Fiscal Planning

BUDGET AND BUDGETARY PROCESS-

* Definition of Budget-
A budget is a plan that uses numerical data to predict the activities of an organization over a
period of time and it provides a mechanism for planning each units needs and contribution.
- Carruth and Nato, 2000

PRINCIPLES OF BUDGET-
1. Sound financial management- Budget should provide sound financial
management by focussing an requirement of organization.
2. Focus on objective and policies- It should focus on objectives and policies of organization.
3. Most effective use- It should ensure the most effective use of scarce financial and non
financial resources.
4. Programme activities- Budget required programme activities planned in advance.
5. Consistent Delegation- 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
6. Coordinating effort- Budgetary should include coordinating effort of various department
establishing a frame of reference for managerial decision and providing a criteria for evaluating
managerial performance.
7. Utmost care Setting budget target requires utmost care to check against and balance
between too high or too low estimates.
8. Appropriate- Budget period should be appropriate to the nature of business or services and
to type of budget.
9. Prepared and Interpret Budget is prepared and interpret consistently throughout the
organization in the communication of planning process.
10. Review- Budget necessitates a review of the performance of the previous year and an
evaluation of its adequacy both in quality and quantity.
11. Provision- While developing budget, provision must be made for its flexibility.

PLAN AND NON-PLAN EXPENDITURE-

Plan expenditure- refer estimates expenditure provided in the budget for spending during the
year on routine functioning of the government.
Non-Planned expenditure- This refers to the estimated expenditure provided in the budget for
spending during the year on routine functioning of the government.
For instance, no government can escape from its basic function of protecting the lives and
properties of the people and protecting the country from foreign invasion. For this, the
government has to spend on police, judiciary, military etc. Similarly, the government has to
incur expenditure on normal running of government departments and on providing economic
and social services.
*
ZERO BUDGETING-
 Zero budgeting is defined as "A method of budgeting where by all activities are revaluated each
time a budget is set. Describe levels of each activity are valued and a combination chosen to
match funds available".
by C.I.M.A London
It is one of the budget that do not utilize any historical data to determine activity level or
expenses anticipated. All the expenses are justified base on expectation or desire for the
upcoming year.

Main features of Zero base budgeting-

1. All budget item both old and new proposed are considered totally afresh
2. Amount to spent on each budget item is to be totally justified
3. Department objectives are linked to cooperate good
4. The main step is not on 'how much' a department will spend but on 'why' it need to spend
5. Manager at all levels participate in zero base budgeting process and they have corresponding
accountabilities.

Steps of Zero base budgeting-

1. Identify organizational program
2. Divide the programme into package
After the identification of the appropriate decision units, the next step is to prepare a
document for each of these, describing the objectives as purpose of the decision unit and the
action that could be taken to achieve them. Such document is called decision package.
Eg. A specialist clinic can be a referral unit with only diagnostic facilities, the treatment and
aftercare being done at district and PHC level.
3. Each package should have its goals activities and needed resources.
4. Calculate the cost for each package from the base zero
5. The cost are calculated afresh for each budget period

ADVANTAGES-
1. It forces the nurse manager to plan each programme package afresh
2. hanges the a previouspency in budgeting of looking at
3. Efficient allocation of resources
4. Detect inflated budget
5. Cost effective ways to improve operation
6. Increase staff motivation
7. Increase communication and coordination within the organization
* DISADVANTAGES-
1. Difficult to define decision unit and decision package
2. Forced to justify every detailed related to expenditure
3. The identification of decision units and decision package creates number of problem for the
organization (decentralized)
4. The process of zero base budgeting requires experience, intelligence, expertise and
continuous training on the part of executives. Thus, it is not suitable for an ordinary
organization.
 MID TERM APPRAISAL-
Meaning- The Mid Term Appraisal (MTA) reviews the experience in the first three years of the
five year plan and seeks to identify area where corrective steps may be needed.
Provides an opportunity to take stock of the economy and to introduce policy correctives and
new initiatives in critical areas in the context of the new priorities, the success achieved on the
investment front.
Mid Term Appraisal presents a candid assessment of the resources position facing both the
centre, state and the implication.

