Budgeting in Nursing Budgeting in Nursing AdministrationAdministration

Budgeting in Nursing Budgeting in Nursing AdministrationAdministration

DEFINITION DEFINITION DEFINITION DEFINITION • A forecast of the resources required to deliver the A forecast of the resources required to deliver the

services offered by the organization.services offered by the organization.

• A budget is a financial plan that includes A budget is a financial plan that includes estimated expenses as well as income for a estimated expenses as well as income for a period of time. period of time.

• A nursing budget is a systematic plan that is A nursing budget is a systematic plan that is informed best estimate by nurse administrators of informed best estimate by nurse administrators of nursing revenues and expenses. It projects how nursing revenues and expenses. It projects how revenues will meet expenses and projects a revenues will meet expenses and projects a return on equity or profit.return on equity or profit.

• Budget is a numerical statement expressing the Budget is a numerical statement expressing the plans, policies and goals of an organization for a plans, policies and goals of an organization for a definite period in future.definite period in future.

PURPOSEPURPOSEPURPOSEPURPOSE

To provide a quantitative expression of To provide a quantitative expression of the plans of the hospital or the the plans of the hospital or the institution.institution.

To evaluate financial performance in To evaluate financial performance in accordance with the plans.accordance with the plans.

To control costs.To control costs.

To enhance fiscal planning and To enhance fiscal planning and decision making.decision making.

To clearly recognize controllable and To clearly recognize controllable and uncontrollable cost areas.uncontrollable cost areas.

To provide a useful format for communicating To provide a useful format for communicating fiscal objectives.fiscal objectives.

To allow feedback of utilization of money To allow feedback of utilization of money spent.spent.

To identify problem areas and facilitate To identify problem areas and facilitate effective solutions.effective solutions.

To provide a means for measuring and To provide a means for measuring and recording financial success in accordance with recording financial success in accordance with the objectives of the organization.the objectives of the organization.

PURPOSEPURPOSEPURPOSEPURPOSE

PRINCIPLESPRINCIPLESPRINCIPLESPRINCIPLES

Principles of budgetingPrinciples of budgetingPrinciples of budgetingPrinciples of budgeting

• Sound financial management: Sound financial management: A budget A budget should provide sound financial management should provide sound financial management by focusing on the requirement of the by focusing on the requirement of the organization.organization.

• Based on objectives and policies:Based on objectives and policies: A budget A budget should focus on objectives and policies of the should focus on objectives and policies of the organization. It must flow from objectives and organization. It must flow from objectives and give realistic expression to the realization of give realistic expression to the realization of such objectives.such objectives.

Ahitha.M.Sc 7–7

Principles of budgetingPrinciples of budgetingPrinciples of budgetingPrinciples of budgeting

• Financial and nonfinancial resources:Financial and nonfinancial resources: A A budget should ensure the most effective use budget should ensure the most effective use of the available financial and nonfinancial of the available financial and nonfinancial resources.resources.

• Planned in advance:Planned in advance: A budget should ensure A budget should ensure that programme activities are planned in that programme activities are planned in advance.advance.

• Consistent delegation:Consistent delegation: This process requires This process requires consistent assigning of fixed duties and consistent assigning of fixed duties and responsibilities to managers at different levels responsibilities to managers at different levels for planning/framing and executing the budget.for planning/framing and executing the budget.

Ahitha.M.Sc 7–8

Principles of budgetingPrinciples of budgetingPrinciples of budgetingPrinciples of budgeting

• Coordination efforts:Coordination efforts: Budgeting should aim Budgeting should aim at ensuring coordination among various at ensuring coordination among various departments, establishing a frame of reference departments, establishing a frame of reference for managerial decisions and providing criteria for managerial decisions and providing criteria for evaluating managerial performance.for evaluating managerial performance.

• Adequate check and balance:Adequate check and balance: Utmost care Utmost care must be taken in fixing targets. A budget must be taken in fixing targets. A budget should not adopt too high or too low estimates.should not adopt too high or too low estimates.

Ahitha.M.Sc 7–9

Principles of budgetingPrinciples of budgetingPrinciples of budgetingPrinciples of budgeting

• Appropriate to the nature:Appropriate to the nature: The budget The budget period must be appropriate to the nature of the period must be appropriate to the nature of the business or service and to the type of budget.business or service and to the type of budget.

