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Management Control

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Management Control: Budgeting and Variance Analysis TJ Wicker
TJ Wicker
Kaplan University

Chapter 8
Question 8.1
Why are planning and budgeting so important to an organization’s success?
Planning and budgeting both play a critical role in the finance functions of all healthcare service organizations. In fact, on could argue (and usually win the argument) the planning and budgeting are the most importnat of all finance related tasks.
Planning encompasses the overall process of preparing for the future. Because of tis’ importance to organizational success, most health services managers, especially at large organizations, spend a great deal of time on a=activities related to planning.
Budgeting is an offshoot of the planning process. A set of budgets is the basic managerial accounting tool used to tie together planning and control functions. In general, organizational plans focus on the long-term big picture, and through the control mechanism, ensuring that current performance is consistent with organizational plans and goals.
Question 8.2
Briefly describe the planning process. Be sure to include summaries of the strategic, operating and financial plans.
1. Goal setting:
Plans are the means to achieve certain ends or objec­tives. Therefore, establishment of organizational or overall objectives is the first step in planning. Setting objectives is the most crucial part of planning. The organizational objectives should be set in key areas of operations. The objectives must be clear, specific and informative. In order to set realistic objectives, planners must be fully aware of the opportunities and problems that the enterprise is likely to face.
2. Developing the planning premises:
Before plans are prepared, the assumptions and conditions underlying them must be clearly defined these assumptions are called planning premises and they can be identified

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