BUDGET

PRESENTER
Mr. Pramod Kumar
COST:-

The total amount of

money that needs
to be spent by an
organization or a
person or governm-
-ent
TYPES OF COST
1. FIXED COST:
Fixed costs are those costs which
stay the same regardless of the
level of the activity.
 They are not related to volume.
 They remain constant as the
volume increases and decreases
over the period of time.

Example: Fixed costs are those

which would exist even if the o
rganization were ―shut down.
 Types cont.…
2. VARIABLE COST
Variable costs are those cost that
change depending on the level of
volume.
 They do relate to volume and
census (patient days).
 They include items such as meals
and linen.
 The cost of supplies varies by
patient census, physician orders
and diagnosis.
Example: the cost of surgical
dressings increases when the
patient’s wound has drainage and
dressings to be changed frequently.
 Types cont.…
3. SUNK COSTS:
Sunk costs are fixed expenses
that cannot be recovered even
if program is canceled.

4. ACCOUNTING COST:
A measure of cost based on a
number of simplifications such
as an assumed useful life for a
price of equipment.

5. AVERAGE COST:
Full cost divided by the number
of units of service or patients.
Types cont.…
6. DIRECT COSTS:
Direct costs are those expenses that directly
effects patient care Ex: salaries for the nursing
personnel who provide hands on patient care is
considered as direct cost.

7. INDIRECT COSTS:
Indirect costs are the expenditures that are
necessary but don’t effect patient care directly.
Ex: salaries for dietary or housekeeping
personnels.
8. ECONOMIC COST:
The amount of money required to obtain the
use of a resource.
Types cont.…
JOINT COST:
Costs that is required for the treatment
of several or more types of patients. The
cost would not incur unless the
organization stopped treating all of
those different types of patients.

OPPORTUNITY COSTS:
A measure of cost based on the value of
the alternatives that are given up in
order to use the resources as the
organization has chosen.
STAGES OF COSTS:
Costs have two stages:

1) Acquisition cost:

When some asset or service is purchased, the resource

given in exchange represents the acquisition cost.

2) Expired cost:

Once the asset is fully consumed, it becomes an expired

cost or an expense.
FACTORS AFFECTING COST
DEFINITION
Budget is a concrete precise
picture of the total operation
of an enterprise in
monetary terms
- (HM Donovan)
―Budget is an operation
plan, for a definite period
usually a year- Expressed in
financial terms and bused an
expected income and
expenditure.
PURPOSE
Budget supplies the mechanism for
translating fiscal year objectives into
projected monthly spending pattern.

Budget enhances fiscal planning and

decision making.

Budget clearly recognizes controllable

and uncontrollable cost areas.

Budget offers a useful format for

communicating fiscal objectives.
Purpose cont.…
Budget allows feedback of
utilization of budget.

Budget helps to identify problem

areas and facilities for effective
solution.

Budget provides means for

measuring and recording financial
success with the objectives of the
institution
FEATURES OF BUDGET

 It should be flexible

 It should synthesis at past,

present and future.

 It should be product joint

venture, co- operation of
executives /department heads
at different levels of
management.
Features cont..

 It should be in the form of

statistical standard laid
down in the specific
numerical terms.

 It should have a support at

top management
throughout the period of
its planning and
implementation.
PRINCIPLE OF BUDGET
 Budget should provide sound financial
management by focusing on
requirement of the organization.

 Budget should focus on objectives and

policies of the organization. It must flow
from objectives and give
realistic expression to the way
of realistic such objective.

 Budget should ensure the most effective

use of scarce financial and non- financial
resources.
 Budget requires that programme
Principles cont..
 Budgetary process requires
consistent delegation for which
fixed duties and responsibilities are
required to be allocated to managers
at different level for framing and
executing budget.

 Budget should include co-ordinating

efforts of various departments
establishing a frame of reference for
managerial decision and providing
certain criteria for evaluating
managerial performance.
Principles cont..
 Selling budget target requires an adequate
checks and balance against the adoption of
too high or too low estimate, almost care is a
must for fixing targets.

