Start your day
with hope,
but end it with
accomplishment.
BUDGETING FOR
NURSING SERVICE
Healthcare
organizations
are
increasingly
focused
on
costcontainment and efficacious use of
financial resources. Today’s nursing
leaders require budgeting knowledge
in order to efficiently manage
operations in the patient care
environment and meet financial targets.
Budgets
A budget is a detailed financial plan,
used to carry out organizational goals. The
budget includes proposed earnings and
expenditures as well as details about how
resources( money, time, and people) will be
acquired and used. The purpose of the budget
is to project future plans and costs.
Operating budget-deals primarily with salaries,
supplies, and contractual services It is the financial
plan for the day to day activities of the organization
containing a statement of expected revenues and
expenses for the fiscal year.
Revenue Budget- includes expected income based
on volume and mix of patients, rates, and discounts.
Expense Budget- includes salary and non-salary
items that reflect patient care objectives and
planned activities for the nursing unit.
Cost and Profit
Cost Center-the smallest area for which
costs are accumulated. They may produce
revenue, such as laboratory and radiology or
not produce revenue, such as nursing.
Profit Center- a unit where performance is
measured in terms of profit the difference
between revenues and expenses
Classification of Costs
Fixed Costs-expenses that remain the same
such as rent or insurance premiums.
Variable costs-expenses that change with
changes in volume and acuity.
Mixed Costs-may vary with volume but not
directly.
Direct Costs-affect patient care.
Salary (Personnel) Budget
The personnel budget projects the salary
costs that will be paid and charged to the
cost center. It accounts for replacement of
staff
for benefit time, overtime, shift
differentials, orientation, on-call hours,
bonuses and premiums, and salary
increases.
Variance Analysis
The difference between the amount that was budgeted for a specific
revenue or cost and the actual revenue or cost that resulted during
the course of activities is known as the variance.
There is an established level at which a variance needs to be
investigated.
A variance may be favorable or unfavorable and may be related to
patient volume, efficiency in relation to nursing care hours provided,
rates in hourly rates paid, or in non-salary expenditures
Position Control- a tool to monitor actual numbers of employees to
the number of FTE’s budgeted.
Why you need budgeting skills
oAbsolutely essential management skill
oFinancial viability
oQuality patient care
oUnit operational efficiency
oStaff satisfaction
oLeadership expectation
oMost nurse managers do not come into
the job with these skills
Department
Patient Nurse ratio
ICU/CCU/NNN,
Burnt
1
1
3
1
General Wards
6
1
Isolation ward
2
1
Paediatric
Emergency
and
O.P.D (each)
Dressing
(each)
OT
1
Room
1
3
1
Capital Budgeting
Process
Identify immediate needs
New services
New technology
Broken equipment
Identify Long-term needs
New services
New patient populations
New technology
Improved technology
Equipment replacement plan
Elimination of rentals
Give what they want
Get input
MDs (Intensivists, surgeons,
cardiologist,specialists)
RN Staff
Respiratory Therapy
Ancillary staff
Vendors
􀂃 Develop (compliant) vendor relationships
throughout the year
􀂃 Be aware of contracted vendors
􀂃 Become knowledgeable about products
􀂃 Ask for demos
􀂃 Ask for references (and check them)
􀂃 Evaluate the literature provided to you
􀂃 Drive a hard bargain
􀂃 Don’t forget trade-in value
􀂃 Consider contract for training costs
Hidden Sources
Investigate sources of funding
Technology committees
Specialty funds
 Workplace safety funds
Patient safety funds
Equipment used in Clinical Trials
Vendor trials
Contingency Funds
Make a convincing case
How does this equipment improve
quality of patient care?
Is it a regulatory compliance issue?
Will it improve patient safety?
Will it improve staff safety?
Will it save you money in the long
run?
Final Advice
Be mindful of deadlines
Allow enough time for each step of the
process
Vendor response time
Paperwork
Local/regional/corporate approvals
Fiscal year
Budget Variance
in the
Operating Budget
WHY ARE
YOU
OVER
BUDGET?
Budget Variance
•Payroll budget
•Non-payroll budget
Non-payroll Operating Budget

