Reyes, Adrienne VeroniqueNAS 253

February 7, 2015 Saturday

“A budget is telling your money where to go instead of wondering where it went.” ~Dave Ramsey

BUDGETING

A formal, quantitative expression of management's plans, intentions, expectations & actions to control results

A forecast of the resources required to deliver the services offered by the organization

What is Budget?

Is an annual plan, intended to guide effective use of human and material resources, products or services and to manage the environment to improve productivity.

Ensures that the best methods are used to achieve financial objectives.

*Each budget system is designed for the situation at hand

based on objectives

simple

flexible

balanced

has standards

uses available resources first to avoid increasing costs

A good budget is

Basic Planning

• 1. A revenue budget summarizing the income that the management expects to generate during the planning period.

• 2. An expense budget describing the expected activity in operational financial terms for a given period of time.

• 3. A capital budget outlining the programmed acquisitions, disposal and improvements in the institution's physical capacity.

• 4. A cash budget consisting of money received, cash receipts and disbursement expected during the planning period.

A budget plan for health care

institutions generally

consists of 4 components:

Basic Planning

has financial responsibility

is accountable for managing the nursing budget

makes all the decisions about how to adjust the nursing budget to manage programs and costs

In BUDGETING, the nurse manager:

Basic Planning

1. To plan the objectives, programs, and activities of nursing services and the fiscal resources needed to accomplish them.

2. To motivate nursing workers through analysis of actual experiences.

3. To serve as a standard to evaluate the performance of nurse administrators and managers and to increase awareness of costs.

The nursing budget serves 3 purposes:

*The purposes mentioned above should include the group's mission, strategic plans, new programs or projects, and goals.

1. Determine the productivity goal.

2. Forecast the workload.

3. Budget patient care hours.

4. Budget patient care hours and staffing schedules.

5. Plan nonproductive hours.

6. Chart productive and nonproductive time.

7. Estimate costs of supplies and services.

8. Anticipate capital expenses.

Procedures

2. Decentralized Budget

– has the middle level manager involved in the planning and budgeting process

1. Centralized Budget

– developed and imposed by the controller, administrator and/or director of nursing with little to no consultation with lower level managers.

Types of Budgeting

3. Flexible Budget – contains several financial plans for each level of activity or for different operating conditions. The top management can select the budget or shift the spending level upwards or downwards, whichever is best for optimum productivity

1. Open-ended Budget – characterized by a single cost estimate for each program in the proposed unit

2. Fixed Ceiling Budget – the uppermost spending limit is set by the top executive who then asks managers to develop budget proposals for individual units.

Budgeting Approaches

6. Zero-based Budget – justifies in detail the cost of all programs, both old and new, in every annual budget preparation.

7. Sunset Budget – designed to “self-destruct” within a prescribed period to ensure cessation of the funded program at a predetermined date.

4. Performance Budget – based on the functions and activities of personnel involved in the operation budgeted.

5. Program Budget – costs are computed for a program as a whole or the entire program itself, rather than the individual activities or functions.

Budgeting Approaches

1. Formulation Stage

The formulation stage is usually a set number of months (six or seven) before the start of the fiscal year for the budget.

a. Develop objectives and management plans.

b. Gather all financial, historical, and statistical data and distribute to cost-center managers.

c. Analyze data.

Budget Stages

Reports that can help assist the nurse manager in the formulation stage:

• Daily staffing reports

• Monthly staffing reports

• Payroll summaries

• Daily lists of financial categories of patients

• Biometric reports of occupancy

• Biometric reports of workload

• Monthly financial summaries of revenues and expenses

Budget Stages

2. Review and Enactment Stage

a. Prepare unit budgets.

b. Prepare unit budgets for approval.

c. Revise and combine into organizational budget.

d. Present to budget council.

e. Revise and present to governing board.

f. Revise and distribute to cost-center managers.

Budget Stages

3. Execution Stage

a. Direct and evaluate expenses and receipts.

b. Revise budget if indicated.

Budget Stages

Revenue – the income from sales of products and services.

Fiscal Year – is the budgetary or financial year. It may be the calendar year (January 1 – December 31) or any other period depending on the organization.

Terminologies

Hours of Care – the number of of care allocated per patient per day (24 hours) in a unit.

Revenue Budgeting – also called rate setting, is the process by which an agency determines revenues required to cover anticipated costs and to establish prices sufficient to generate these revenues.

