Financial Management as a Leadership Skill
HIM directors are responsible for managing departmental budgets that cover staffing, technology, supplies, and contracted services. Understanding budgeting fundamentals is a core competency tested on the RHIA exam.
Types of Budgets
Operating Budget
The operating budget covers day-to-day expenses such as salaries, benefits, supplies, and minor equipment. It is typically developed annually based on projected volume and staffing needs.
Capital Budget
The capital budget funds large purchases such as new scanning equipment or encoder software licenses that exceed a set dollar threshold and have a useful life beyond one year.
Budget Development Process
Budgets are usually built from historical data adjusted for anticipated volume changes, inflation, and strategic initiatives. HIM directors must justify requests with data, such as projected coding volume increases from a new service line.
Variance Analysis
Variance analysis compares actual financial performance to the budgeted amount. A favorable variance means actual costs were lower than budgeted, while an unfavorable variance means costs exceeded the plan. Leaders investigate significant variances to determine root causes, such as unplanned overtime due to staff vacancies.
- Calculate variance as actual minus budgeted amount
- Express variance as both a dollar figure and a percentage
- Investigate variances exceeding a defined threshold, often 5 to 10 percent
- Report variances to senior leadership on a regular schedule
Cost Control Strategies
Common cost control strategies include reducing overtime through better scheduling, renegotiating vendor contracts, and automating manual processes to reduce labor costs. Outsourcing coding during peak volume periods can also control costs without permanent staffing increases.
Zero-Based Budgeting
Unlike traditional budgeting that adjusts the prior year figures, zero-based budgeting requires every expense to be justified from a baseline of zero each cycle. This approach can uncover unnecessary spending but requires significant time investment.
Exam Tip
Practice calculating variance percentages and be able to distinguish operating budget items from capital budget items, as this distinction is frequently tested.