Supply Costs

Equipment Costs

Operational Costs
Non-payroll costs
•Unit upkeep / construction
•Operational Costs
•Education
•Conference fees
•References materials
•Employee recognition
Non-payroll (cont.)
Transportation
 Traveler housing
One-time expenses
 Lost patient belongings
Supply Costs
Ask yourself,
“Is there a change in the supply
OR
a change in the patients?”
Change in supply cost
New product
Change in cost of product
Change in vendor
Change in contract price
Substitute product
Stocking Issues
Change in Patient
•Change in volume
•Change in patient population
•Individual patient need
Equipment Cost
Purchases
Rentals
Maintenance
Vendor change
Contract Change
Consider capitated costs for rentals
Payroll Budget
Simply put…
What you pay the people who
take care of the patients
Payroll Budgeting Tips
􀂃 Budget to full-time equivalents (FTEs)
and dollars
􀂃 Account for inflation and salary
increases
􀂃 Factor in contractual obligations
􀂃 Estimate non-productive time
􀂃 Account for anticipated changes in
patient volume and acuity
Payroll budget
􀂃Volume
􀂃Acuity
􀂃Overtime Pay
􀂃 Penalty Pay
􀂃Registry and Traveler Pay
Payroll Variance
􀂃 Volume
􀂃 HPPD
􀂃 CPPD
Volume
January Patient Days
Budgeted = 310 Actual = 434 Variance =
124
To calculate volume variance:
Variance days/budgeted days
124/310 = .4
Conclusion:
You are 40% over your budgeted volume!
Summary of Variance
 Examine Payroll and Non-payroll costs
Look at both in relation to volume
Non-payroll
Supply cost
Equipment costs
Other operating costs Payroll
Payroll
OT and Registry Usage
Training Costs
Concisely explain why
Developing a Staffing Matrix
Required information
􀂃 Predicted/budgeted average daily
census (ADC)
􀂃 Historical trends
􀂃 Population changes/changes in case
mix
􀂃 Changes in service/specialty offerings
Hours Per Patient Day
HPPD = number of hours worked in the 24
hour period divided by the
midnight census
Example
NOC shift staffed with 4 RNs
DAY shift staffed with 5 RNs and a NA
PM shift staffed with 5 RNs and a NA
Midnight census = 8
HPPD = (16 employees x 8 hours) / census
of 8 = 128/8=16
Cost Per Patient Day
CPPD =
[(Total RNs * 8 hours) * hourly salary +
(Total LVNs * 8 hours) * hourly salary +
(Total NAs * 8 hours) * hourly salary)]
/divided by midnight census
Developing a Position Control
Document
Required information
􀂃 Budgeted Average Daily Census (ADC)
􀂃 Required full-time equivalents (FTEs) in each
job category (from staffing matrix)
􀂃 Current hired FTEs in each job category per
shift
􀂃 Current Posted FTEs in each job category per
shift
􀂃 Historical use of non-productive time
ANALYSIS
1. What can we determine from this position
control document?
2. Have we budgeted for enough staff?
3. Do we currently have enough staff?
4. What additional positions would we need to
post?
Step one: Review past
performance:
1. As a starting point, the nurse
executive will require to review the
following
a. The financial records from prior
financial periods as a basis for
planning.
b. The present activities of the
nursing division.
c. The activities that the division plans
to institute during the projected
financial period.
d. Those activities the division plans
to delete during the projected
period.
• Step two: Review the
organization's goals and
projections:
• The nurse executive has to study the
organization's goals and financial
projections thoroughly. - Items in
the major budgetary report that
affect the nursing department should
be determined
• Step three: Review of the
variances with higher levels of
management :
• Once the goal statement is finished,
it, (together with the actual versus
budget analysis done earlier), should
be reviewed with higher level
management
• The departmental goals proposed
should be carefully considered; as
well as the variances, their causes,
and proposed corrective actions
should be reviewed.
• Once the final statement for the
department is in place, the new
budgeting process can begin in
earnest.
• Step four: Actual preparation of
the budget:
• The actual preparation of a new
budget can be done based on a
previous budgetary plan, or newly
proposed plan (if a newly developed
or modified service).
• To complete the budget, a budget
worksheet is essential. Worksheet is
"a tool used by managers to prepare
their budget". It includes a number
of columns including information
about:
a) Historic information with old
budget.
b) Actual numbers with comments
explaining the variances.
c) Revenue and costs.
What have you learned?
Capital Budget
 Identify short and long-term needs
Work effectively with vendors
Plan ahead and allow lots of time
Analysis of Operating Budget variance
Payroll
Non-payroll
Staffing Matrices
Position Control
The quickest way to get what you want is
to help others get what they want.
SHIFT TO POPULATION BASED CARE AND INCREASING
COMPLEXICITY OF PATIENT CARE
THE GREAT THING IN THIS WORLD
IS NOT SO MUCH WHERE WE STAND…
BUT IN WHAT DIRECTION WE ARE
GOING……