 Budget period must be appropriate to the

nature of business or service and to type of
budget.

 Budget is prepared under the direction on the

supervision of the administration or financial
officer.

 Budget are to be prepared and interpreted

consistently throughout the organization in
the communication in the planning process
IMPORTANCE OF BUDGET
 Budget is needed for planning for future
course of action and to have a control over all
activities in the organization.

 Budget facilitates coordinating of various

departmental and selection for realizing
organizational objectives

 Budget serves as a guide for action in the

organization.

 Budget helps one to weigh the values and to

make decision when necessary on whether on
e is of greater values in the programmes than
TYPES OF BUDGET

Since budget
express plans and
• Coverage of functions master and
an organization functional budgets.
may have • Nature of activities covered – capital
different types of and revenue budgets
plans, there may • Period of budgets – long term and
be different types short-term budgets

of budgets. These • Flexibility adopted – fixed and flexible

budgets.
may be classified
on the basis of-
Types cont..
1. MASTER AND FUNCTIONAL BUDGETS-
A master budget is prepared for the entire
organization incorporating the budget of
different functions.
In the business organizations, it has various
functions and units and their outlays.
 It generally includes sales, production, costs
A functional budget is prepared
incorporating a major function and its sub-
functions.
 Since an organization may have a number of
functions, numerous functional budgets are
Types cont..
2. CAPITAL AND REVENUE BUDGETS-
An organization activity involves two pro
cesses- creating facilities for carrying out
activities and actual performance activiti
es.

For such activities, capital budget is prep

ared which is essentially a list of what m
anagement believes to be worthwhile pr
ojects for acquisition of new assets toget
her with the estimated cost of each proj
ect.
 Types cont..

Revenue budget involves the formulati

on of target for a year or so in respect of
various organizational activities such as
production, marketing, finance, etc. Thus,
a revenue budget includes
expenditure and earning for a specific
period like one year
Types cont..
3. LONG TERM AND SHORT-TERM BUDGETS-

Many organizations integrate their

yearly budgets with long-term
projections of business activities
and along with yearly budgets;
they prepare budgets for a longer
period of 2 – 3 years. When one
budget period is over, budgets are
prepared for the next year and
subsequent 2 -3 years.
Types cont..

The short term budget is for a

year and is divided into a
number of periods for effective
implementation. For eg. Cash
budgets are on yearly basis as
well as on monthly or quarterly
basis to facilitate better cash
management.
Types cont..
4. FIXED-CELLING AND FLEXIBLE BUDGETS:

Generally, organizations prepare

which certain to only certain
projected fixed volume of
operations for a year or so. Such
budgets are known as fixed or
static budgets. When an
organization’s volume of business
can be predicted with fair amount
of precision, the fixed budget is
satisfactory.
Types cont..

A budget which is designed to

change in accordance with the
activities of the organization is
known as flexible budget. It
considers several level of
activity and assumes that
labor, material or facilities
used in production and hence
cost vary with a known
relationship to the actual of
activity.
OTHER TYPES OF BUDGET
1. INCREMENTAL BUDGET
It is one based on estimated change
s in present operation, plus a
percentage increase for inflation, all
of which is added to previous year
budget.

2. OPEN ENDED BUDGET

Is a financial plan in which each
operating manager presents a single
cost estimate for each programme
in the unit, without indicating how
the budget should be scaled down if
less funding is available.
Types cont..

3. ROLL OVER BUDGET

Is one that forecasts
programmed revenues and
expanses for a period greater
than a year. To
accommodate programmed
that greater target than
annual budget cycle.
Types cont..
4. PERFORMANCE BUDGET
It is one based on functions, which
allocate function, not division. Eg.
Direct Nursing care, in service education,
quality improvement, nursing research.

5. PROGRAMMED BUDGET
Is one which costs are computed for a
total programmed, i.e, grouping total
coasts for each services programmed eg.
MCH, FP and UIP etc. These base budgets
requires the nurse manager to examine,
justify each cost of every programmed
both old and new in every annual budget
Types cont..
6. SUNSET BUDGET
It is designed to ―Self Destruct within a
prescribed time period to ensure the
cessation of spend In by a predetermined
date.