Average Daily Census – the census if summarized for a specific number of days and divided by that number of days.

Patient Days – used to protect revenues.

Terminologies

Year to Date – describes the accumulated units of service at a particular in the fiscal year

Caregiver – each nurse who works with patients is called a caregiver. In nursing, the three common types of caregivers are registered nurses (RNs), licensed practical nurses (LPNs), and nurse aides (NAs).

• ExpensesExpenses are the costs of providing services to patients. They are frequently called overhead, and include wages and salaries, fringe benefits, supplies, food service, utilities and office and medical supplies.

• Cost FactorsCost is money expended for all resources used, including personnel, supplies, and equipment.

Terminologies

Expense Budgeting is the “process of forecasting, recording, and monitoring the manpower, materials and supplies, and monetary needs of an organization in such a manner that the operation can be controlled.”

Expense Budgeting

Purposes:• To predict labor hours, material, supplies, and cash flow needs for future

time periods

• To establish procedures for making comparative studies

• To provide a mechanism for determining when changes in procedures need to be made, provide gross information on the kinds of changes needed, and provide evidence that control has been established or reestablished

Fixed costs – are not related to volume. Among fixed costs are depreciation of equipment and buildings, salaries, benefits, utilities, interest on loans or bonds, and taxes.

Variable costs – do relate to volume and census (patient days). They include items such as meals and linen. Supplies are usually volume-responsive, meaning that total costs increase or decrease according to use.

Sunk costs – fixed expenses that cannot be recovered even if a program is canceled. Advertising is a good example.

Types of Expenses/Costs

Direct costs – are the costs of providing the product or service and are often considered to be those directly related to patient care, such as personnel costs and the variable of cost of supplies.

Indirect costs – are those incurred in supporting the provision of the product or service, are not directly related to patient care, and include utilities, administration, housekeeping, and building maintenance.

Types of Expenses/Costs

• Nursing charges should be quantifiable. A patient acuity system serves this purpose.

Patient Acuity System – usually separates patients into

four or five levels of nursing care and enumerates

nursing requirements for each level. Charges should be

set by level and negotiated with third-party payers.

The Cost of Nursing Care

1. Operating or Cash Budget

• Personnel Budget

In planning the personnel budget, the nurse has

quantitative information related to staffing and can

accurately predict the number of full-time equivalents

(FTEs) needed for patient care.

Types of Budgets

• Maintain good staff retention

• Use nurse extenders to perform non-RN functions

• Monitor and control unscheduled absenteeism

• Implement an effective on-call system

• Institute a “flex-team” in related clinical areas to avoid overtime and agency nurse expenses

• Create a large pool of part-time nurses

• Budget according to trends

• Negotiate for a reasonable budget that considers turnover and orientation

Strategies to reduce budget overages include the following:

The personnel budget is based on total number of hours of care needed which is determined by the acuity levels (1-4).

PATIENT ACUITY LEVEL HHPD (HOURS PER CARE PER PATIENT DAY)

14.0 hours

26.4

310.5

416.0

17.1 x 10.5 x 1.4 x 1.4 = 38 FTEs 7.5

Example: Oncology Unit

*Average daily census = 17.1*HHPD = 10.5*1.4 is a constant representing 7 days in a week with a full-time employee working 5 days a week: 7 / 5 = 1.4*1.4 is a constant which allows for 0.14 FTE for vacation, sickness, etc. for each 1.0 FTE*7.5 is one workday

Formula:Average census x nursing hours x 1.4 x 1.4

7.5

• Nonproductive Full-Time Equivalents

Nonproductive FTEs are hours for which an employee is paid but does not work. These include vacation days, holidays, sick days, education and training time, jury duty, leave for funerals, and military leave. These should be determined and added to personnel expenditures as replacement FTEs.

• Supplies and Equipment Budget

This includes all supplies and equipment used in provision of services, except capital equipment and supplies charged directly to patients.

Operating or Cash Budget

2. Capital Budget

A capital budget projects the planned costs of major

purchases. This also deals with maintenance,

renovations, remodeling, improvements, expansion,

land acquisitions, and new buildings. The financial

manager for nursing is the nurse manager, who should

evaluate past decisions and advise the nurse

administrator whether they were good or bad.

Types of Budgets

In developing the nursing budget, it is necessary that the unit structures are comparable in type and quantity in workload. If a program is not successful, then a decision should be made about whether to rework or cancel it.

Monitoring the Budget

Thank You!