EMS agencies that wanted the product but couldn't afford it. The result was Promise to Pay -- a program whereby ZOLL allows agencies to use an AutoPulse with simply a promise to try to secure the money to pay for it when the agreed-upon time is up. "We tell them we'll give them a year to get the money; if they can't get it, we'll take the device back, no questions asked," says ZOLL's vice president of marketing, Ward Hamilton. "We currently have about 80 devices in communities where people are taking advantage of the program, and about half have already moved from being on a promise to being owned. The only requirements are that customers train their people on how to use it and put protocols in place for doing so, and they have to buy the disposable bands that go with it."

Cranston (RI) Fire Department has taken advantage of the program with not one, but four machines. "When we got the offer to demo the AutoPulse, I was skeptical, because it seemed too good to be true and was a bit expensive," says Deputy Fire Chief Leo Kennedy. "But we put one on a rescue truck and immediately had a non-revived cardiac arrest. In spite of the outcome, the crew was so impressed, they insisted it was something we needed. Five days later, we had an unwitnessed arrest. The crew put the AutoPulse on, and the man was discharged after a week." With four transport vehicles, Kennedy decided he needed a device on each truck in order to provide the same service to everyone in the community all the time. With agreement from ZOLL to provide four machines, four charging units and eight batteries, they went ahead. "The city agreed to provide most of the funding, and we got additional money from a local organization," says Kennedy. "Approximately two years later, we were able to pay off all four machines. ZOLL worked well with us and never pressured us for the money. In these bad economic times, for a company to stand up and say, 'We recognize that and want to help you,' it helps not only the department that's getting the device, but the whole community."--Marie Nordberg, Associate Editor