History • Budget word was first coined by the British Kings in early days from the word ‘BOUGETTE’ . • The important milestones were: – 1215 AD: constitutional exposure – 1718 AD: consolidated fund act passed which considered budget as financial statement of Govt activities for facilitating accountability of public fund . – 1882 AD: Budget entered the parliament for first time seeking advice Meaning • A forecast of the resources required to deliver the services offered by the organization • A plan for coordinating the financial goals of an organization • A formal , quantitative expression of management’s plans, intentions, expectations & actions to control results In summary • A budget is a financial plan that includes estimated expenses as well as income for a period of time. • Fixed or variable/ either controllable or non-controllable . • Fixed expenses do not vary with volume, whereas variable expenses do Basic of budget • Cash Book: Date/ particulars/ receipts / payments • Ledger Statement: • Receipts & payment accounts- prepared for one year. Receipts Payments Opening balance cash Salaries Opening balance bank Fees Receipts Balance Continues • Income Vs. Expenses • • • • • • Income Expenditure Receipts Opening stores Grants Purchases Receipts Balance sheet Income Liabilities Source of money Donations Grants loan Expenses Assets land building cash bank deposit/saving AC Purposes Control costs Accurately report all financial and statistical data Establish annual & monthly budget Identify & analyze actual experience compared to the budget plan Characteristics • It is a plan or program, framed on the basis of past experience • A scheme for action • It should estimate revenues & expenditures as accurately as possible • It is comprehensive plan of action Flexible Features Synthesis of past, present & future Product of joint venture or participation of executive at different levels It should be clearly defined Form of statistical standard laid down in specific numerical form Represent expected revenue as compared with anticipated expense Facilitate goal achievement Principles • Provide sound financial management • Focus on objectives & policies of an organization • Be flexible • Budget necessitates a review of the performance of the previous year & an evaluation of its adequacy Importance of Budget • An essential management tool • Budget tells you how much money you need to carry out your activities • Budget enables to monitor income & expenditure • The budget is a basis for financial accountability & transparency Types of Budget Capital Budget • Fund needed for the capital items for the growth • New supplies & facilities & the replacement of worn out equipment, machinery and furniture. • The decision on capital budgeting is primarily is based on: i. ii. Needs of patients and existing alternatives Effects of additional equipment on income & expenditure iii. Availability of funds Operating Budget • It provides an overview of an agency’s functions by projecting the planned operations , usually for the upcoming year. • The nurse manager might include: personnel salaries , employee benefits, insurance , medical- surgical supplies, office supplies , rent , heat , light , house-keeping • Both controllable and non-conrolable expenses are projected Personal Budget • Estimates the cost of direct labor necessary to meet the nursing needs of the estimated patient population. • The current staffing patterns, number of unfilled positions and last year’s report can provide a base Cash Budget • Cash budget are planned to make adequate funds available as needed and to use any extra funds profitably • The ensure that the agency has enough, but not too much , cash on hand during the budgetary period Budgeting methods Incremental • Simplest method • Budget for the coming year is projected • Requires little budget expertise from the part of the manager Zero-Based • Assumes the base for projecting next year’s budget is zero • Manager’s are required to justify all activities & programs as if they are initiated for the first time. • Every proposed expenditure must be justified with: • current environment • fit with organizational objectives Continues… Flexible • budget flexes over the year : up and down • Flexible budget automatically calculates what the expense is Performance • This method emphasizes outcomes and results instead of activities and outputs Budget Process Budget calendar • For practical purposes , the nursing budget follows three stages of development: 1. Formulation 2. Review and enactment stage 3. Execution • The entire budgeting process is given a specific time frame and a target date is assigned for each step. Formulation Stage • It is usually set number of months (six or seven) before the start of the fiscal year for the budget. • The main functions are 1. Develop objectives and management plans 2. Gather all financial , historical and statistical data and distribute to cost-center managers 3. Analyze data Review & Enactment Stage • Prepare unit budget • Present unit budgets for approval • Revise and combine into organizational budget . • Present to budget council • Revise and present to governing board • Revise and distribute to cost-center managers Execution Stage • Execution of the budget involves directing and evaluating activities . • The nurse administrators who planned the budget execute it. • Revision are scheduled at stated intervals usually once or twice during the fiscal year, if indicated. Advantages Places everyone on the management team Helps to create cost awareness Helps to measure individual & departmental productivity as well as profitability Produce cost savings Provides a plan or forecast of what is expected. Help clarify accountability & responsibility Provides for communication within the organization Disadvantages Over budgeting leads to over expenditure Restrict the activities Under estimation Planning a Hospital Budget Stages of Budget Plan (Hospital) 1. Prepare assumptions, in statistical terms about the kind of services (outputs) the hospital expects to provide. 2. Prepare the economic forecasts in respect of new developments. 3. Outline the budget goals and policies as per the directives of governing board 4. Prepare a budget package incorporating written instructions. Continues.. 5. Each department head to analyze financial & statistical data generated by his department as well as provided to him by the administration on finance department. 6. Summary of each department is recorded between the administration and the department head and also includes observation of financial officer 7. The finance officer to develop the department’s revenue budget and forward the departments budget hearing summary to the concerned department head Continues.. 8. The finance officer to prepare a preliminary operating revenue budget for the whole hospital by summarizing and collating the individual’s department budget 9. Finance Officer to summarize the total budget into a proper budget format 10. In the final step , budget is presented by finance officer to the governing board or finance committee for their approval Preparing a Budget Estimate Income/ Actual Expenditure Last year Current year Budget Next Year Budget Proposed Actual Approved Role of Nurse Manager • The administrator requires sufficient funds to support sound program • The administrator submits a budget request and a justification for the proposed expenditures. • Budget is presented to the president • The budget is reviewed , analyzed and modified on the basis of discussions of president and budget committee • Once revisions are made , president presents the budget to board of trustees for approval Continues.. • When the budget is approved , it has given authorization to make expenditure and to collect income as indicated in the budget • When the budget is adopted , administrator is committed to support the budget • Once the budget is approved , it is the responsibility of the administrator to see that expenditures do not exceed the approximates 1 made to the institution References 1. Jogindra Vati (2013). Principles & practice of nursing management and administration, I ed., New Delhi, Jaypee Brothers Medical publishes (P) Ltd. 2. Marquis, B. L., & Huston C. J. (2009). Leadership roles and management functions in nursing: Theory and application (6th ed.). Philadelphia: Wolters Kluwer Health.