* CAPITAL AND REVENUE EXPENDITURE-

Capital Expenditure-
The expenditure incurred for accusing a fixed asset or which results in increasing the earning
capacity of the business is known as capital expenditure.
The benefit of capital expenditure are generally availed in several accounting years.
Eg. Expenditure incurred for the accusation of a fixed asset, eg. Building, furniture, machinery,
etc.

REVENUE EXPENDITURE-
A revenue expenditure is a cost that is charged to expense as soon as the cost is incurred. By
doing so, a business is using the matching principles to link the expense incurred to revenues
generated in the same reporting period.

BUDGET ESTIMATE-
Definition-
Approximation of the cost of an activity, job, program or project, prepared for budgeting and
planning purpose only. Not accurate enough to provide a basis for a firm commitment, it
represents only the budget maker's understanding of the scope and expenses of what needs to
be done.
Budget estimate are forecast that are used to plan strategy and budgets.
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* Budget- a budget is a plan to spend money to achieve objectives.
* Estimates- estimates are required to prioritize strategy based on factors such as return on
investment and risk.
* Plan budget- when a strategy is approved, the same estimates are used to plan budget and
implement budget controls.

TYPES OF BUDGET ESTIMATE-

The following are the basic types of budget estimate:…
TYPES OF ESTIMATE-
1. Preliminary or appropriate estimate
2. Rough cost estimate based on cubic contents
3. Detailed estimate
4. Annual repair estimate
5. Special repair estimate
6. Revised estimate
7. Supplementary estimate
8. Complete estimate
Revised Estimate
* Definition of Revised Estimate-
Revised estimate is an estimate for the probable revenue and expenditure of the current
financial year under the various head, framed during the courses of the year based on the
actual transaction of the first five months and anticipation for the next seven month of the
year.

Guidelines to prepare Revised Estimate-

The revised estimate helps to arrive at the approximate closing balance and also solve as best
guide for the fixing of the next year's budget estimates. Therefore, the revised estimate has to
be fixed in accordance with:-
1. The transaction as recorded for the first five month
2. The expenditure those are likely to be required for the rest of the year
3. The new schemes sanctioned in the courses of the year
4. Additional funds already obtained
5. New heads of account opened during the year and
6. Other relevant factor
* Uses of Revised Estimate:
A change in the calculation of the cost of a project. This calculation is made and presented to a
buyer, usually while a project is in progress, and may be subject to further changes due to both
exogenous factors and endogenous factors.
* Advantage:
It includes information not available at the time of the advance estimate or preliminary
estimate as well as any necessary data revisions.

PERFORMANCE BUDGETING-
It is a system of presentation of expenditure in terms of functions, programmes, performance
units, reflecting primarily, the output and its cost.
It emphasizes accountability, efficiently and economy by emphasizing outcomes and results
instead of activities or outputs.
Thus, the manager would budget as needed to achieve specific outcomes and would evaluate
budgetary success accordingly.
* OBJECTIVES-
Performance budgeting seeks to:
1. Correlate the physical and financial aspects of programmes and activities
2. Improve budget formulation, review and decisions making at all levels of management in the
government machinery
3. Facilitate better appreciation and review by the legislative
4. Make possible more effective performance audit
5. Measure progress towards long term objectives as envisaged in the plan
6. Bring annual budget and developmental plans together through a common language.
* Components of Performance Budget-
1. A programme and activity classification that represents the range of work of each
organization
2. A framework of specified objectives for each programme
3. A stipulation of the targets of work or achievement
4. Suitable workload factors, productivity and performance ratios that justify financial
requirements of each programme.

* Steps of Performance Appraisals-

1. Identify and
analyze the work of organization
into functions;
programmes, sub programmes; activities, sub activities in results
2. Lay down the target of each scheme, function, programs
3. Set the performance norms or standards for each activity or task
4. Identify specific indicators regarding each task
5. Specify means of achieving them
6. Design the monitoring and evaluation system or performance recording and reporting system
7. Calculate the cost of all inputs, resources to achieve the target in term of benefits.
* Tools used in Performance budgeting-
1. Work measurement studies to measures or to identify various work
2. Performance standards and its specific indication to measure the performance
3. Monitoring methods like PERT
4. Other methods like cost analysis

* Preparation of Budget under performance budgeting-

1. Allocation of resources-
* Submit the requirement as per programme classification
* Indicate its past activities, their costs, the activities to be taken up during next years, the
results expected, pattern of assignment of responsibilities or time phased plan for expenditure
and work.
2. Budget Execution-
* Initiate the action for implementation after getting the grants
* Monitor the activities and regulate the flows of activities
* Prepare the time phase report showing expenditure and work and keep a record
3. Appraisal and Evaluation-
Evaluate each programme in the light of results obtained and expenditure incurred.

