From the Officer`s Desk: An Introduction to Budgets

EMS officers, especially executive EMS officers, are frequently responsible for managing budgets. How does a recently promoted officer, or one who has never had to work closely with such matters, begin to prepare? There are several things to do. For example: 

• Become familiar with basic budget terminology;
• Become familiar with the type of budget used by the organization;
• Become familiar with and participate in the budget process; 
• Learn how to establish financial objectives; 
• Monitor budget activities once the budget has been approved. 

Budget Terminology 

The first step when working with a budget is to become familiar with the terminology. Here are some common terms: 

• Budget—A detailed financial plan that includes lists of income sources, expenses, and other categories and specific amounts for each line item in a fiscal period. 
• Budget calendar—The specific time frame and benchmarks pertaining to budget preparation. 
• Budget variance—A difference between a budgeted amount and actual amount spent. 
• Capital budget—A budget, part of the organization’s master budget, that includes items with a purchase price greater than a set amount and life expectancy greater than several years. These items are purchased for long-term investment—for example, building a station, buying a new ambulance, etc. 
• Cost center—A budget account assigned to functional work group (division) to which costs and other activities are assigned as part of the accounting process.
• Enterprise fund—A fund used to provide a service to the public. 
• Financial management objectives—A set of activities used to ensure the organization is meeting revenue and expense forecasts and operations are supporting its strategic goal. 
• Fiscal year—The year for which a budget is meant to be used. It may also be referred to as a budget year. 
• Fixed budget—Also known as a static budget, once approved, it does not change even if dollars are needed and can be taken from another line item to support an initiative. 
• Fixed cost—A cost that is independent of how much the item is used. 
• Forecasting—The process of predicting future outcomes or trends. 
• Functional work group budget—A budget specific to a group within the organization—e.g., logistics, fleet, dispatch—that is incorporated into the master budget. 
• General fund—A department fund supported by dollars contributed by the controlling government entity. 
• Incremental budget—A budget based on data from previous budgets, with minor adjustments from one year to the next. 
• Line-item budget—A budget that separates each budget activity within each cost center or as part of the overall master budget. 
• Master budget—A budget that includes financial and accounting activities for the entire organization. 
• Operational budget—A budget that includes all the expenses an organization requires to remain operational. 
• Over budget—Costing more than what was budgeted.
• Under budget—Costing less than what was budgeted.
• Variable cost—A cost that depends on the output or use of the resource.
• Zero-based budget—A budget that starts at zero balance at the start of each budget year, and only items considered essential are added. The intent is to add only items the organization truly needs and omit nonessential items that might have remained from the previous year using another budget methodology.

Understanding the financial and accounting terms used during the budget process will help the EMS officer become better prepared to engage in budget discussions and work with their assigned budget. However, it is only the first step.

Formal and ongoing budget training must be the goal. This can be accomplished by formal education, in-house or online budget/accounting certificate courses, and remaining engaged with the department budget process. 

Budget Types

With an understanding of basic budget terminology, the second step is to become familiar with the budget format used by your organization. Get a copy of the organization’s current budget and begin to review it, make notes, and ask questions. 

The EMS officer must ascertain whether he or she will be responsible for an assigned functional work group budget or just providing requested information to the budget office. Most large organizations have a budget office designated to work with the organization’s budget activities.

New or even seasoned EMS officers should reference the organization’s accounting experts and not be embarrassed to ask questions. These experts will be an excellent resource. 

Some questions to consider: 

• Is the budget zero-based, incremental, fixed, or some other type? This will be specific to each organization. 
• Will the EMS section have a functional work group budget the EMS officer will have to manage? 
• Will there be activity reports or expenditure/revenue status updates throughout the year? 

It is important for the EMS officer to know which type of budget format will be used as soon as possible to begin the process. If responsible for a functional work group budget, the officer will need to know every item that will fall under their responsibility and be included.

Budget teams routinely handle many of the financial and accounting activities requested as part of the master budget; however, the EMS manager, logistics manager, fleet manager, dispatch manager, etc., often oversee their own functional work group budgets that get included in the master budget. 

It is the responsibility of those assigned to oversee the budget to ensure allocated items stay within their forecasted expense/revenue parameters. The EMS officer may want to meet with a budget office representative to review an activity summary report each month as a way to monitor the agency's expenditures and revenue throughout the year. Reviewing each budget line item on a regular basis will help the EMS officer keep the budget on track.

The Budget Process

Once you’re familiar with budget terminology and the type of budget being worked with, it’s time to get involved with the preparation process. Although the process for creating an organization’s master budget may vary, it is important to participate in a budget kickoff meeting to ensure all the participants understand the organization’s budget expectations.

The kickoff represents the official start of the budget-preparation process for the upcoming fiscal year. Topics for discussion should include budget goals, any required changes, a review of budget guidelines and forms, requirements for capital purchases, operating expenses, and the timeline for budget completion and review, just to name a few. Take this time to ask questions, determine what to include, and articulate the justification for each new item requested. 

Don’t wait for the kickoff, though, to begin planning for operational needs. Start gathering necessary information well in advance. Purchasing an item not budgeted for may be difficult unless dollars are taken from another budgeted item.

Financial Objectives

Once the EMS officer is familiar with the terminology, their type of budget, and the budgeting process, they will be ready to review the department’s financial objectives or establish some for their own division. Setting financial objectives is important because they specify the future plans and needs of the organization or division. Financial objectives help set financial goals and must be tied in with the organization’s strategic objectives. For example, a financial objective may be to allocate funds to build a new EMS station, purchase heart monitors, or hire new employees. 

Financial objectives must be interwoven with the organization’s strategic objectives. The financial objectives are how the strategic objectives will be paid for and revenue generated. Regardless, strategic and financial objectives must be specific, measurable, attainable, realistic and time-bound (the SMART acronym).

When determining what to include in the budget, the EMS officer must incorporate strategies that will add value to the organization and set financial objectives to support each one. The following expenses are an example of what the EMS officer may be tasked to oversee as part of their assigned budget. Moreover, financial objectives will need to be set to ensure common organization activities can be supported financially:

• Employee salaries and benefits;
• Contracted services;
• Utilities;
• Repair and maintenance;
• Operating supplies;
• Capital purchases and improvement costs;
• Professional development.

The officer will also need to know how service delivery is funded. Whether revenue flows from local city or county taxes, user fees, Medicare, Medicaid, commercial insurance, self-pay, service contracts, selling of equipment, grants, or other source, it will need to be factored in the budget.

The final phase of the process of budget preparation consists of consolidating the functional work group budgets into the organization’s master budget. Before the master budget is presented for approval, a representative from each functional work group will need to present their budget to the organization’s senior leadership team. These individuals will need to justify any added expenses as well as answer questions from senior leadership.

Once every functional work group has reported their budgets, the budget team will finalize the master budget and begin preparing to present it to elected officials, the budget committee, board of trustees, etc., for final approval. The last step will be to monitor all budgetary activities on an ongoing basis to ensure they are within budget. 

Conclusion

A budget is essentially a road map pertaining to revenue and expenses, and understanding and working with budgets will most likely be part of an EMS officer’s assigned duties. Ask questions, get involved with the budget process, and always keep learning.  

Orlando J. Dominguez, Jr., MBA, RPM, is assistant chief of EMS for Brevard County Fire Rescue in Rockledge, Fla. He has more than 30 years of EMS experience and has served as a firefighter-paramedic, flight paramedic, field training officer, EMS educator, and division chief. He has authored two books, including EMS Supervisor: Principles and Practice, and is a certified Lean Six Sigma Green Belt. Follow him at @ems_officer.