BUDGETING FOR VARIOUS UNITS

INTRODUCTION
A budget is a forward financial plan. It provides a prediction of expected flows of money in
and out of the firm in the immediate future. Normally, a budget will be prepared in advance of a
period of time, usually a year but could be on a monthly or quarterly basis.
MEANING OF BUDGET
Literally the word budget means a leather bag to carry official papers in. this word is derived
from the old English word budgettee which means a sack or pouch. Budget is the heart of
administrative management. It is a formal expression of policies, plans, objectives and goals laid
down in advance by top level authorities of the organization as a whole in a given period of time.
DEFINITIONS OF A BUDGET
Budget is a concrete precise picture of the total operation of an enterprise in monetary
terms.
H M Donovan
Budget is an operational plan for a definite period, usually a year, expressed in financial
terms and based on expected income and expenditure
A Budget is the annual operating plan, a financial road map and a plan which serves as an
estimate of future costs and a plan for utilization of manpower, material and other resources to
cover capital projects in the operating programs.
A Hospital Budget is designed to meet future service expectations, to provide quality
patient care at minimum cost.
A Nursing Budget is a plan for allocation of resources based on preconceived needs for a
proposed series of programs to deliver patient care during one fiscal year.
. PURPOSES OF BUDGETING :
1. Budget supplies the mechanism for translating fiscal objective into projected monthly spending
pattern.
2. Budget enhances fiscal planning and decision making.
3. Budget clearly recognizes controllable and uncontrollable cost areas.

4.
5.
6.
7.

Budget offers a useful format for communicating fiscal objectives.

Budget allows feedback of utilization of budget.
Budget helps to identify problem areas and facilitates effective solution.
Budget provides means for measuring and recording financial success with the objectives of the
organization.

PRINCIPLES OF BUDGET.
1. It should provide sound financial management by focusing on requirement of the
organization.
2. It should focus on objectives and policies of the organization.
3. It should ensure the most effective use of scarce financial and non-financial resources.
4. Budget requires that a programmes activities are planned in advance.
5. Budgetary process require consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for framing and
executing budget.
6. Budgeting should include coordinating efforts of various departments establishing a
frame of reference for managerial decisions and providing a criterion for evaluating
managerial performance.
7. Utmost care is a must for fixing budget targets.
8. Budget period must be appropriate to the nature of business or service and to the type of
budget.
9. Budget is prepared under the direction and supervision of the administrator or financial
officer.
10. Budgets are to be prepared and interpreted consistently throughout the organization in the
communication of planning process.
11. Budget necessitates a review of the performance of the previous year and an evaluation of
its adequacy both in quantity and quality.
12. While developing a budget, the provision should be made for its flexibility.
IMPORTANCE OF BUDGET
1. Budget is needed for planning for future course of action and to have a control
overall activities in the organization.
2. Budget facilities coordinating operation of various departments and sections for
realizing organizational objectives.

3. Budget serves as a guide for action in the organization.

4. Budget helps one to weigh the values and to make decision when necessary on whether one
is of a greater value in the programme than the other.
A Budget Plan for health care institutions, which is simply a plan for future activities, generally
consists of
Four Components:
1. A Revenue Budget is summarizing the income the management expects to generate during
the planning period.
2. An Expense Budget is describing expected activity in operational financial terms for a given
period of time.
3.A Capital Budget outlines the programmed acquisitions, disposals and improvements in the
institution's physical capacity.
4. A Cash Budget consists of money received, cash receipts and disbursement expected during
the planning period.
Budgetary planning is important for:

Analyzing activities for appropriateness

Focusing on the future rather than just the present

Anticipating problem or opportunities in time to deal with them

Reinforcing motivation to work toward organization goals

BUDGET APPROACHES
Managing Resources: How to Manage your Existing Budget?
1. Review health facilities vision, mission, objectives and its relation to the
importance of budgeting.
2. Identify / discuss steps in preparation of budget showing:
a. Monthly goals
b. Outline specific actions that will be taken
c. Target date or time frame
d. Return of investments
e. Price Index

