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Financial budgeting for hospital
- 1. Presented ByPresented By S.ManivannenS. Manivannen,, FCAFCA,, Chartered AccountantChartered Accountant Managing Director - Parama Health Care PrivateManaging Director - Parama Health Care Private Limited.Limited.
- 2. FINANCIAL BUDGETINGFINANCIAL BUDGETING -THE NEED…..!- THE NEED…..!
- 3. What is financialBudgeting & whoWhat is financial Budgeting & who does it ??does it ?? You think financial budgeting is prepared by the finance Man? - No Financial Budgeting gives the number values to all the activities of a unit – Here health care system. The finance man puts the number value to the activities that you plan to do.
- 4. Who should prepareBudgetsWho should prepare Budgets Government Organizations Private Enterprises & The NGOs Can spend the money allocated Should keep some for admin and spend the balance for the goals Should generate return on money given and retain the capital
- 5. Financial BudgetingFinancial Budgetingand whyand why Each business or Service unit requires resources to operate in order to achieve the objective for which it is established You as unit head are responsible for raising funds and ensuring that the funds are used efficiently.
- 6. The development ofa sound hospital budget is fast becoming a matter of paramount importance in hospital administration. Hospitals receiving grants, donations or budgetary allocations Financial BudgetingFinancial Budgeting- The need- The need
- 7. Hospital raising fundsthrough equity or debt All of you have to estimate your requirements continuously and check whether they are proceeding as per the budgetary estimates. Financial BudgetingFinancial Budgeting- The need- The need
- 8. When community medicalcenters run by government are set up in a region and also act as centers for excellence, the management of such units should have a good understanding of financial management. Financial BudgetingFinancial Budgeting- The need- The need
- 9. This is toensure that the unfunded healthcare needs are met through efficient planning and utilization of the resources established The ever increasing healthcare cost makes it essential to manage the financial resources to get maximum service units for every rupee spent Financial BudgetingFinancial Budgeting- The need- The need
- 10. FINANCIAL BUDGETINGFINANCIAL BUDGETING --THETHE PRINCIPLES INVOLVED …..!…..!
- 11. A mission statementwith specific objective and goals for the healthcare system under consideration. The goals must be in measurable units Should be simple, direct and attainable A strategic plan should be the basis of the budget THE PRINCIPLES INVOLVEDTHE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
- 12. A plan toraise resources or modify specific goals if the current financial resources or allocations are not sufficient This plan should relate to achieving the goals – For example setting up one more cardiac OT to meet increasing incidences of CABG surgeries THE PRINCIPLES INVOLVEDTHE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
- 13. The budget shouldmeasure the current financial performance Internalize the budgeting process. Financial budgeting is only a aggregation of department wise budget prepared by each department within the healthcare system. THE PRINCIPLES INVOLVEDTHE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
- 14. The financial budgetshould be based on the operational numbers of each department. It should be linked to operational budget which should be derived from the marketing budget. Actual financial results must be compared with the budgeted activities. THE PRINCIPLES INVOLVEDTHE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
- 15. Variance analysis mustbe made Mid course correction must be initiated Units must operate within the budget Policies for all the activities must be established THE PRINCIPLES INVOLVEDTHE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING
- 16. All the unitsof the healthcare system should comply with the policies and procedures Each department or unit must evaluate the financial consequences of any new activity is started.
- 17. Types & methodology…!Types& methodology…!
- 18. THE TYPES OFBUDGETS Conventional Budget system Zero Based Budget Input Output System
- 19. CONVENTIONAL BUDGET Previous yearfigures Manager Incremental Charges / Additions Budgets Top management
- 20. Conventional budget orincremental budget is prepared on the previous year figures. It assumes that whatever has happened in the previous year will continue with some changes. It does not take in to account any changes in the situation. CONVENTIONAL BUDGET
- 21. Whatever amount spentlast is assumed to be sanctioned without analyzing whether it is required. Conventional budgeting is always out of sync with the current happenings in the system. CONVENTIONAL BUDGET
- 22. ZERO BASED BUDGETINGZEROBASED BUDGETING
- 23. ZERO BASED BUDGETINGZEROBASED BUDGETING Zero Based Budgeting Exercise Zero-Based Budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting.
