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Budgeting For Various Units
Budgeting For Various Units
INTRODUCTION
Literally the word budget means a leather bag to carry official papers in. this word is derived
from the old English word “budgettee” which means a sack or pouch. Budget is the heart of
administrative management. It is a formal expression of policies, plans, objectives and goals laid
down in advance by top level authorities of the organization as a whole in a given period of time.
DEFINITIONS OF A BUDGET
Budget is a concrete precise picture of the total operation of an enterprise in monetary
terms.
H M Donovan
Budget is an operational plan for a definite period, usually a year, expressed in financial
terms and based on expected income and expenditure
A Budget is the annual operating plan, a financial “road map” and a plan which serves as an
estimate of future costs and a plan for utilization of manpower, material and other resources to
cover capital projects in the operating programs.
A Nursing Budget is a plan for allocation of resources based on preconceived needs for a
proposed series of programs to deliver patient care during one fiscal year.
. PURPOSES OF BUDGETING :
1. Budget supplies the mechanism for translating fiscal objective into projected monthly spending
pattern.
2. Budget enhances fiscal planning and decision making.
3. Budget clearly recognizes controllable and uncontrollable cost areas.
4. Budget offers a useful format for communicating fiscal objectives.
5. Budget allows feedback of utilization of budget.
6. Budget helps to identify problem areas and facilitates effective solution.
7. Budget provides means for measuring and recording financial success with the objectives of the
organization.
PRINCIPLES OF BUDGET.
1. It should provide sound financial management by focusing on requirement of the
organization.
2. It should focus on objectives and policies of the organization.
3. It should ensure the most effective use of scarce financial and non-financial resources.
4. Budget requires that a programme’s activities are planned in advance.
5. Budgetary process require consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for framing and
executing budget.
6. Budgeting should include coordinating efforts of various departments establishing a
frame of reference for managerial decisions and providing a criterion for evaluating
managerial performance.
7. Utmost care is a must for fixing budget targets.
8. Budget period must be appropriate to the nature of business or service and to the type of
budget.
9. Budget is prepared under the direction and supervision of the administrator or financial
officer.
10. Budgets are to be prepared and interpreted consistently throughout the organization in the
communication of planning process.
11. Budget necessitates a review of the performance of the previous year and an evaluation of
its adequacy both in quantity and quality.
12. While developing a budget, the provision should be made for its flexibility.
IMPORTANCE OF BUDGET
1. Budget is needed for planning for future course of action and to have a control
overall activities in the organization.
2. Budget facilities coordinating operation of various departments and sections for
realizing organizational objectives.
3. Budget serves as a guide for action in the organization.
4. Budget helps one to weigh the values and to make decision when necessary on whether one
is of a greater value in the programme than the other.
A Budget Plan for health care institutions, which is simply a plan for future activities, generally
consists of
Four Components:
1. A Revenue Budget is summarizing the income the management expects to generate during
the planning period.
2. An Expense Budget is describing expected activity in operational financial terms for a given
period of time.
3.A Capital Budget outlines the programmed acquisitions, disposals and improvements in the
institution's physical capacity.
4. A Cash Budget consists of money received, cash receipts and disbursement expected during
the planning period.
Budgetary planning is important for:
• Analyzing activities for appropriateness
• Focusing on the future rather than just the present
• Anticipating problem or opportunities in time to deal with them
• Reinforcing motivation to work toward organization goals
BUDGET APPROACHES
Managing Resources: How to Manage your Existing Budget?
1. Review health facilities vision, mission, objectives and its relation to the
importance of budgeting.
E.g. 1.Review of stock levels of hospital supplies to ensure that they are not wasted
and misused.
2. Develop a model to display why require an X amount of staff, to defend
staffing levels and requirements.
3. Determine patient dependency to determine the patient need, planned
nursing hours, available nursing hours and the cost of nursing for each patient.
4. Manage and Control Spending
a. Identify Controllable and Non controllable Costs as well fixed and variable costs.
e.g. A controllable cost is an increase in price by a supplier, use less expensive supplier
could control this.
A non controllable cost would be a general increase in the cost of utilities such as electricity,
water etc.
b. Monitor Spending
Keep a file of all budget statements received; expenditures trends can be highlighted and
examined.
TYPES OF BUDGETING
The two most basic types of budgeting are the CENTRALIZED and DECENTRALIZED
approaches to budgets.