AUDIT-
Definition-
A formal examination of an organization or individual's accounts or financial situation.
- Merriam Webster Dictionary
* PURPOSE-
1. It makes sure that all the financial statements of concern are presented fairly
2. Audit gives a fair and true picture in accordance with financial reporting framework
3. It enhances the degree of confidence of intended users in financial statement
TYPES-
1. External Audit - Purpose
- Types
2. Internal Audit - Roles
- Objectives

* EXTERNAL AUDIT-
An external audit is a review of the financial statements or reports of an entity, usually a
government or business, by someone not affiliated with the organization or agency. This is an
independent review of financial documents provided to the auditor.

* PURPOSE-
1. The main purpose of external audit is to ensure that internal control, processes, guidelines
are adequate and in line with the government requirements
2. To provide an independent and unbiased assessment of an organization's internal
governance and financial matters
3. To verify internal procedures
4. To evaluate adherence of the organization to standards and principles
5. To evaluate the adequacy and effectiveness of existing internal control
* TYPES-
1. Financial Audit: It is the verification of financial statement of a legal entity. It is also known as
audit of financial statements. Financial statement is to ensure the accuracy of accounting
records.
Operation of audit: It is to detect errors in the internal control, procedures and mechanisms.
3. Compliance audit: It is to evaluate how employee are abiding by regulation in performing
tasks.

* INTERNAL AUDIT-
According to the Institute of Internal Auditors (ША), Internal Auditing is an independent,
objective assurance and consulting activity designed to add value and improve an organization's
operation. It helps an organization accomplish its objectives by bringing a systematic,
disciplined approach to evaluate and improve the effectiveness of risk management, control
and governance process.

* ROLE OF INTERNAL AUDIT-

Internal Audit has a significant role in improving the following:

1. Regulatory and compliance roles-

* Quality of public expenditure
* Proper implementation of rule and regulation
* Maintenance of proper record
* Accuracy in expenditure record
2. Efficiency cum performance roles-
* Efficiency and economy in public expenditure
* Effectiveness of expenditure
* Proper realization, accounting and reporting of revenue receipts.

OBJECTIVES-
1. To suggest improvement to the functioning of the entity organization
2. To strengthen the overall governance mechanism of the entity organization including its
strategic risk management as well as internal control system
3. To prepare for the external audit.
* COST EFFECTIVENESS ANALYSIS-
Cost Effective-
Cost effectiveness means anything effective and productive in relation to its cost. It is
economical in terms of goods or services received for the cost and health effects of specific
intervention.
Cost effectiveness Analysis-
Cost effectiveness analysis is an economic study design in which consequences of different
intervention are measured using a single outcome, usually in natural unit.
Alternative intervention are then compared in term of cost per unit of effectiveness.
- National Institute of Health and Clinical Excellence
(NICE)

Aims of cost effectiveness analysis-

To maximise the level of benefit health effects relative to the level of resource available.
* Objectives of cost effectiveness analysis-
1. To compare alternative programs with a common health outcome
2. To assess the consequences of expanding an existing programme.
* Purposes of Cost Effectiveness Analysis-
1. To identify the most cost effective intervention from a group of alternatives
2. To provide empirical justification for a program

3. To identify and exclude programs that is wasting

resources
4. To provide general information on the relative costs and health benefit of different
alternatives
5. To evaluate the intervention in terms of efficacy, absolute health gain and affordability

