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When allocating money to two different departments throughout a practice there are several considerations that a manager may want to implore. Deciding how to split a large sum of money between two different departments that have relatively differing revenues per case may result in conflict for the practice. The budget allocation tells employees (generally department heads) the maximum amount of money they can spend during the fiscal period, without having to seek approval from someone above them (Finmark, 2022). Therefore there are several steps a manager may want to take when deciding how to best allocate their financial resources. First, ask each department head their total spending requirements based on previous spending. This should include only what they absolutely need. Second, it is important to identify the funding vehicles, which has already been done in this case. It is known that revenues per case generated by orthopedics are $2,000 and rheumatology is $1,000. This means that orthopedics makes twice as much as rheumatology so it is likely from a financial standpoint that that department would receive more funding. From here each department should receive a base amount based on their overall need and then split the rest on the percentage of revenue. For example, let us say both departments need 250,000 to cover costs and that leaves 500,000 extra for staff engagement, marketing, technology updates, etc. If rheumatology is making twice as much as orthopedics then they would receive 366,00 in funding and ortho would receive 166,000 give or take. While this example is given to helo understand basic math and fractions, there are several outside factors that may shift the budget one way or another. It is vital to assess what each department absolutely needs and then allocate based on revenue percentages. While budgetary allocation is an important concept it is also important to remember to reassess budget allocation when needed. Budgetary allocations might not always be sufficiently estimated. This can happen when adequate funding for predictable or reoccurring expenses is not included in the budget (Ryckman, 2019). For this example, it would valuable for the department heads to work with the CFO on a monthly basis to update spending costs and needs and reevaluate based on updated revenues.
Allocating money to different departments require several considerations on how to effectively distribute funds.Conflict of practice may arrise between the two departments of orthopedics and rheumatology because of the varying revenues that each department reels in. It is important to note that budget allocation is what "tells employees (generally department heads) the maximum amount of money they can spend during the fiscal period, without having to seek approval from someone above them" (Finmark, nd). With that being said, there are different ways that management and administration can go about allocating money and resources. The first step that I would suggest is to talk to the head of each department to get a ballpark estimate and idea of how much each department would absolutely need. Second would to assess how much revenue each department brings in, this was already done where orthopedics made $2,000 and rheumatology made $1,000. While orthopedics did make more, it is also important to consider how much it is to run these departments in terms of infrastructure. Are tools for rheumatology much more costly and would require more funding? Or vice-versa with orthopedics. It is also important to note how often the equipment for each department may need taking care of and how much those do costs. In conclusion, budget allocation goes deeper than simply assessing the revenue numbers that each department brings in. By analyzing hollistically what each department needs on a financial basis is what will give management and administration a deeper understanding of where to allocate money.
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