7. SALES BUDGET
Is the starting point in a budgetary
programmed, since sales are basic
activates which give shape to all other
activities. Sales budget are compiled in
terms of quality as well as of values.
 Types cont..
8. PRODUCTION BUDGET
It is the budget that aims at
securing the economical
manufacture of products and
maximizing the utilization of
production facilities Revenue and
expanse Budget. It is expressed in
financial terms and takes the
nature of a perform income
statement for the future. It may
use prepared in a detailed form or
in an abstract statement showing
the items of profit and loss under
classified headings.
APPROACHES TO DEVELOP AN
ORGANIZATION WIDE BUDGET
1. PERFORMANCE BUDGETING
A performance budget is an input / output
budget or costs and results budget.
Performance budget emphasis on
non-financial measures of performance,
which can be related to financial
measures in explaining changes and
deviations from planned performance.
Performance measurements are useful for
evaluating past performance and for
planning future activities.
Cont..
Performance budgeting, results into the following.

It facilitates
It improves
It correlates the better
budget
financial and appreciation and It measures
formulation,
physical aspects review of progress towards
review and
of every organizational long-term
decision making
programme or activities by the objectives
at all levels of the
activity. top
organization.
management.
2. ZERO BASE BUDGETING
This was applied for the first time in
preparing the divisional budgets of
Texas instruments of the USA in
1971.Zero base budgets is based on a
system where each function,
irrespective of the fact whether it is
old or new, must be justified in its
entirety each time a new budget in
detail from scratch that is zero
bases.
The process of zero bases involves four basic steps:

Identification of decision units, that is cluster of

activities or assignments within a manager’s operations
for which he is accountable.

Analysis of each decision units in the context of total

decision package.

Evaluation and ranking of all decision units to develop

the budget request.

Allocation of resources to each unit based

Cont..
Benefits of zero base budgeting:

Effective allocation of resources

Improvement in productively and cost
effectiveness
Effective means to control costs

Elimination of unnecessary activities

Better focus on organizational objectives.

Saving time of top management.

Cont..
3. STRATEGIC BUDGETING
It is used as a tool of resource
allocation to various strategic
business units and other units
of an organization. Under
strategic budgeting, in
determining the resource
needs of various units.
ESSENTIAL REQUIREMENTS FOR
BUDGET PREPARATION:
Sound forecasting

An adequate and well-conceived accounting

system

A well devised cost accounting system

A soundly constructed organization with fixed

lines of responsibility.

Statistical information’s

Support of top management

Length of budget period.

STEPS IN THE BUDGETARY PROCESS
1. ASSESSMENT
The first step is to assess what needs to be covered in
the budget.
 Unit managers develop goals, objectives and budgetary
estimates with input from colleagues and subordinates.

 Budgeting is most effective when all personnel using the

resources are involved in the process.

 Managers therefore must be taught how to prepare a budget

and must be supported by management throughout the
budgeting process.
Steps cont..
Develop a plan
 The second step is to develop a plan.
The budget plan may be developed in
many ways. A budgeting cycle that is
set for 12 months is called a fiscal
year budget.

 This fiscal year which may or may not

coincide with calendar year, is then
usually broken down into quarters or
subdivided into monthly, quarterly or
semiannual periods.
Steps cont..
 Most budgets are developed for a one-year
period, but a perpetual budget may be
done on a continual basis each month. So
that 12 months of future budget data are
always available.

 Selecting the optimal time frame for

budgeting is also important; a budget that
predicted too far in advance has greater
probability for error.

 If the budget is short sighted,

compensating for unexpected major
expenses or purchasing capital equipment
may be difficult.
Steps cont..
3. IMPLEMENTATION
In this step,
 Ongoing monitoring and
analysis occur to avoid
inadequate or excess
funds at the end of fiscal
year

 Each unit manager is

accountable for budget
deviations in their unit.
Steps cont..