Measure of Cost Effectiveness-

There are two types of measure used in cost effectiveness analysis:
1). Cost effective ratio (CER) -
a). Average cost effectiveness ratio (ACER)
b). Marginal cost effectiveness ratio (MCER)
c). Incremental cost effectiveness ratio (ICER)
11). Net Health Benefits
1. Cost Effective Ratio (CER)-
a). Average Cost Effectiveness Ratio (ACER)
It applies to a single intervention and evaluate it against its baseline option (eg. No programme
or current practice). It is calculated by dividing the net cost of the intervention by the total
number of health outcome prevented by the intervention.
ACER=
Net cost of the Intervention/
Total no. of health outcomes prevented by the Intervention

b). Marginal Cost Effectiveness Ratio (MCER)-

* Marginal cost effectiveness ratio (MCER) assess the specific change in cost and effect when a
program is expanded or contracted
* It is usually used in conjunction with the ACER as a tool to determine the most efficient level
of program implementation
c). Incremental Cost Effective Ratio (ICER)-
* It compares the different between the cost and health outcomes of two alternative
intervention that complete for the same resources and is generally described as the additional
cost per additional health outcomes.
ICER= (C1-C2) / (E1-E2)
(C1, E1) = (Cost, Effect) in the intervention/ treatment group
(C2, E2) = (Cost, Effect) in the control/ usual care group
If E >0, C <0, ICER <0= Intervention is effective and cost saving
If, E <0, C >0, ICER <0= Intervention is worse than usual care and costs more
If, E >0, C >0, ICER <0= Intervention is more effective than usual care and cost more

II). Net Health Benefit (NHB)-

It is the difference between the health outcome and cost divided by rate of substitution of
money for health.
NHB=E - C
where 2 = a role of substitution of money for health
INHB 2 = NHB, (2) - NHB2 (2)
It is calculated at 95% confidence interval (mean # 1.96 SE) and there should be normal
distribution of sample or large sample size and also have good estimation of mean and
variance.
* Procedure steps in Cost Effectiveness Analysis-
1. Defining the problem:
While defining the problem, specify the health related outcomes in the problem specification.
Ask 4 question
What is the problem to be analyzed?
Why is the problem important?
What aspects of the problem need to be explained?
What questions need to be answered?

2. Adopting a Research strategy-

Once the study problem has been identified and defined, a research strategy must be adapted.
- Define interventions) to be analyzed under evaluated
- Nature of intervention
- Target population
- Delivery site
- Personnel delivering the service
- Technology to be used
- Timing of intervention
3. Specify audience- Address the needs of the audience
4. Define perspective- Usually the societal perspective is used in CEA.
5. Specify the time frame work- Develop time frame work during which the intervention is in
effect.
6. Prepare the analytic horizon- Include all costs and outcomes attributable to the intervention
over the entire period.
7. Decide the type of study design It may be prospective, retrospective or a model.
8. Identify the outcome- measures or variable: These can be intermediate or final outcomes.
9. Search for available alternatives- Select the appropriate intervention for comparison.
10. Identify the types of costs to be included in CEA-
* This may be tangible or intangible. Find out the net cost
* Net cost = program cost- cost of disease averted - cost of productivity losses averted.
11. Analysis-
* For analysis, CEA requires health outcomes to be expressed in common units so that
comparisons among interventions can be made
* Start with same 'natural unit' which are clinical in nature and uni-dimensional, such as cases
of a disease or injury, life years

COST ACCOUNTING-
* Definition-
Cost accounting is accounting for cost aimed at providing cost data, statement and reports for
the purpose of managerial decision making.

OBJECTIVES-
* To control cost by using various techniques such as budgetary control, standard costing and
inventory control
* To provide information for decision making and planning to formulate operative procedure
* To help in directing and controlling operations
* To ascertain costing profit
* To motivate to achieve the organization 's goals
* To help in estimation of costs for the future

