Nursing Management

UNIT II : MANAGEMENT PROCESS

TOPIC : BUDGETING

Presented By: Mrs BeminaDinesh

Assistant Professor
ESIC College of Nursing
INTRODUCTON OF BUDGET:
 Every organization has predetermined goal of objectives which are
attained by with help of proper planning and execution of plans
economically. The plan are in the form of statements are called budget.
 Budget expresses the plan of hospital in the health organization to
improve the optimum care at a reasonable cost in the financial terms.
 The process of budgeting has been gained importance in recent years
because of rising health cost and emphasis on cost containment.
 Health economy has gained a lot to do in the management of health care
agencies and in provision of effective and economical health care to
individual, families and community and court as a whole.
 It is responsibility of every country to look in to the source of income
over expenditure on various aspects of health which include education,
infrastructure and organization of health care services.
MEANING OF BUDGET
 Budget word first coined by the British Kings in early days
from the word ‘BOUGETTE’ which means lather bag or
pouch that held the seal of medieval court Exchequer (Former
Government Department Incharge of National Revenue.)
 Centuries later the statements come to be popularly known as
‘BUDGET’.
 Now the term “budget” refers to financial papers. Budget is
numerical description of expected income and planned
expenditure for an organization for special period of time.
 It is concrete, precise, picture of the total operation of an
enterprise/ organization/ institution in monetary term.
Budgeting

 Budgeting is the heart of administrative management,

serves positively as a powerful tool of coordination and
negatively, an effective device to eliminating duplication
and wastage.
 DEFINITION: Budgeting is an operational plan, for a
definite period usually a year. Expressed in financial
terms and based on the expected income and expenditure.
 Budgeting is a concrete precise picture of the total
operation of an enterprise in monetary terms. By: H.M.
Donovan
PURPOSE:
 MAIN PURPOSE:
To ensure the most effective use of scarce financial and non-financial
resources.
 SPECIFIC PURPOSES:
It provides detailed plan to reduce uncertainty.
It controls expenses by efficient and economical manner.
It provides mechanism for measurement of work effort on timely basis.
Enhance budget planning.
Coordinates effort among organizational department.
Establish the frame of reference for management decision.
Provides criterion for evaluating managerial performance.
Offers useful format for communication.
It aids in planning and controlling.
It guides for action and future needs.
It serves as instrument for economic and social policies.
It conserves the resources by regulation.
 PERQUISITES OF BUDGETING:

 ORGANIZATIONAL STRUCTURE: Need a sound organizational structure

with clear line of authority and responsibility.
  NON-MONETARY STATISTICAL DATA: Such as number of admissions,
average length of stay, percentage of occupancy and number of patient’s days. Used
for planning and budgetary process.
  CHARTS OF ACCOUNTS: Designed to be consistent with the organizational
plans. Revenues and expenses are reported by responsibilities areas, thus providing
historical data that are valuable for planning and providing budgetary control for
evaluation as performance can be compared to plans.
  MANAGERIAL SUPPORT: Essential for the budgetary programme. Budgeting
is done at the departmental level, it must be valued by top administration. Managers
must be willing to devote their time and energy to the budgeting process.
  FORMAL BUDGETING PROCESS AND PROCEDURES: Should be
available in budget manual, in which objectives are clarified and instructions for
budget development are discussed. Calendar of budgeting activities with the
schedule for each stage of programme is presented.
CHARACTERISTICS OF BUDGETING:

  Should be flexible.
 Should be synthesis of past, present and future.
 Should be product of joint venture and cooperation of
executive/department head at different level of management.
 Should be in the form of statistical standard laid down in the specific
numerical terms.
 Should have support of top management throughout the period of its
planning and implementation.
IMPORTANCE OF BUDGETING:
Needed for planning future course of action and control over all
activities in the organization.
Facilitates coordinating operation of various departments and sectors.
Helps to weigh values and make decision when necessary.
PRINCIPALS OF BUDGETING