• Under directions and supervision:Under directions and supervision: A budget A budget is prepared under the leadership of the is prepared under the leadership of the administrator of financial officer.administrator of financial officer.

• Interpretation:Interpretation: A budget should be prepared A budget should be prepared and interpreted in consistency with and interpreted in consistency with communicating the planning process in the communicating the planning process in the organization.organization.

Ahitha.M.Sc 7–10

Principles of budgetingPrinciples of budgetingPrinciples of budgetingPrinciples of budgeting

• Quality and quantity evaluation:Quality and quantity evaluation: While While working on the budget a review of the working on the budget a review of the performance of the previous year is necessary performance of the previous year is necessary and an evaluation of its adequacy both in and an evaluation of its adequacy both in quality and quantity.quality and quantity.

• Flexibility:Flexibility: While developing a budget, While developing a budget, provision should be made for its flexibility.provision should be made for its flexibility.

Ahitha.M.Sc 7–11

IMPORTANCE OF BUDGETIMPORTANCE OF BUDGETIMPORTANCE OF BUDGETIMPORTANCE OF BUDGET

An essential management tool An essential management tool

Budget tells you how much money you Budget tells you how much money you need to carry out your activitiesneed to carry out your activities

Budget enables to monitor income and Budget enables to monitor income and expenditure.expenditure.

The budget is basis for financial The budget is basis for financial accountability and transparency.accountability and transparency.

TYPES OF BUDGETTYPES OF BUDGETTYPES OF BUDGETTYPES OF BUDGET

TYPES OF BUDGETTYPES OF BUDGETTYPES OF BUDGETTYPES OF BUDGET

Ahitha.M.Sc 7–20

PROGRAMME BUDGETPROGRAMME BUDGET PRODUCTION BUDGETPRODUCTION BUDGET CASH BUDGETCASH BUDGET FLEXIBLE BUDGETFLEXIBLE BUDGET

• Incremental budgeting starts out with a budget from a previous Incremental budgeting starts out with a budget from a previous period. The business uses this previous budget as a basis for period. The business uses this previous budget as a basis for calculating the new budget. They take the old budget and add to calculating the new budget. They take the old budget and add to or subtract from the totals to come up with a budget for the or subtract from the totals to come up with a budget for the upcoming period. For example, last year, a company did upcoming period. For example, last year, a company did $1,000,000 in sales. For this year, they expect an increase in $1,000,000 in sales. For this year, they expect an increase in sales of 10 percent. Therefore, their new budget will be sales of 10 percent. Therefore, their new budget will be $1,100,000 for the year. $1,100,000 for the year. 

Types of BudgetsTypes of BudgetsTypes of BudgetsTypes of Budgets

• Incremental budgetIncremental budget

• Programme budgetProgramme budget

• Open-ended budgetOpen-ended budget

• Flexible budgetFlexible budget

• Revenue and Revenue and expense budgetexpense budget

• Zero-based budgetsZero-based budgets

• Sales budgetSales budget

• Rollover budgetRollover budget

• Fixed-ceiling Fixed-ceiling budgetbudget

• Production budgetProduction budget

• Performance Performance budgetbudget

• Capital expenditure Capital expenditure budgetbudget

• Cash budgetCash budget

• Sunset budgetSunset budgetAhitha.M.Sc 7–21

Incremental budgetIncremental budgetIncremental budgetIncremental budget

This is based on estimated changes in the This is based on estimated changes in the present operation, allowing for a percentage present operation, allowing for a percentage increase for inflation, all of which is added to increase for inflation, all of which is added to the previous year’s budget.the previous year’s budget.

Programme budgetProgramme budgetProgramme budgetProgramme budget

• This is one where costs are computed for This is one where costs are computed for entire programme, i.e. , group total costs for entire programme, i.e. , group total costs for each services programme, each services programme,

• e.g. Maternal and Child Health e.g. Maternal and Child Health Programme(MCH), Family Planning Programme(MCH), Family Planning Programme (FPP), Universal Immunization Programme (FPP), Universal Immunization Programme (UIP), etc.Programme (UIP), etc.

Ahitha.M.Sc 7–23

Open-ended budgetOpen-ended budgetOpen-ended budgetOpen-ended budget

• This is a financial plan in which each operating This is a financial plan in which each operating manager presents a single-cost estimate for manager presents a single-cost estimate for the optimal activity level for each programme the optimal activity level for each programme in the unit, without indicating how the budget in the unit, without indicating how the budget should be brought down if appropriate funding should be brought down if appropriate funding is not available.is not available.

