What is: Cost Centres and Budget Management

Definitions

What’s a cost centre?

A cost centre is a code allocated to a department, unit or ward. It’s a bit like a bank account for a work unit. Money can be budgeted and spent from a cost centre in order to deliver a range of outputs and services such as patient care or reports.

Cost centre managers help manage the finances of Metro North Health and to manage public spending appropriately.

Funding types

Operational funding—funding for ongoing costs that will continue each financial year. An example is the cost of providing food services to a hospital.

Once-off—these funds are for one off payments for a specific purpose. No additional funding is expected. Project funding is typically non-recurrent.

Cost classifications

Labour costs

These costs are directly related to staffing and include salaries and wages, sick leave, overtime, allowances and penalties.

Non-labour costs

All other costs that are not staffing costs. These costs can be direct or indirect. Direct costs fluctuate with clinical activity such as pathology and drugs. Indirect costs tend to be more static in nature such as communications and building services.

Staffing measures

Staff are measured as Full Time Equivalent (FTE). This is measured into two key categories:

• Standard FTE—Queensland Health FTE is a calculated average of each pay period (process number) based on worked hours paid (not contracted hours) for the reporting period.
  • Annual and long service leave are considered non-standard FTE as there are no worked hours paid.
• MOHRI Avg FTE is a calculated average of each pay period (process number) based on contracted hours (not work hours) for the reporting period.

Internal reporting for Metro North Health is based on Standard FTE.

What’s my role?

If you’re a cost centre manager, you’re responsible for:

• developing the annual cost centre budget (plan)
• making sure transactions charged to the centre are correct and authorised
• making sure human resources, consumables and equipment are all used efficiently
• monitoring and reviewing monthly financial reports and notifying your business/finance manager of any discrepancies
• making sure public funds are spent ethically and in compliance with Metro North Health delegations, financial policies and procedures.

What do I need to do?

Effectively manage a budget

The key financial plan for any business is the annual budget. Preparing a budget enables cost centre and line managers to establish a financial plan for the year ahead, identifying costs and associated revenue in delivering a cost centre or department’s activity.

Budgets communicate the expected financial/workforce and clinical activity performance of a cost centre/department for the year ahead.

The cost centre manager is responsible for managing the cost centre budget for activity, operational funding and staffing. You have a legal obligation not to exceed financial budgets.

Manage costs

To manage costs effectively you need to:

• approve and verify that all costs are affordable and have been procured using appropriate delegations
• look for cost efficiencies
• stay within your budget allocation
• be able to explain any differences between the budget and actual costs.

Stay on top of your budget

Regularly check and review

• Regularly monitor all transactions in your cost centre.
• Check that costs belong to the correct cost centre.
• Check each month that actual costs match budgeted costs.
• If costs are over budget, promptly check why and make plans to recover the overspent funds.
• Review and update the budget each month.

Monitor payments to staff

• Check staff rosters before the start of the roster period and look for any issues with staff payments.
• Monitor staffing levels every fortnight (when payroll data is updated). Make sure the payroll is accurate and correct any errors as soon as possible.
• Check that new staff are set up against the correct cost centre/position ID, with the correct leave entitlements etc. This will help make sure the base payroll costs are correct.

Learn and work with others

• Work closely with your Finance and Business Manager to regularly review the financial position of your cost centre and develop efficiency strategies that align with the organisation’s plans.
• Talk regularly to clinical leads in your area about clinical pressures that could impact your cost centre.
• Learn how to use financial systems that can help to monitor costs and staffing levels such as S/4HANA, Decision Support System (DSS) and Budgeting and Planning Tool (BPT).
• Learn to read the corporate reports that can help you monitor your cost centre.
• Stay up to date with relevant financial and human resource policies especially delegations.

Useful links

• MNHHS Financial Delegation Framework
• MNHHS HR Sub-delegations Manual
• FY21 Budget Guidelines | Metro North HHS (health.qld.gov.au)
• eHealth Service Performance & Value Reporting Portal