CENTRALIZED BUDGET – Centralized budgeting is developed and imposed by the
comptroller, administrator and/or director of nursing with little to no consultation
with lower level managers.
DECENTRALIZED BUDGET – Decentralized budgeting, has the middle level manager
involved in the planning and budgeting process.
COMPONENTS OF TOTAL INSTITUTIONAL BUDGET
The components of total institutional budget are:
1.Manpower Budget – this consists of the wages and salaries of the regular employees and the
fees paid to outside registries through which the institution contracts short-term employees.
2.Capital Expenditure Budget – this involves the large expense of purchasing of lands,
buildings, and major equipment meant for long-term use.
3.Operating Budget – this indicates the cost of supplies, minor equipment repair and
maintenance as well as other overheard expenses.
There are many different types of institutional budgeting, the appropriateness of which to
a given milieu may depend on such things as the philosophy of the incumbent management or
the exigencies of a given situation.
BUDGETARY PROCESS
The budgetary process involves determining and developing a plan for the area of responsibility
and reviewing, analyzing, and controlling the operation and plans of the Department. This can be
done by
The budgetary process is an ongoing one. It begins with the identification of who is responsible
for developing and monitoring the budget. Ultimately, the organization’s governing board is
responsible, but many of the administrative staff members participate and have responsibilities,
including the chief executive officer, chief fiscal officer, nurse executive, and managers.
Operational goals and objectives are set that correspond with the organization’s mission, goals
and objectives, as well as the organization’s strategic and operational plans. It is easy to view the
budget as another paper report or plan, but it must be a live document, one that changes as
needed, and it must be monitored. A cost center is a unit or department within an organization
that has specified expenses.
Examples of this would be the cardiac care unit, the pharmacy department, nursing services, or
admissions. Each one would have a budget that would then be used to develop the overall budget
for the organization.
Planning: Gathering information related to goals and objectives, setting priorities, conducting
an environmental assessment, and identifying financial objectives.
Development of the budget: Collecting and analyzing data from past budget, allocating
amounts based on priority, and approving the operational and capital budgets.
Implementation and monitoring: Analyzing variances and adjustments during the fiscal period,
negotiating and revising the budget as necessary, allocating departmental and cash budgets.
Evaluation: Obtaining performance reports and analyzing efficiency .
Budget planning is determined by the specific type of activity for which it is implemented.
Nursing service has very specific parameters, activities and needs which from the basis of budget
planning.
The basic factors to be considered in budget planning are the type of patient/s, the kind or class
of the hospital, the policies on personnel and equipment, standards of nursing care and nursing
supervision.
1. PATIENT
The nature of the patient's needs is primary consideration in budget planning. These needs are
determined by the condition of the patient, the length of stay in the hospital and the acuteness of
the illness.
Categorizing the patient is made through the type of care given by the physician such as medical,
surgical, maternity, pediatric, and geriatric among others. The method of patient assignment can
be functional, case, team, or primary. The severity of the illness serves as the basis for length of
stay in the hospital.
The available facilities and resources with which to address the needs of the patient are also
factors in budget planning. In nursing management, these concerns include the size of the
hospital, specifically its bed occupancy and capacity. Bed capacity must be enough to
accommodate the possible number of patients. Other aspects of a hospital to be considered
include its physical layout, the size of the wards or units, the Nurse's Station, the treatment
rooms, and other relevant facilities and resources available such as equipment and supplies.
3. PERSONNEL
These facilities would be useless without the personnel to utilize them, and so it is important to
be well-acquainted with personnel policies in place, such as the salaries paid to nursing
personnel, leave benefits enjoyed by the personnel, i.e. whether these leaves are confined to
those required by law or include others, and provisions for staff development programs including
instructional staff and training structures available, e.g. periodic seminars for staff.
This consists of the cost of training and maintaining personnel and acquiring equipment that will
be needed by the health care facility, based on the volume of patients and the nature of their
needs.
It begins with documentation of the nursing care method employed which refers to reports. The
manager determines whether the method of patient assignment shall be functional, on a case
basis, on a team basis or to a primary nursing method.
She identifies what labor-saving devices and equipment are necessary. There must be a
determination of the amount of centralized service provided such as sterile equipment,
centralized oxygen service and line supply.
The manager determines the affiliation of nursing students or medial students to the system,
considering that as a rule, inexperienced students need more supervision, equipment and supplies
(Budgeting Process)
1. As a starting point, the nurse executive will require to review the following
a. The financial records from prior financial periods as a basis for planning.
d. Those activities the division plans to delete during the projected period.