Ahitha.M.Sc 7–24

Flexible budgetFlexible budgetFlexible budgetFlexible budget

• This comprises several financial plans, each This comprises several financial plans, each for a different level of programme activity. It is for a different level of programme activity. It is based on the fact that operating conditions based on the fact that operating conditions rarely abide by expectations.rarely abide by expectations.

• are budgets that adjust automatically over the are budgets that adjust automatically over the course of the year depending on the variables course of the year depending on the variables such as the volumes, labor cost and capital such as the volumes, labor cost and capital expenditures.expenditures.

Ahitha.M.Sc 7–25

Revenue and expense budgetRevenue and expense budgetRevenue and expense budgetRevenue and expense budget

• This is expressed in financial terms and takes This is expressed in financial terms and takes the nature of a proforma income statement for the nature of a proforma income statement for the future. It may be prepared in a detailed the future. It may be prepared in a detailed form or abstract statement, reflecting the items form or abstract statement, reflecting the items of profit and loss under classified headings.of profit and loss under classified headings.

Ahitha.M.Sc 7–26

Zero-based budgetsZero-based budgetsZero-based budgetsZero-based budgets

• This requires the nurse manager is required to This requires the nurse manager is required to examine and justify each cost of every examine and justify each cost of every programme, both old and new, in every annual programme, both old and new, in every annual budget preparationbudget preparation

Ahitha.M.Sc 7–27

Sales budgetSales budgetSales budgetSales budget

• This is the starting point in a budgetary This is the starting point in a budgetary programme, since sales, activities give shape programme, since sales, activities give shape to all other activities. Sales budgets are to all other activities. Sales budgets are compiled in terms of quality as well as of compiled in terms of quality as well as of value.value.

Ahitha.M.Sc 7–28

Rollover budgetRollover budgetRollover budgetRollover budget

• This one forecasts programmes, revenues and This one forecasts programmes, revenues and expenses for a period of more than a year, to expenses for a period of more than a year, to accommodate programmes that are larger accommodate programmes that are larger than the annual budget plan.than the annual budget plan.

Ahitha.M.Sc 7–29

Fixed-ceiling budgetFixed-ceiling budgetFixed-ceiling budgetFixed-ceiling budget

• This is a financial plan in which the uppermost This is a financial plan in which the uppermost spending limits are set by the top executive. spending limits are set by the top executive. The unit and divisional managers develop The unit and divisional managers develop budget proposals for their respective areas.budget proposals for their respective areas.

Ahitha.M.Sc 7–30

Production budgetProduction budgetProduction budgetProduction budget

• This is the budget that aims at securing the This is the budget that aims at securing the economical manufacturing of products and economical manufacturing of products and maximizing the utilization of production maximizing the utilization of production resources.resources.

Ahitha.M.Sc 7–31

Performance budgetPerformance budgetPerformance budgetPerformance budget

• This is based on functions not divisions, e.g. This is based on functions not divisions, e.g. direct nursing care, in-service education, direct nursing care, in-service education, quality enhancement, nursing research.quality enhancement, nursing research.

Ahitha.M.Sc 7–32

Capital expenditure budgetCapital expenditure budgetCapital expenditure budgetCapital expenditure budget

• This is prepared for assuring planned timely This is prepared for assuring planned timely capital investment in the business to ensure capital investment in the business to ensure the availability of capital at the right time over the availability of capital at the right time over a longer period.a longer period.

Ahitha.M.Sc 7–33

Cash budgetCash budgetCash budgetCash budget

• This is prepared by way of projecting the This is prepared by way of projecting the possible cash receipts and payments over the possible cash receipts and payments over the budget period.budget period.

Ahitha.M.Sc 7–34

OPERATING BUDGETOPERATING BUDGETOPERATING BUDGETOPERATING 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

Sunset budgetSunset budgetSunset budgetSunset budget

• This is designed to ‘self destruct’ within a This is designed to ‘self destruct’ within a prescribed time period to ensure the prescribed time period to ensure the expenditure is stopped by a predetermined expenditure is stopped by a predetermined date.date.

Ahitha.M.Sc 7–36