University of Bohol

Graduate School & Professional Studies Department

Tagbilaran City, Bohol, Philippines 

Principles
Principles of
of Budgeting
Budgeting in
in
Nursing
Nursing Administration
Administration
MS
MS
V
V
Mary Ann Adiong, BSN, RN, USRN -
Masterand
 DEFINITION
DEFINITION
• A forecast of the resources required to deliver the 
services offered by the organization.
• A  budget  is  a  financial  plan  that  includes 
estimated  expenses  as  well  as  income  for  a 
period of time. 
• A  nursing  budget  is  a  systematic  plan  that  is 
informed best estimate by nurse administrators of 
nursing  revenues  and  expenses.  It  projects  how 
revenues  will  meet  expenses  and  projects  a 
return on equity or profit.
 PURPOSE
PURPOSE
 To plan the objectives, programs and
activities of nursing services and the fiscal
resources to accomplish them.
 To motivate nurse managers and nursing
workers through analysis of actual
experiences.
 To evaluate the performance of nurse
administrators and managers and increase
awareness of the costs.
PURPOSE
PURPOSE
PRINCIPLES
PRINCIPLES
 IMPORTANCE
IMPORTANCE OF
OF BUDGET
BUDGET

 An essential management tool 

Budget  tells  you  how  much  money  you 

need to carry out your activities
Budget  enables  to  monitor  income  and 
expenditure.
The  budget  is  basis  for  financial 
accountability and transparency.
TYPES
TYPES OF
OF BUDGET
BUDGET
 OPERATING
OPERATING BUDGET
BUDGET

 It provides an overview of an agency’s functions

by projecting the planned operations usually for
the upcoming year.

 The nurse manager might includes personnel

salaries, employee benefits, insurance, medical-
surgical supplies, office supplies, rent, heat,
light and house keeping
 CASH
CASH BUDGET
BUDGET
 Cash budget are planned to make adequate
funds available as needed and to use any
extra funds profitably.

 The ensure that the agency has enough, but

not too much, cash on hand during the
budgetary period.
 PERSONNEL
PERSONNEL BUDGET
BUDGET

 Estimates the cost of direct labor necessary

to meet the nursing needs of the estimated
patient population. It includes recruitment,
hiring, assignment, lay off and discharge of
personnel.
 The current staffing patterns, number of
unfilled positions and last year’s report can
provide a base.
136 = 5.44
25
 BUDGETING
BUDGETING APPROACHES
APPROACHES

INCREMENTAL
Budget for the coming year is projected
Requires little budget expertise from the part of the manager.

Advantages:
 Simple to prepare and understand
 Consistent basis
 Better coordination between budgets

Disadvantages:
 Totally ignore the impact of changes
 No incentive in development and innovation
 Encourages spending up to the budget

This approach is not recommended as it fails to

take into account changing circumstances.
 ZERO-BASED
ZERO-BASED BUDGETING
BUDGETING

Assumes the base for projecting next year’s budget is zero.

Managers are required to justify all activities and programs as if
they initiated for the first time.
Every proposed expenditure must be justified with:
current environment
fit with organizational objectives

Since all the costs are required to be justified, it seems

inappropriate to use ZBB for the whole budgeting process.
One way of overcoming this drawback is to use this method
selectively.
 ZERO-BASED
ZERO-BASED BUDGETING
BUDGETING
ADVANTAGES:
 Efficient allocation of resources
 Drives managers to find cost reduction methods
 Identifies and eliminates wasteful activities

DISADVANTAGES:
 Very complex  Time and manpower consuming
 Necessary to train employees, especially managers
 In a relatively large corporation, the amount of
information might be too excessive to go through all.
Compressing the information might take out critical
details
 Can result in internal conflicts between departments
over budget allocation.
 FLEXIBLE
FLEXIBLE BUDGETING
BUDGETING

 are budgets that adjust automatically over the course of the

year depending on the variables such as the volumes,
labor cost and capital expenditures.
 automatically calculates what expenses should be given
the volume what is occurring thus the costs can be
allocated on a volume basis.

ADVANTAGES: DISADVANTAGES:
1. Adjustment for Predictions 1. Continuous Monitoring
2. Adapting Change 2. Lack of Information
3. Control and Evaluation 3. Complexity
 PERFORMANCE
PERFORMANCE BUDGETING
BUDGETING
 Focuses on the activities of a cost center such as indirect care, direct
care and quality monitoring. Each activity has objectives with specific
financial resources; performance budgeting focuses on what is expected
to be accomplished.
 Performance budgeting is an improvement over flexible budgeting
because it ties performance to consumption of financial resources.

STEPS OF PERFORMANCE BUDGETING:

1. Define the performance activities or areas of accomplishment for
the cost center.
2. Identify the line-item operating budget for the cost center being
evaluated.
3. Define how much of the resources presented by each line item
are to be devoted to each performance areas.
4. Choose measures of performance for each performance area,
budget an amount of work for each area and determine the
budgeted cost-per-unit of work based on these measures.
PERFORMANCE
PERFORMANCE BUDGET
BUDGET SAMPLE
SAMPLE