When creating a hospital's budget, focusing on the transactional level may prove more effective than focusing on the organizational and departmental level, a new study published in the Journal of Information Systems suggests.
The study was conducted by researchers from University of Akron (Ohio), George Mason University in Fairfax, Va., and University of California, Riverside. For the study, researchers examined a dozen years worth of budget data from nearly 100 hospitals in Washington state, according to a news release from UC Riverside. Researchers looked at the budgets as they related to five transaction cycles: production, expenditure, financial, revenue and human resources.
The team identified a number of flaws in budgeting at the organizational and departmental level, including an occurrence categorized by researchers as "asymmetric ratcheting." This occurs when a hospital has less expenses than planned, but the underspending does not lead to a decrease in the future budget, study leader Barry Mishra, PhD, a professor of accounting in UCR's School of Business, said in the release.
Therefore, researchers suggested budgeting at the transaction cycle level to achieve a more effective budget outline. "The transaction-cycle level budget requires management justification for resource assignment to business processes, often spanning multiple departments," the study's authors explained. Dr. Mishra added in the release: "By studying operating budgets as they relate to transaction cycles we could remove the problems associated with budgeting at the department level, such as budget padding and slack."
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