ACC 660 Module 3 Milestone One Example

2026 Driver-Based Operating Budget

[Student Name]

Southern New Hampshire University

ACC 660: Controllership

Milestone One

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

2026 Driver-Based Operating Budget

Introduction

The company has budgeted for years by taking each hospital's prior-year results and adding a growth percentage negotiated with the sponsor. The result is a budget that no hospital director recognizes and that cannot explain variances: when a hospital misses, no one can say whether visits, prices or staffing caused it. This milestone builds the 2026 budget from operating drivers (Hansen et al., 2003).

Revenue Drivers

Revenue is visits times average invoice. Emergency visits are driven by local pet population and hours of operation; specialty visits are driven by referrals from general practice veterinarians and by the number of specialists on staff. Hospital directors forecast visits by service line using referral data and a three-year trend; the controller tests each forecast against capacity, measured by doctor hours and exam rooms. For the group, visits rise 4 percent to 265,200, including the full year of two hospitals acquired in mid-2025. Average invoice rises 4 percent to $857, reflecting a 3 percent price increase and a modest shift toward higher-value specialty cases. Revenue is budgeted at $227.3 million.

Cost Drivers

2026 budget summary, in millions

Veterinarian headcount is set from visits and productivity: each full-time doctor produced about $1.17 million in 2025, and a 2 percent productivity gain, from scheduling changes, means 190 doctors are needed. Support staff follow doctors at the ratio the hospitals' medical directors consider safe. Drugs and supplies vary with revenue. Facilities and other costs are fixed and budgeted from leases and contracts. EBITDA of $48.6 million is a 21.4 percent margin, up from 20.5 percent in 2025.

The Budget Process

Hospital directors and medical directors will build their own visit, staffing and price assumptions in September, using templates the controller provides, and the regional directors will review them before the controller consolidates. Participation brings local knowledge but also invites slack, since directors' bonuses depend partly on beating budget. Indjejikian and Matejka (2006) found that business unit controllers can limit slack when they have the information and standing to challenge local managers, so the controller's team will compare each hospital's assumptions with its three-year history and with peer hospitals and will discuss any outlier with the director before consolidation. The sponsor's growth target will be shared at the start, not imposed at the end, so that directors build toward it rather than discovering a gap after their work is done.

Sensitivity

Two drivers dominate. Visits: because drug costs and production pay vary with revenue, about 70 cents of each lost revenue dollar falls to EBITDA, so a 3 percent shortfall in visits would reduce EBITDA by about $4.8 million. Veterinarian hiring: the national shortage of specialists means the group may hire only 184 doctors instead of 190; lost capacity would cost about $8.3 million of revenue, partly offset by salaries not paid, reducing EBITDA by about $4.4 million. Price and cost shares matter less within plausible ranges; a one-point change in the drug cost share moves EBITDA by about $2.3 million. These results will be shown to the sponsor so that the budget is understood as a range, not a promise.

Capital and Hiring Plans

The operating budget depends on two plans that sit outside it. The capital plan includes $6.8 million for equipment, including a second MRI at the Denver hospital, which supports part of the growth in specialty visits; if the MRI is delayed, about 1,900 imaging visits move out of the year. The hiring plan needs 12 new veterinarians, net of departures, and the recruiting team has historically filled about 80 percent of planned positions. The budget therefore assumes hiring dates spread across the year, not all on January 1, and productivity for new doctors at 70 percent in their first six months. Linking these plans means a slip in either shows up as a specific variance rather than a vague shortfall.

Using the Budget for Evaluation

The budget serves three purposes that pull against each other: planning, coordinating hospitals with the corporate team and evaluating directors. When the same number is used for all three, directors have reason to build slack into it. To reduce that pressure, bonuses will be based partly on budget and partly on improvement over the prior year and on peer comparisons across hospitals, and targets will be adjusted for factors outside a director's control, such as a delayed MRI. The controller will report variances by driver, so a director whose visits beat plan but whose labor costs ran over is evaluated on both.

Assumptions Register

Each driver has a documented source and owner: visits from directors with referral data, prices from the pricing committee, wage rates from HR's market survey, drug costs from the purchasing group's supplier contracts and fixed costs from leases and contracts. The register lets the sponsor see where each number came from and lets the controller update the rolling forecast quickly when an assumption changes.

Rolling Forecast

The annual budget will serve as the plan for evaluation and bonuses, but each quarter the controller will update a five-quarter rolling forecast using the same drivers and actual results. Libby and Lindsay (2010) surveyed budgeting practice in the United States and Canada and concluded that firms were refining budgets rather than abandoning them, often by adding forecasts that roll forward, which is the approach adopted here. The forecast, not the budget, will be used for cash planning and covenant projections.

Conclusion

A driver-based budget gives hospital leaders numbers they recognize, gives the sponsor an EBITDA figure tied to operating plans and lets the controller explain variances by driver. The process limits slack through challenge rather than imposition, and the rolling forecast keeps planning current.

References

Hansen, S. C., Otley, D. T., & Van der Stede, W. A. (2003). Practice developments in budgeting: An overview and research perspective. Journal of Management Accounting Research, 15(1), 95-116. https://doi.org/10.2308/jmar.2003.15.1.95

Indjejikian, R. J., & Matejka, M. (2006). Organizational slack in decentralized firms: The role of business unit controllers. The Accounting Review, 81(4), 849-872. https://doi.org/10.2308/accr.2006.81.4.849

Libby, T., & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management Accounting Research, 21(1), 56-75. https://doi.org/10.1016/j.mar.2009.10.003