If a major change in the

budget is indicated, the
entire budgeting process
must be repeated.

Top-level managers must

watch for and correct
unrealistic budget
projection before they are
implemented.
Steps cont..
4. Evaluation
 This is last step. The budget
must be reviewed periodically
and modified as needed
throughout the fiscal year.

 With each, successive year of

budgeting, managers can more
accurately predict their unit is
budgetary requirements.
BUDGET STAGES
The nursing budget follows three
stages of development.
1. FORMULATION STAGE
 It is usually a set of number of
month before the beginning of
the fiscal year for the budget.

 One of the first steps in writing

a budget is gathering data for
accurate prediction of expenses
and revenues (income).
stages cont..
2. REVIEW AND ENACTMENT STAGE
 Review and enactment stage are budget deve
lopment process that pull all the pieces toget
her for approved of a final budget.

 Once the cost center managers present their

budgets to the budget council, the chief nurse
executive will consolidate the nursing budget.

 The chief executive officer of the organization

and the governing broad will then give their
approval.
 Throughout this process, conferences will be
held at which budget adjustments are made.
stages cont..
3. EXECUTION STAGE
 Execution of the budget involves
directing, executing, and evaluating
activities.
 The nurse administrator and managers
who planned the budget execute it.
Revisions in execution of the budgets
are scheduled at stated intervals,
frequently once or twice during fiscal
year.
 Certain procedures are followed for
evaluating the budget at cost center
levels.
AUDIT

Audit is an independent appraisal activity

within an organization for review of
accounting, financial and other operation
as a basis of services to the management.

 It is monitoring the budget process.

 Here, the budget reports are needed

to monitor expenditure and keep the
budget process focused on long-
range objectives.
audit cont..
 The most common tools are Capital
inventory is an itemized list of current
capital asset that enumerates each piece
of capital equipment, together with items
serial number, current valuation, and
physical location, e.g.checking stock
register and inventory. Supply inventory is
itemized list of available supplies.

 It is needed to implement the operating

budget for each unit. Position control
system is a status of each budgeted
position.
THE RESPONSIBILITY OF A NURSE IN
ADMINISTRATION OF BUDGET
 Participation in planning budget.

 Consult and take assistance of his /

her subordinate in determining the
needs of the unit for ensuing year on
the basis of information received.

 Request sufficient funds to suggest a

sound program

 Submit budget request with justificat

ion with proposed expenditure.
resp. cont..
 He/she should support the budget
and interpret the subordinates, any
changes that may affect instruction
services for the adopted budget.

 He/she secures for the adapted

budge and responsibility of the
administrator to see that
expenditure should not exceed the
appropriation made.

 Nurse administrator also is

responsible for budget, and covers
the routine budget control.
ROLES OF ADMINISTRATOR IN
BUDGETING
VISIONARY
PLANNER
DEMONSTRATOR
ANTICIPATOR
ROLE MODEL
COMMANDOR
FACILITATOR
CONT..
To sum up the general roles of administrator in budgeting are a
s given below:
He/she:
Is visionary in identifying or
forecasting short and long term
unit needs, thus inspiring
proactive rather than reactive
fiscal planning.

Is knowledgeable about

political, social and economic
factors that shape fiscal planning
in health care today.
roles cont..
Demonstrates flexibility in fiscal
goals setting in a rapidly changing
system

Anticipates, recognises and

creativity problem-solves budgetary
constraints.

Influences and inspires group

members to become active in short
and long range fiscal planning.
roles cont..
Recognizes when fiscal
constraints have result in an in
ability to meet organizational
or unit goals and communicate
this insight effectively,
following the chain of
command.

Ensures that client safely is not

jeopardized by cost contents.
FUNCTIONS:
Identifies the importance of, and
develops short and long range fiscal
plans that reflect unit need.

Articulates and documents unit needs

effectively to higher administrative
levels.

Assess the internal and external

environment of the organizations in
forecasting to identify diving forces
and barriers of fiscal planning.
functions cont..
Demonstrates knowledge of budgeting
and uses appropriate techniques.