- 24. In Traditional incrementalbudgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. No reference is made to the previous level of expenditure. ZERO BASED BUDGETINGZERO BASED BUDGETING
- 25. By contrast, inzero based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases. This process requires the budget request justified in complete detail by each program starting from the Zero base. ZERO BASED BUDGETINGZERO BASED BUDGETING
- 26. The Zero-base isindifferent to whether the total budget is increasing or decreasing. "With zero-based processing one can forget about last year, assuming that the program is brand new and see if one can provide a detail of expenses for what one would need to fully accomplish the program.
- 27. This technique willhelp one to develop a complete picture of what the program actually needs to cost and not just what it has been costing.” In effect we create a clean slate. The analogy we will use is if the hospital is was empty today and we were told we had to start operating it as a Hospital in six months.
- 28. INPUT OUTPUT METHOD Breakdown the healthcare system in to a set of activity center. Medical Departments Service Departments Admin Department
- 30. These are furtherclassified in to final service departments and intermediary service departments The departments which render services directly to the patients are final service departments Departments which provide service to the other departments and not to the patients directly are known as intermediary service departments. INPUT OUTPUT METHOD
- 31. Healthcare system challengesthis method of classification since some departments earn revenue directly as well as serve the other departments. The ideal way to solve this complexity is to decide based on billable activities. INPUT OUTPUT METHOD
- 32. Decide on theunit of service. It is also essential t The ideal way to solve this complexity is to decide based on billable activities or services which directly reach the patients INPUT OUTPUT METHOD
- 33. Cost of intermediaryservices are allocated to direct services departments The final services costs are matched with the revenues INPUT OUTPUT METHOD
- 34. INPUT OUTPUT METHOD MedicalDepartments Service Departments Admin Department Out Patient Departments Ward ICU, CCU, & NICU Operation Theater Pharmacy Diagnostic & Radiology Bio-Medical Nursing Purchase EDP, HR Maintenance Marketing Input=Investment/ExpensesInput=Investment/Expenses
- 35. Fees for servicesFeesfor services RevenuesRevenues Room RentRoom Rent SurgeriesSurgeries Investigation & ProcedureInvestigation & Procedure PharmacyPharmacy F & BF & B
- 36. Capital Budgeting Revenue Budgetingor Working Capital Budgeting CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS
- 37. Capital Budgeting Infrastructure Equipment CLASSIFICATION OFBUDGETSCLASSIFICATION OF BUDGETS
- 38. Revenue Budgeting Estimates ofmanpower cost, material costs, overheads, financial cost and estimation of working capital CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS
- 39. TIME FRAME Five YearPlan Annual Budgets Monthly Budgets
- 40. We need toestimate revenues and expenses for every department under following categories Manpower Material Overheads Technology Finance SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
- 41. Under each headmentioned above Direct Indirect SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
- 42. Further classify into Fixed Variable And assess the capacity utilization of all the elements of cost like material, manpower, Overheads and technology SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS
- 43. Integrated Budget –A sample
- 44. SUMMARYSUMMARY Need for Budgetingtool Principles involved in budgeting exercise Types and methodology – Conventional, Zero based and Input-Output Method
- 45. Classification in tocapital and revenue budgeting Time frame Further estimation under manpower, materials, overheads, technology and finance Differentiating between fixed and variable expenses Estimation of capacity utilization SUMMARYSUMMARY
- 46. The Importance ofaudit Types of audit Audit as a tool Audit to give confidence to external agencies like the government, donors and investors including banks Audit and its importance toAudit and its importance to hospitalshospitals
- 47. Internal audit External audit Auditand its importance toAudit and its importance to hospitalshospitals
- 48. What is audit?What is audit ? A study, linking management to Administration, operations, finances. 10/02/201348
- 49. What is audit?What is audit ? review the work process, Assess effective utilization of resources, to fix accountability to reduce risks in operations with proper internal control. 10/02/201349
- 50. Front office information Registration Billing Collection Admission MaterialConsumption Payment to consultants Equipment audit Utilization Review Operational review Focus areas for hospital auditFocus areas for hospital audit
- 51. Use audit asa tool to monitor whether we are deploying the resources properly or not Audit as a tool should be used for improving the systems in place Audit as a tool should be used to control or reduce cost ConclusionConclusion
- 52. Thank you..,Thank you.., ParamaHealthcare P LtdParama Healthcare P Ltd Email: [email protected]: [email protected]