 Should provide sound financial management by focusing on requirement of the

organization.
 Should focus on the objectives and policies of the organization.
 Should ensure the most effective use of financial and non financial resources.
 Programme activities should be planned in advance.
 Requires consistent delegation for framing and executive budget.
 Should include coordinating efforts of various departments establishing a frame of
reference for managerial decision and evaluate managerial performance.
 Requires an adequate checks and balance against adoption of too high and too low
estimates.
  Must be appropriate to nature of business, services and to the type of budget.
 Prepared under the direction and supervision of administrator or financial officer.
 To be prepared and interpreted throughout the organization.
 Requires review of performance of previous year and adequacy both quantitatively
and qualitatively.
 Provision should be made for flexibility.
TYPES OF BUDGETING:
  OPERATING BUDGET (Revenues and Expenses): Provides an overview of agency function by
projecting the planned operation for upcoming year. Deals with salaries, medical-surgical supplies,
office supplies, laundry services, books periodicals, recreation and contractual services.

 CAPITAL EXPENDITURE BUDGET: Related to long range planning. Includes physical changes
(replacement and expansion of plant, major equipments and inventories). They are major investment
and reduce flexibility in budgeting.

 CASH BUDGET: Planned to make adequate funds available and to use extra funds profitably.
Should not have too much cash on hand during budgetary period.

 LABOR OR PERSONNEL BUDGET: Estimate cost of direct labor necessary to meet agency
objectives. Determine the recruitment, hiring, assignment, layoff, discharge of personnel. Nurse
Manager has to decide number of aids, orderlies required during a shift months and areas.

 FLEXIBLE BUDGET: Some costs are fixed, others changes with volume of business. Some
expenses are unpredictable and can be determined only after change has begun. Periodic reviews
required to compensate for changes.

 STRATEGIC PLANNING BUDGET: Long range budget for long range planning. Projected for 3-5
years. Programme budget is a part of this budget.
CLASSIFICATION OF BUDGETING:

 INCREMENTAL: Based on estimated changes in present operation plus a

percentage increase for inflation, all of which is added to previous year
budget.
  OPEN ENDED: A financial plan in which each operating manager presents
a single cost estimate for what is considered optimal activity level.
  FIXED CEILING BUDGET: The uppermost spending limit is set by top
executive before the unit and divisional manager develop budget proposal for
the areas of responsibility.
  FLEXIBLE BUDGET: Several financial plans each for different
programme activity.
  ROLL OVER BUDGET: Forecast programme, revenues and expenses for a
period greater than a year, to accommodate programme larger than annual
budget cycle.
  PERFORMANCE BUDGET: Allocates functions not divisions (direct
nursing care, in service education, nursing research, quality improvement).
CLASSIFICATION OF
BUDGETING:APPROACHES
 PROGRAM BUDGET: Where cost are computed for a total program (group
total cost for each service program). Example- MCH, FP, UIP.
  ZERO BASE BUDGETS: Requires nurse manager to examine, justify each
cost of every program both old and new in every annual budget preparation. 
SUNSET BUDGET: Designed to “self destruct” within a prescribed time period
to ensure the cessation of spend in by a predetermine date.
  SALES BUDGET: Is starting in budget program, since sales are a basic activity
which gives shapes to other activities. Compiled in terms of quantity and value.
  PRODUCTION BUDGET: Aims at securing the economical manufacture of
production and maximizing the utilization of production facilities.
  REVENUE AND EXPENSE BUDGET: Expressed in financial terms and take
the nature of Performa income statement for future. Shows the item of profits and
loss.
  CASH BUDGET: Prepared by way of projecting the possible cash receipts and
payments over budget period.
 BUDGETING PROCESS:
 STEP 1: Establishment of operational goals and objectives and policies.

 STEP 2: Goals must be translated into quantifiable management objectives for

organizational units. Departmental goals are made.

 STEP 3: Formal plan for budget preparation and review including assignment
of responsibilities and timetable is prepared.

 STEP 4: Departmental budget are revised and master budget is prepared.

 STEP5:Financial feasibility of master budget is tested and final document is

approved and distributed to all parties involved.