Provides opportunities for subordinate

s to participate in relevant fiscal
planning.

Co-ordinates unit level fiscal planning

to be congruent with organizational
goals and objectives.

Accusatively assesses personal needs

using predetermined standards or an
established patient classification
functions cont..

Co-ordinates the monitoring

aspects of budget control.

Ensures that documentation

of clients need for services
rendered in clear and
complete to facilitate
organizational
reimbursement
BUDGETTING FOR VARIOUS UNITS
AND LEVELS
FOR HOSPITAL

HOSPITAL BUDGET- Hospital

budgeting is the process of
estimating proposed expenditures
and the means of financing these
expenditure.

NURSING BUDGET- Nursing budget is

defined as a systematic plan that is
an informed best estimate by nurse
administrators of revenues and
nursing expenses.
FINANCIAL REQUIREMENTS OF
HOSPITALS
For any hospital, funds are required for the following:

Capital funding
 For preservation, upgrading, and replacement of physical facilities
and equipment
 For new technology
 For expansion
Operating needs
 For working capital and operating expenses –salaries, materials and
supplies, maintenance, utilities etc.
Reserves
 For emergency needs.
THE BASIC INPUTS
An effective budget presupposes the following-

 Clear understanding of the hospitals

financial and service goals.

 A hospital organization with clearly

defined responsibility for each dept.

 A system of accounting designed to

provide a measure of performance

 Active participation of staff member

s in the preparation of the budgets
Forecast of operating expenditure
Operating expenditure is incurred on salaries, supplies, general
utilities, maintenance and some overheads.
 Salaries and wages: Manpower requirement are determined by workload.
Staff to workload ratios must be reviewed yearly. Salaries and wages accou
nt for 50 to 70 percent of the total expenditure.

 Materials and supplies: Food, drugs, dressings, and other consumables are
directly related to workload or volume of service.

 Utilities: These cover expenditure items in such as electrical, power, petrol,

diesel, and other fuels, water, telephones, and other services. AC plant, lau
ndry, kitchen, CSSD, and incinerators accounts for a high expenditure on uti
lities.
 Maintenance: Expenditure on routine maintenance of plant and equipmen
ts are generally well-predicted.
BUDGET PROCESS
ASSESSMENT
Assessment is the first step involved in the budgeting process. It
consists of need identification, a composite of unit needs in
terms of manpower, equipment and operating expenses should
be identified during this phase.
Requisites for Budget Preparation
 Sound forecasting
 Adequate conceived accounting system
 Adequate cost accounting system
 Fixed line of authority
 Formation of budget committee
 Statistical information
 Support of top management
 Length of budget period
process cont..
INSTRUCTIONS Determine
hospital revenue.

Include all Figure out

insurance expenses.

Don't forget
Know the cost
parking
of personnel,
garages,

Know the
Add all medical
medical costs of
equipment costs,
each bed.
process cont..
PLANNING
THE STEPS OF PLANNING BUDGET FOR
NURSING UNIT ARE AS FOLLOWS-

Assistance of
Review of the Preparing
her/ his
budget requirements
subordinates

Submitting to
Summary of
institutional
new needs
Administrator
process cont..
IMPLEMENTATION
 In implementation ongoing
monitoring and analysis occur to
avoid inadequate or excess funds
at the end of a fiscal year.
 If a major change is indicated, the
entire budgeting process must be
repeated.

EVALUATION
The budget must be reviewed
periodically and modified as
needed throughout the fiscal year.
STEPS IN PREPARATION OF
NURSING BUDGET
Review the goals of the hospital

Review the objectives of the

existing programs

Prepare a budget proposal

Revise the existing programme

with the revised proposal

Compute the expense for each

programme
Steps cont..
 Adopt the alternative approach for
realizing the proposed plan

 Compare the proposal to identify the

effective one

 Prepare a budget request which details a

fiscal plan for the preferred programme

 Present the need of required staffs Review

the budget appropriation and actual
expenditure for the current year
conjunction with current hospital statistics
BUDGET COMMITTEE
The budget committee generally consists of a representative cross
section of the major functional areas or divisions within the institutio
n, with the designated budget director usually serving as the
chairperson. Budget committees frequently include, among others
those who hold the following positions:
 Director of Nursing
 Director of Human Resources
 Director of Material Management
 Director of Engineering and Plant Operations
 Chief of Medical Staff
 Chief Executive Officer, Chief Operating Officer, and/or chief Fina
ncial Officer
PROBLEMS IN BUDGETING
Reasons why a budget may not deliver the desired benefits are:

Lack specific goals and objectives

Lack of training and motivation.

