Uptown Clinic: Identify which costs you think are likely to be discretionary or committed costs.

There are several solutions I have found to the following questions, however they conflict somewhere, and two are from the same person and they conflict too. Please help!! Please provide guidance on all 3 questions and all aspects. Tank You!!! As much detail and reasoning as possible is appreciated, because at this point I cannot decipher what is right!!!

I have to answer the following:

Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future, but increasing 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 are some data from the past year.

1. Identify which costs you think are likely to be discretionary or committed costs.

2. One possibility is to eliminate all discretionary costs. What do you think of this recommendation?

3. How would you advise Dr. White to prepare for reduced budgets?

Program Area Costs
Administration
Salaries:
Administrator
$60,000
Assistant
$35,000
Two Secretaries
$42,000
Supplies $35,000
Advertising and promotion $9,000
Professional meetings/dues $14,000
Purchased Services:
Accounting and billing
$15,000
Custodial
$13,000
Security
$12,000
Consulting
$10,000
Community Mental Health Services
Salaries (two social workers) $46,000
Transportation $10,000
Outpatient mental health treatment
Salaries:
Psychiatrist
$86,000
Two Social Workers
$70,000

--------------------------------------------------------------------------------

Solution Possibility #1
COSTS LIKELY TO BE DISCRETIONARY
Program Area Costs
Administration
Purchased Services:
Accounting and billing
$15,000
Custodial
$13,000
Security
$12,000
Consulting
$10,000
Community Mental Health Services:
Transportation $10,000

COSTS LIKELY TO BE COMMITTED
Program Area Costs
Administration
Salaries:
Administrator
$60,000
Assistant
$35,000
Two Secretaries
$42,000
Community Mental Health Services
Salaries (two social workers) $46,000
Outpatient mental health treatment
Salaries:
Psychiatrist
$86,000
Two Social Workers
$70,000

ELIMINATING ALL DISCRETIONARY COSTS WOULD
Reduce the costs by $60,000. However, I would not advice Dr. White to take such a mechanical step because some of the discretionary costs may be essential for the survival of the clinic. For, instance if the accounting and billing services were removed and there was no other staff that could prepare accounts, there could be serious difficulties for the clinic. Similarly, if the security expenses were arbitrarily removed, there could be burglaries in the clinic!

ADVISE TO DR. WHITE TO PREPARE REDUCED BUDGET
I would advice Dr. White to start on a systematic cost reduction. Even in case of committed costs like salaries, if there are idle hours for a staff and his work can be re allocated, then some salaried staff should be removed.
Possibly the services of one of the Social Workers can be terminated and their work reallocated to other staff.
The favorite area of cost reduction is that of discretionary costs. Here the cost reduction should be undertaken in a circumspect manner. That is professional meetings may be held in an alternate venue and its cost reduced, but not eliminated. Also, encouraging the staff to share transport and make economical use of the facilities should reduce the transportation cost . Advertising and promotion costs may be reduced but there is a risk that its reduction may lead to a fall in the number of patients attending the clinic. Consulting fees needs to be examined in detail to ascertain the nature of the fees and its import to the clinic.

Please note the gaps in the question. First, we do not know the functioning of the clinic, so we cannot decide on the relative importance of the costs. Second, we do not know the details of the costs, for example we can advise that consulting costs be eliminated, but this activity may be quintessential for the survival of the clinic. Third, the question does not mention the function of each of the staff. Without knowing their function it is difficult to advise their removal. Fourth, the question does not clarify the paradox; there is increasing demand for services, yet there is reduction in budget. Usually, with increasing demand there is increased budget!

Solution Possibility #2

Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future, but increasing 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 are some data from the past year.

1. Identify which costs you think are likely to be discretionary or committed costs. The costs can be separated based on these definition.

Committed cost ~ fixed cost that cannot be changed quickly.

Program Area Costs
Administration
Salaries: Administrator $60,000
Security $12,000 (usually under contract)
Supplies $35,000
Transportation $10,000 (usually under contract)

Outpatient mental health treatment Salaries:
Psychiatrist $86,000
Two Social Workers $70,000

Discretionary cost ~ fixed cost that can be quickly altered by managerial action.

Advertising and promotion $9,000

Assistant $35,000

Consulting $10,000 Community Mental Health Services Salaries
(two social workers) $46,000

Custodial $13,000

Professional meetings/dues $14,000

Purchased Services: Accounting and billing $15,000

Two Secretaries $42,000

2. One possibility is to eliminate all discretionary costs. What do you think of this recommendation? I would not recommend eliminating discretionary costs because of long term effects. I would suggest reduction for example hire one secretary instead of two. Hire an assistant that can double as a bookkeeper to reduce the cost for accounting and billing. Total elimination is not feasible due to the fact that some of these costs such as advertising and promotion are crucial to the success of this agency. Discretionary cost present unique problems in cost management because managers must determine whether the level of the discretionary activity is appropriate.

3. How would you advise Dr. White to prepare for reduced budgets? I would advise 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.

Solution Possibility #3

1. Fixed costs are: Salaries, Transportation, Utilities, Meeting
Discretionary costs are: all other costs

2. You cannot eliminate ALL discretionary costs but you can control them, there is no way to fully eliminate all these costs.

3. I would advise him to reduce expenses on supplies, use on secretary instead of two, reduce the adverstising and promotions. There is no way to fully eliminate these costs but reducing disrectionary costs is the solution.

Solution Possibility #4
1) Discretionary costs: Assistant, Two Secretaries, Supplies,

Advertising and promotion, Professional meetings/dues, Community Mental Health Services: Psychiatrist and Two Social Workers, Transportation. Other costs are mainly committed costs

2) I would not totally eliminate all discretionary costs but would surely cut the cost in this area, for example i would use one social worker instead of two, same thing with secretaries, I would also reduce the professional meeting, promitions, transportation costs.

3) I would advise him to discuss his budget cuts with the employees and try to explain to them that the survival of the company is dependent upon these cuts.