Economic and financial management is an integral part of the modern healthcare system. Regardless of industry, financial management is necessary for the efficient control and direction of cash flows and various financial operations. For instance, professional staff, as well as executives, may decide to buy particular equipment to expand testing or treatment. However, economics and financial management are not only about spending money on buying new equipment. The primary task of this sector is to make strategic plans for future development and maintenance. In the following paper, the concept of management control and the role of budgeting in health systems will be explained concerning the hospitals of the United Arab Emirates.
According to Finkler, Ward, and Baker (2007), management control is a part of the larger field of financial management — cost accounting. Cost accounting covers such areas as control and planning. The control process aims at ensuring that all desired targets have been achieved. Finkler et al. (2007) define management control systems as “formalized systems used by an organization’s management to ensure that its mission and specific goals are accomplished as effectively and efficiently as possible” (p. 230). Systems of management control comprise a variety of smaller elements that are designed to monitor the collection of cost and financial information, provide reports concerning performance, operations, and proper assessment.
The efficient functionality of the management control system is achieved because of the division of responsibilities between different centers. Four basic types of centers may be distinguished. They are revenue centers, expense centers, investment centers, and profit centers. One more significant aspect that should be discussed is the process of management control. Young (2014) differentiates four basic phases of the process of management control. These steps include programming, budgeting, measuring, and reporting. During the first stage, it is necessary to define whether new programs or plans fall within the overall objectives of the healthcare organization. The budgeting phase includes the evaluation of the financial and non-financial expectations of the organization (Young, 2014). The manager aims to provide necessary financial resources for the achievement of particular non-financial targets. The measuring stage includes counting all expenses and revenues. Finally, managers receive results of all findings during the reporting phase.
Budgeting plays a significant role in management control. It can be used for planning and controlling when it is done correctly. Budgeting is important because it predetermines an organization’s goals in financial terms. The availability of financial resources is crucial for the realization of plans. Effective budgeting distributes resources for the forthcoming period and ensures that the organization is ready to conduct its usual functions (The Role of Budgeting in Management Planning and Control, n.d.).
Several types of budgets can be utilized by healthcare organizations. Conventional budget systems, zero-based budgets, and input-output systems are the three most widespread types. The budget of the UAE’s hospitals comes from two sources including the state and foreign investments. The level of foreign investments increases due to the rapid development of healthcare systems in the country. Besides, the government realizes the need to develop the system of health care. According to the information provided by the United Arab Emirates Ministry of Finance (n.d.), the federal budget should be transformed into zero-based budgeting. This system should promote transparency in all spheres including hospitals.
References
Finkler, S., Ward, D., & Baker, J. (2007). Essentials of Cost Accounting for Health Care Organizations. Burlington, MA: Jones & Bartlett Learning.
The Role of Budgeting in Management Planning and Control. (n.d.). Web.
United Arab Emirates Ministry of Finance. (n.d.). Federal Budget Reform Project. Web.
Young, D. (2014). Management Accounting in Health Care Organizations. Hoboken, NJ: John Willey & Sons.