SCOPE-
1. Cost book-keeping-
It involves maintaining complete record of all costs incurred from their incurrence to their
charge to departments, products and services. Such recording is preferably done on the basis of
double entry system.
2. Cost System- Proper accounting for cost require systems and procedure.
3. Cost Ascertainment- Cost ascertainment forms the basis of managerial decision making for
planning and control.
4. 4. Cost Analysis- It involves the process of finding out the causal factors of actual costs
varying from the budgeted costs and fixation of responsibility for cost increase.
5. Cost comparison- Cost accounting
also includes
comparisons between costs from alternatives courses of action over a period of time.
6. Cost control- Cost accounting is the utilization of cost information for exercising control. It
involves a detailed examination of each cost in the light of benefit derived from the incurrence
of cost.
7. Cost reports- The ultimate function of cost accounting is the preparations of report. These
report are primarily for use by the management at different levels.
山
* Importance-
Importance of cost accounting can be considered in 2
ways viz: 1). To management
2). To employees
1. To Management-
* Helps in ascertainment of cost of process, product, activity, by using different techniques such
as job costing and process costing
* Help in checking the accuracy of financial account
* Helps in fixing selling prices
* Helps in inventory control
2. To Employees-
Employees have an interest in which they are employed. An efficient costing system benefits
employees through incentives plan in their enterprises.

* LIMITATION:
1. It is expensive because analysis, allocation and absorption of overheads require considerable
amount of additional work
2. The results shown by cost accountant differ from those shown by financial accountant
It is unnecessary because it involves duplication of work
HEALTH CARE REFORM-
Definition-
"Health care reform is a group of projects that include communicable disease, reproductive and
child health programme and health system to promote economic efficiency, quality and reform
of public sector"
-by Senior World Bank Official, Delhi, 2002

* PURPOSE-
1. To expand the array of health care providers consumers
2. To improve the access to health care specialists
3. To improve the quality of health care
4. To provide more care to citizens
5. To decrease the cost of health care
* PRINCIPLES-
1. Individual, charities and private organization should be made responsible for health care
2. Public funding must be restricted to health promotion and prevention of disease
3. Central government's role should be restricted to policy formulation and technical guidance,
with delivery of services left to the private sector and local authorities
4. Private and non governmental sector should be supported to become the key providers of
health and social services
* Indicator of health sector reform-
1. Permission to foreign providers of medical cares
2. Encourage private health insurance industry
3. To lease spare capacity in public facilities to private practitioners
4. Offer concessional loans to private practitioners to establish practice in rural areas
5. Instituting a regulatory framework for the private sector

* Reform strategies-
1. Alternative financing (user fees,
health insurance,
community financing, private sector investment)
2. Institutional management (autonomy
to hospitals,
monitoring and management by local government agencies)
3. Public sector reforms (civil service reform, capacity building, productivity improvement)
4. Collaboration with the private sector (public/ private partnership, joint ventures)
- World Bank 1993; Thomson 2002

Ownership of Reform-
1. The process of reform has been top down with very little involvement from the community
2. There was very little input from country's needs
3. Ownership of state and lower level is very weak
4. Capacity week at state and district level
5. Governance of public institutions undressed
HEALTH ECONOMIC-
* Definition of Economics-
Economics is the study of distribution of scarce resources commonly known as goods and
service across a population.
* Definition of Health-
(According to WHO, 1992) "Health is a state of complete, physical, mental and social well being
and not merely the absence of disease or infirmity".
* Definition of Health Economics-
Health Economics is the study of distribution of health care. It is a branch of economics
concerned with issue related to efficiency, effectiveness, value and behaviour in the production
and consumption of health and health care.

CONCEPTS-
1. Resources
2. Scarce resource
3. Scarcity
4. Opportunity cost
5. Efficiency-a). Terminal efficiency
b). Allocative efficiency
6. Demand
7. Supply
8. The production of health
9. Market
10. Health care market
11. Buyer
12. Seller
13. Price
14. Macroeconomics-a). The economy level of outputs
b). Level of National Income
c). Level of employment
d). General price level