 STEP 6: Every head of the office required to prepare budget estimate in

respect of salaries of establishment, contingent expenditure and others.
Example- Telephone, office expenses, rent of building etc.
 ADVANTAGES &DISADVANTAGES
 ADVANTAGES OF BUDGETING:
- Fixes accountability, assignment of responsibility and authority.
- Encourages managers to make careful analysis of operation.
-Weakness is revealed, corrective measures taken.
-Financial matters can be handled in orderly fashion.
Activities are balanced.

 DISADVANTAGES OF BUDGETING:
-Converts all aspects of organizational performance in monetary values.
-Only easy aspects can be considered and equally important facts such as
organizational development may be ignored.
-May become an end in itself instead of means to end. Budgetary goals may
supersede agency goals.
-Skills and experiences are required for successful budgetary control.
-Time consuming and expensive.
COST BENEFIT ANALYSIS
INTRODUCTION
 An approach to make economic decisions of any kind.
Economic evaluation technique that measures all the
positive (benefits) and negative (cost) consequences of an
intervention or programme in monetary terms. Or It is a
process for evaluating the merits of a particular project in a
systematic way in terms of cost & benefits of the project.
• Cost- it is the value of money that has been used up to
produce something & hence is not available to use
anymore.
• Benefit- monetary values of desirable consequences of
economic policies or decisions.
PRINCIPLES OF CBA

 Common unit of measurement

 Valuation of human life
 Particular study area
 Avoid double counting
TECHNIQUES OF CBA

COST
Cost of healthcare services is estimated. e.g
supplies, expenditure, materials & their
maintenance
BENEFIT
Can not be expressed in monetary terms. eg
morbidity, mortality
AUDIT
AUDIT

 Systematic & critical examination to examine

& verify.
 PURPOSES
 Critical review
Determine effectiveness
Accuracy & adequacy
Extent of compliance
Identification of unauthorized & unsound
transactions
NURSING AUDIT / BUDGET AUDIT

NURSING AUDIT BUDGET AUDIT

Nursing audit is the Budget audit is verification

assessment of quality of of accounting, determining
nursing care or related to the accuracy & reliability of
planning, delivery & accounting, statements &
evaluation of care reports.
STATUTORY AUDIT
COST AUDIT- To verify the accuracy of accounts in accordance with
established norms.

TAX AUDIT- Compulsory audit of accounts under income tax act, 1961.

BALANCE SHEET AUDIT- Verification of details in balance sheet for

ascertaining profit.

SPECIAL AUDIT-Can be done by central govt. at any time under company's

act , 1956

FINANCIAL AUDIT- Independent examination of vouchers & account book.

STATUTORY AUDIT COST AUDIT- To verify the accuracy of counts in accordance with established norms. TAX AUDIT- Compulsory audit of accounts under income tax act, 1961. BALANCE SHEET AUDIT- Verification of details
in balance sheet for ascertaining profit. SPECIAL AUDIT-Can be done by central govt. at any time under company's act , 1956 FINANCIAL AUDIT- Independent examination of vouchers & account book.
the accuracy of accounts in accordance with established norms. TAX AUDIT- Compulsory audit of accounts under income tax act, 1961. BALANCE SHEET AUDIT- Verification of details in balance sheet for ascertaining profit.
SPECIAL AUDIT-Can be done by central govt. at any time under company's act , 1956 FINANCIAL AUDIT- Independent examination of vouchers & account book.
PHASES OF BUDGET AUDITTING

 Planning
 Communicate results
 Conduct the audit
 Audit follow up
FINANCIAL AUDIT TECHNIQUE

 VOUCHING- inspection for authorization,

recording & entry book. CHECKING &
TICKING- with colored pencils, pens or
rubber stamps.
 TEST CHECKING- random sample checking
 AUDIT NOTES- careful & precise note of
discoveries in audit
 QUESTIONNAIRES- about important
elements of cost, asked to managers.,
REFERENCES:
 Basavanthapa BT, Nursing Administration,
Jaypee Brothers Publications; 2nd edition;
2009; page number- 306-317.
 www.unsouthal.edu/osp/documents/sample
research budg.doc.
 www.doculink.org/downloads/doc sample.