Budgeting

Remya.G

CONTENTS

Introduction• Increasing demand of health care but limited

resources - importance of planning and management

• Budgeting is the financial part of planning

• Budget is an important tool in the hands of a trained health professional

BOUGETTE

Definitions• Budget -anticipated receipts and available

resources of an organisation during the given year,

OrStatement of future plans described in quantitative and monetary terms, for a specific period of time.

• Budgeting – the process of preparing the budget.

• Budgetary control –preparing, implementing and monitoring of budgets.

Budgeting in Healthcare

NEED OF BUDGET IN HEALTHa) Budgets are effective means of communicating the future

organizational plans in monetary and financial terms.

(b) A pre-decided and approved budget monitor the ongoing operations.

(c) Budgeting reduces wastage and losses

(d) Budgets, when drawn up through participation, encourage, and develop team spirit

(e) Budgets form the basis for assessing the performance of managers

Budgeting at different level differs

Changing pattern of public health expenditure

• India needs to double or triple its existing health spending with their proper allocations

Decentralization Community participation.

• Financing control more important at the primary level.

• Budgeting important tool in financial planning in health care

Health needs

Fund raisingFund allocation

Limited resources

Why budgeting in health is complicated?

• Intangibility and often non-measurability of the

product (health outcome).

• Actual expenditures for health care will never exactly

match the budget.

• The ever increasing healthcare cost.

• Needs to meet unfunded healthcare.

• The complexity of fundflow.

Organization

DivisionS

DepartmentS

Individuals

Approaches in BudgetTOP DOWN APPROACH

BOTTON UP APPROACH

Top down budget- Imposed Budget

Bottom up budget- Participatory Budget

A top-down budget may be participatory if the top managers seek input from the lower levels

TYPES OF BUDGET• Based on

Time, FunctionFlexibility

Time-based Budgets

• (i) Long term budgets >5 year duration.• (ii) Short term budgets - up to one year

duration.• (iii) Current budgets -very short term periods.• (iv) Rolling (Progressive/continuous budget) -– Budget prepared for 1 year– After a quarter new budget is prepared (for 1 yr).– Some advanced budget will always remain

Function based budgets

• Revenue budget• Expenditure budget• Capital budget• Operation budget• Cash budget• Research budget• Master budget

Revenue budget (Sales budget)

Commercial and profit-basedorganisations.

Sales budgets are developed based on theanticipated sales volume

Expenditure budget

Based on the expectedexpenditure

Capital budget

Financial resources for new proposed projects,

Operation budget

• Overview of an agency’s functions by projecting the planned operations usually for the upcoming year

Cash budget

Ensure that the agency has enough, but not too much, cash on hand during the budgetary period

Cash budget are planned to make adequate funds available.

Research budget

Allocating financial resources for innovation

Master budget

• Amalgamation of all organizational budgets

•Balance sheet

• Fund flow statement

Flexibility-based budgets

• Fixed budgets

• Flexible budgets

.

PHC PROGRAMME BUDGETED FOR

5 LAKH POPULATION 7 LAKH POPULATION

PERFORMANCE

Fixed budget

5,00,000 10,00,000 15,00,000

BASIC COST 5 BEDS 10 BEDSFLEXIBLE BUDGET

Fixed budget Flexible budget

Static Dynamic

Remains constant regardless of activity

Change with change in activity

Fixed Budget cannot be modified as per the actual volume

Flexible budget can be easily modified in accordance with the activity level attained

Actual Performance cannot be accurately measured

Actual Performance can be measured

Based on assumption Realistic and Practical

Types of budgets

FIXED BUDGETFLEXIBLE BUDGET

REVENUE BUDGETEXPENDITURE BUDGETCAPITAL BUDGETOPERATION BUDGETCASH BUDGETRESEARCH BUDGETMASTER BUDGET

LONG TERM BUDGETSHORT TERM BUDGETCURRENT BUDGETROLLING BUDGET

Time based Function based Flexibility based

TECHNIQUE OF BUDGETING

Techniques of Budgeting

• Incremental budgeting• Zerobased budgeting• Programme budgeting(Performance

budgeting)• Planning Programming and Budgeting

system(PPBS)

Incremental budget

• Previous year’s expenditure is applied to the next year

• With additional components of increased salaries and cost of materials

• Requires little budget expertise from the part of the manager.

Advantages:

Simple to prepare and understandRequires little budget expertise from

the part of the manager.Consistent basisBetter coordination between budgets

Disadvantages:

Totally ignore the impact of changes Wasteful expenditures of previous years are again

included No incentive in development and innovation

Encourages spending up to the budget

Administrators of various departments often tend to inflate their proposed individual budgets, since no detailed justification is sought along with the proposal.

Zerobased 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

Advantages of ZBB• Efficient allocation of scarce financial resourses.

• Links budget to organisational objectives- Management by objectives.

• Only essential projects and activities.

• Activity must justify before each budget that the activity proposed is essential, cost effective

• Identifies wasteful expenditure.

Disadvantages

• Initial planning stage needs effort and time

• Very complex Time and manpower consuming

• Necessary to train employees, especially managers

• Less applicable for those activities with intangible cost-benefit relationship- public heath programmes

3.Performance based budgeting

• Decision making and budgeting depends on performance.

• Performance Based on goals and objectives of programme

• Outcome of the programme measured.• Efficiency and effectiveness of the programme

measured for continuous improvement.

PERFORMANCE BUDGETING

-The departmental head usually prepare periodic performance reports

- Which compare the budgeted actual performance -In terms of output, production or services rendered(to detect any deviations at the earliest possible.)

PB

• Introduced in USA in 1951

• GOI & some State Govts have accepted it.

• Most useful in public health

Problems in Performance Budgeting

• Time gap b/w the input ( intervention) and output ( improvement in health)

• Establishment of standards, norms for measurement is difficult

• It is almost impossible to separate out the individual effects of different units.

4.Planning programming and budgeting system.PPBS

• Planning, Programming, and Budgeting System (PPBS) is in effect an integration of a number of techniques in a planning and budgeting process.

• The aim of PPBS was to Identify the Goals, Objectives, Tasks

• Prioritise in planning process, • Identify, estimate costs and assign the various

resources needed for the achievement of the established goals in the form of major programs, in the programming phase

• Difference between conventional budgetingPPBS – More importance is given for planning

Conventional budgeting- Planning phase is not very important

Gender budgeting

• Gender Budgeting is a powerful tool for achieving gender mainstreaming.

• Women 48% India’ s popularion.

• Gender budgeting translate gender commitments into budgetary commitments

Advantages of budgetingADVANTAGES OF BUDGETINGADVANTAGES OF BUDGETING

Limitations of budgeting

Over budgeting

Under budgeting

Blaming for outcome

Time consuming

Behavioural problem

conclusion

• Financing in health care sector is presently in its nascent stage in India and it is imperative that all health care professionals and those associated with health have a sound knowledge of budgeting and health care financing.