1. Resources- Resource are the inputs, factors of production ie. Land, labor, capital (tools,
machinery etc). It cover all the input used to produce goods and services have health stock in
order to improve the health status of individual in terms of healthy days or quality of life.
2. Scarce Resource- Resource are considered scarce when society demand more resources and
goods/ services than are available.
3. Scarcity- Scarcity has 2 sides: the infinite nature of human wants and the finite or limited
nature of resources available to produce goods and services as depicted by following equation.
Scarcity = Infinite wants Vs Limited resources available to
produce service
K
4. Opportunity Cost- Opportunity cost means the value of forgone benefit which could be
obtained from a resources in its next best alternative use.
5. Efficiency-5. It is maximising benefit for resource used. There are 2 types of efficiency:
a). Technical efficiency- it refers to meeting a given objectives at least cost (resource)
b). Allocative efficiency- it refers producing the pattern of output (supply) that matches the
pattern of consumer want (demand).
6. Demand- Demand is buyer's willingness to produce a particular product or service.
7. 7. Supply- Supply is the seller's willingness to supply a particular product or service for the
price or cost.
8. The production of health- Possibility of providing health care is the only input into the
production of health either privately ensured or depends upon public services.
9. Market- Market is a place, situation or procedure. It is a mechanism by which buyers and
sellers get together to exchange goods and services including health care.
10. Health care market- Health care market is a system where there is interaction between
providers and consumers of health care services.
11. Buyer- A buyer is anybody who is ill or wants preventive, promotive, curative or
rehabilitative services or who wants information about their health.
12. Seller- The sellers are the providers of medical and health care services such as doctors,
nurses, physical therapist in the health care field.
13. Price- Price is the quantity of something that is required in exchange of something else. It is
generally expressed as a monetary unit of exchange.
14. Macroeconomics- Macroeconomics is the study of aggregate economic activities, such as
the economy level of outputs, level of national income, general price level.
a). The economy level of output- The economic level of outputs is estimated through GDP
(Gross Domestic Product).
b). Level of National income- is the income earned by the factors of production. It is income
earned of the sold or consumed GDP.
c). Level of Employment- It can be measured by calculating the rate of unemployment which is
the present of the total labor force unemployed.
d). General Price level- is measured through inflation or deflation rate. Inflation is the annual
rate of increase in a price index. Deflation is the annual rate of decrease in the price level.

BUDGETING FOR VARIOUS UNITS-Making a hospital budget-

Making a hospital budget is only second to medical delivery system in for a hospital. In fact, if a
budget is not properly written, the hospital maybe unable to deliver medical services at all. So
many expenses and sources of revenue must be taken an expert to get through it successfully.
Instructions:
Determine hospital revenue
1.Revenue can come from patient payments, tax dollars, donations, insurance credits
2. Figure out expenses-
- Start with the physical facility
- How much does it cost to keep up the building
What is the maintenance cost of each departments, engineering, air-conditioning, heat, water,
other utilities
- Know what the equipment costs, how much must be replaced per patient day and if any can
be recycled
Include the non-medical cost of each bed in the hospital including advertising
3. Know the cost of personnel, all employees and ancillary staff including consultants,
outsourced contracts, perhaps laundry or nurses staffing services
4. Add all the medical equipment costs, ongoing and expected expansion or replacement of
new diagnostic equipment
5. Know the medical costs of each bed
6. What about expansion?
- Are you planning a new wing, or the renovation of old one?
- Are you expanding into a new specially that could bring in extra revenue?
- Estimate that revenue when planning your budget
- 7. Don't forget parking garages, landscaping, grounds keeping, or window washing
8. Include all insurance for the facility and personal
9. Write in an emergency expense fund. Disaster occur and the hospital must be prepared for
them when they arrive
10. To do the budget, use a spreadsheet

BUDGET FOR EDUCATION INSTITUTION-

School should have a separate budget, ie. Principal in charge of the school of nursing should be
the drawing and disbursing officer and empowered to plan for operating the funds in all
different heads as per government rules and regulations and as seemed necessary for running
an educational institutions.
Both the school/ college should have separate budget.
The budget for the school or college is annually planned by the nursing director, principal and
general manager and approved by the managing director.

The recurring monthly expenditure include-

-Rent
-Salary
-Stationary items
-Contingency
-Guest relation
-House keeping indent
-Pharmacy indent
-AV aids
-Journals
-Books
-Maintenance: Repair, replacement. Electricity, phone, drinking, water, sewage disposal
CONCLUSION-
Financial planning helps determine the strategies, goal and operating procedure for a business,
forecasting helps determine the likely levels of sales and costs for a given time frame.
When combine, financial planning and forecasting allows business owner, shareholders or
board members to make informed decisions in nearly any financial aspects.