Departmental goals may be at variance with the

cooperate goals.

Allocation of funds

Short term vs. Long term planning

NURSE ADMINISTRATOS ROLE IN
BUDGETTING
EDUACATION INSTITUTION
BUDGET PROPOSAL FOR NURSING EDUCATION INSTITUTION
In general, the items which arc budgeted for the average gov
ernment colleges/schools of nursing in India are:
 Salaries for professional, Clerical and Domestic staffs and
drives
 Stipends for the students.
 New equipment’s and supplies.
 Office supplies include stationery and postage.
 Maintenance of transport and cost of petrol.
 Maintenance of library or setting up a new library.
 Contingency fund for educational tours, professional
activities, capping and graduation ceremonies, prizes,
PREPRATION OF BUDGET STATEMENT IN
NURSING EDUCATION
 The nurse Administrator is
responsible for the preparation
of the annual budget of the
school of nursing.

 In conference with the

president and other budgetary
unit heads.

 The administrator gets on over

all view of the budget.
Cont..
In the proposal for the next
financial year, when the budget
allotted the amount should be
made known the staff.

So that they may establish

priorities among items on which
of is proposed to be spent
purchases should be made,
accounts maintained in
accordance with the financial
practices of the institution
STEPS IN BUDGETING FOR
COLLEGE OF NURSING
Request the professors of various departments and librarian to present
their needs for the coming year by a specified dale, and confer with
these who have presented such need.

Review the budget appropriation and actual expenditure for the

current year in conjunction with statical data.

Ascertain whether any changes are contemplated.

Prepare the program for which the new budget is to cover.

Steps cont..
Determine the percentage of salaries of personnel. e.g.. Principal.
Vice Principal. Professors, Lecturers, Librarian, Clerk, Peon, etc.

Estimate the requirement for the coming year from the

information supplied as the expenditure for supplies, equipments
and repairs to date.

Prepare a summary of new needs, both personal and material with

data to support the request.

Implementation of Budget
THE RESPONSIBILITIES OF PRINCIPAL /
NURSING ADMINISTRATION
Participation in planning
budget.

Consult and take assistance

of his / her subordinates.

Request sufficient funds.

Submit budget request with

justification with proposed
expenditure.
Cont..
When the budget is allotted,
the administrator should
support the budget.

Since the Nurse

Administrator who is
responsible for budget,
she / he should cover the
routine budget control
RESEARCH ARTICLE:-
A budget impact analysis was done Vitamin B12 intramuscul
ar injections versus oral supplements.
The Aim of the study is to estimate savings, using a third-party
payer perspective, if all elderly patients currently receiving
vitamin B12 injections were switched to high- dose oral
therapy. Population-based administrative databases for
Ontario were used to identify all people between 65 and 100
years who received parenteral vitamin B12 during 1995 and
1996. The cost of parenteral vitamin B12 for each patient,
including drugs, injections, pharmacists’ fees, and injection-
associated physician visits, was measured directly from the
databases.
Cont..
RESULTS shows that the annual cost of parenteral
vitamin B12 therapy averaged $145.88 per person and
totaled a maximum $25 million over 5 years.
Converting all patients to high-dose oral B12 and
treating them for 5 years would cost $7.4 million &
between $2.9 million and $17.6 million would be saved
. Switching to oral B12 administration saved costs as
long as 16.3% of injection-associated Visits were
avoided.
CONCLUSION Switching all patients from B12 injections
to oral cobalamin therapy could result in substantial
savings.
THANK
YOU