Dr. Stephanie White, is concerned about the dilemma of coping with reduced budgetsd and demand for services.

In order to plan for reduced budgets, she must first identify where costs can be cut or reduced and still keep the agency functioning. Below data from past year. Program Area Costs Administration Salaries: Administrator 60,000 Assist 35,000 2 Secretaries 42,000 Supplies 35,000 Advert & promotion 9,000 Professional meetings/dues 14,000 Purchased Services:Acct & bill 15,000 Custodial 13,000 Security 12,000 Consulting 10,000 Community Mental Health Services Salaries (two s w) 46,000 ;Trans 10,000 Outpt mental health tx Salaries:Psychiatrist 86,000 2 SW 70,000 Give a Give a dollar range of costs to reduce budgets (worst and best case analysis). You need to cut $94,000 in cost. Prioritize those cuts that can be made withwithout impacting the operation or quality care of the organization.How would you advise Dr. White to prepare for reduced budgets? excel spread sheet Solution To be able to answer the questions and decide on costs that could be cut, we must divide costs into discretionary and committed costs. Discretionary Fixed Costs (also known as Managed Fixed Costs) usually arise from annual decisions by management to spend in certain fixed costs. There are basically 2 differences between Discretionary and Committed Fixed Costs; 1) The planning horizon for Discretionary Fixed Costs is fairly short-term, usually a single year; and 2) Discretionary Fixed Costs can be cut for short periods of time with minimal damage to the long-run goals of the organization. In the attached excel sheet I listed all costs & divided them into Committed and Discretionary. Some of the costs that I have listed as Discretionary (Transportation, for example) might be on a long-term contract, and in that case they would become Committed. 1. Give a dollar range of costs to reduce budgets (worst and best case analysis). Best Case Scenario: Costs that Could be Cut: Discretionary Costs: Program Area & Costs: Advertising & Promotion Purchases Services: Accounting & Billing Custodial Consulting Community Mental Health Services Salaries: Two Social Workers Transportation Total

$9,000 $15,000 $13,000 $10,000 $46,000 $10,000 $103,000

Worst Case Scenario: Costs that Could be Cut: Discretionary Costs: Program Area & Costs: Advertising & Promotion Purchases Services: Accounting & Billing Custodial Consulting Community Mental Health Services Salaries: One Social Worker Total

$9,000 $15,000 $13,000 $10,000 $23,000 $70,000

2. You need to cut $94,000 in cost. Prioritize those cuts that can be made without impacting the operation or quality care of the organization.

Discretionary Costs: Transportation Accounting & Billing Custodial Consulting Two Social Workers Total

$10,000 $15,000 $13,000 $10,000 $46,000 $94,000

3. How would you advise Dr. White to prepare for reduced budgets? I would advise the Dr. White to come up with a plan to first reduce the discretionary cost not eliminate. Next analyze the committed cost and if possible start adjusting them now. Possible adjustments of these costs would be to meet with the security team and start plans for a revised contract, suggest cut in pay for administration and new business hours to offset the cut. Reduce the Outpatient mental health treatment salaries by cutting hours, and maybe consider hiring one secretary instead of two. In doing that, he should have a meeting with the concerned staff and discuss the possibilities and impacts of each cost cutting plan.