- The nurse executive has to study the organization's goals and financial projections thoroughly.
- Items in the major budgetary report that affect the nursing department should be determined
Example of hospital goals and projections:"This division is going to lose 4 beds from
February to November and then gain 12 additional beds after that. A gerontologist and clinical
specialist in gerontology have been added to the staff. This division will then admit older and
sicker patients. If the shortage of nurses continues, nursing service will have to consider
alternative staffing pattern to deal with this situation".
- Once the goal statement is finished, it, (together with the actual versus budget analysis done
earlier), should be reviewed with higher level management.
- The departmental goals proposed should be carefully considered; as well as the variances, their
causes, and proposed corrective actions should be reviewed.
- Once the final statement for the department is in place, the new budgeting process can begin in
earnest.
- The actual preparation of a new budget can be done based on a previous budgetary plan, or
newly proposed plan (if a newly developed or modified service).
- To complete the budget, a budget worksheet is essential. Worksheet is "a tool used by
managers to prepare their budget". It includes a number of columns including information about:
The administration of the school or college of nursing require a budget well probably allocated directly,
but as in most hospital, schools of nursing and college, it will be included in the total budget of the hospital
with a certain amount remarked for the school or college. In general, the items which are budgeted for the
average government schools of nursing in India are:-
Item Income Expenditure Actual last Current year Budget next year
Making a hospital budget is only second to medical delivery systems in for a hospital. In fact, if a
budget is not properly written, the hospital may be unable to deliver medical services at all. So
many expenses and sources of revenue must be taken into consideration, so the budget process
takes an expert to get through it successfully. Let's find out how to start.
INSTRUCTIONS
o Determine hospital revenue. Revenue can come from patient payments, tax
dollars, donations, insurance credits. Be sure to deduct a percentage of the patient bills that will
remain uncollected, the charity work expected by the hospital and the pro bono work it does.
o Figure out expenses. Start with the physical facility. How much does it cost to
keep up the building or buildings. What is the maintenance cost of each department, engineering,
air-conditioning, heat, water, other utilities. Know what equipment costs, how much must be
replaced per patient day, and if any can be recycled. Include the non-medical cost of each bed in
the hospital. Include advertising.
o Know the cost of personnel, all employees and ancillary staff, including
consultants, outsourced contracts, perhaps laundry or nurse staffing services. For all employees
of the hospital, from janitorial to hospitalists, figure the fringe benefits the hospital must pay for
each.
Add all medical equipment costs, ongoing and expected expansion or replacement of new
diagnostic equipment.
o Know the medical costs of each bed. How many staff hours are spent on each bed,
occupied or not. Use this figure as an average to get a cost per patient year. Add to that the non
medical costs per bed. Include every possible cost that keeps that bed in the hospital. Don't forget
replacement costs per annum for any and all patient needs.
o What about expansion? Are you planning a new wing, or the renovation of an old
one? Are you expanding into a new specialty that could bring in extra revenue? Estimate that
revenue when planning your budget.
o Write in an emergency expense fund. Disasters occur and the hospital must be
prepared for them when they arrive.
o To do the budget, use a spreadsheet. Enter all categories and the cost of each. Add
all taxable items and the percentage of each. You probably get reduced rates on utilities, or least
a break on the taxes on them. Enter all formulas for those. It is possible your state or your
hospital system has one already available. If the spreadsheet exists, use it or modify it for your
own needs. If it does not, make one, so making next year's budget is simply a matter of entering
numbers and letting the computer do the work.
Responsibilities
CONCLUSION:
A budget defines the limits of financial support for the educational institution, therefore it controls the
scope and quality of the institutions programs. Goals and aspirations of the faculty are to adjust to the varying
conditions and needs of the institution.
BIBLIOGRAPHY:
1. Gallaher HA. Educational Administration in Nursing New York, Mac Millan Co, 1965. P. 97-122.
2. Basavanthappa BT. Nursing Administration, New Delhi. Jaypee Brothers and medical Publishers. 2000.
P.152-164.
3. Lehmann RS. Nursing Management Desk reference. Philadelphia. WB Saunders Company. 1994. P. 422-
448.
4. Yoder Wise. Leading and Management in Nursing, St. Louis. Missourii Mosby Publications. 1995. P.
263-264.