3. Manage intra organizational network. To complete an effective Budget statement, it is

essential to have a working link with different departments / cost centers / key people within the
organization.
E.g. 1.Review of stock levels of hospital supplies to ensure that they are not wasted
and misused.
2. Develop a model to display why require an X amount of staff, to defend
staffing levels and requirements.
3. Determine patient dependency to determine the patient need, planned
nursing hours, available nursing hours and the cost of nursing for each patient.
4. Manage and Control Spending
a. Identify Controllable and Non controllable Costs as well fixed and variable costs.
e.g. A controllable cost is an increase in price by a supplier, use less expensive supplier
could control this.
A non controllable cost would be a general increase in the cost of utilities such as electricity,
water etc.
b. Monitor Spending
Keep a file of all budget statements received; expenditures trends can be highlighted and
examined.
TYPES OF BUDGETING
The two most basic types of budgeting are the CENTRALIZED and DECENTRALIZED
approaches to budgets.
CENTRALIZED BUDGET Centralized budgeting is developed and imposed by the
comptroller, administrator and/or director of nursing with little to no consultation
with lower level managers.
DECENTRALIZED BUDGET Decentralized budgeting, has the middle level manager
involved in the planning and budgeting process.
COMPONENTS OF TOTAL INSTITUTIONAL BUDGET
The components of total institutional budget are:

1.Manpower Budget this consists of the wages and salaries of the regular employees and the
fees paid to outside registries through which the institution contracts short-term employees.
2.Capital Expenditure Budget this involves the large expense of purchasing of lands,
buildings, and major equipment meant for long-term use.
3.Operating Budget this indicates the cost of supplies, minor equipment repair and
maintenance as well as other overheard expenses.
TYPES OF INSTITUTIONAL BUDGET DEPENDING ON MANAGEMENT
PHILOSOPHY
There are many different types of institutional budgeting, the appropriateness of which to
a given milieu may depend on such things as the philosophy of the incumbent management or
the exigencies of a given situation.
1.Open-Ended Budget An open-ended budget is characterized by a single cost estimate for
each program in the proposed unit.
2.Fixed Ceiling Budget A fixed ceiling budget is one in which the uppermost spending limit is
set by the top executive who then asks managers to develop budget proposals for individual
units.
3.Flexible Budget A flexible budget, in contrast, contains several financial plans for each level
of activity or for different operating conditions. Top management can select the budget or shift
the spending level upwards or downwards, whichever is best for optimum productivity.
4.Performance Budget A performance budget is based on the functions and activities of
personnel involved in the operation budgeted. In a nursing care management setting this may
refer to direct nursing care activities, supervision of nursing staff, and quality control, among
other things.
5.Program Budget On the other hand, in a program budget costs are computed for a program
as a whole or the entire program itself (e.g. a home care program, an outreach program, etc.),
rather than for individual activities or functions.
6.Zero-Based Budget A zero-based budget justifies in detail the cost of all programs, both old
and new, in every annual budget preparation.

7.Sunset Budget A sunset budget is designed to "self-destruct" within a prescribed period to

ensure cessation of the funded program at a predetermined date.
BUDGETARY PROCESS
The budgetary process involves determining and developing a plan for the area of responsibility
and reviewing, analyzing, and controlling the operation and plans of the Department. This can be
done by
i.
ii.

Review of pertinent provisions in the current General Appropriation Act.

Identify sources of funds (general, national, city, municipal, provincial, special,

iii.
iv.

revolving trust).
Review current appropriations and actual expenditures for the current year.
Study proposed changes in other departments which might affect the nursing service

v.
vi.
vii.
viii.

budget.
Estimate required expenditures for the coming year for supplies, materials, equipment,
repairs and replacement.
Estimate personnel salaries and benefits, as well as, savings derived from unusual leaves.
Estimate cost of Human Resource Development and Research Programs.
Translate information into pesos and submit official forms to the Chief of Hospital for
approval and inclusion in the general hospital budget.

The budgetary process is an ongoing one. It begins with the identification of who is responsible
for developing and monitoring the budget. Ultimately, the organizations governing board is
responsible, but many of the administrative staff members participate and have responsibilities,
including the chief executive officer, chief fiscal officer, nurse executive, and managers.
Operational goals and objectives are set that correspond with the organizations mission, goals
and objectives, as well as the organizations strategic and operational plans. It is easy to view the
budget as another paper report or plan, but it must be a live document, one that changes as
needed, and it must be monitored. A cost center is a unit or department within an organization
that has specified expenses.
Examples of this would be the cardiac care unit, the pharmacy department, nursing services, or
admissions. Each one would have a budget that would then be used to develop the overall budget
for the organization.

There are four major phases in the process:

Planning: Gathering information related to goals and objectives, setting priorities, conducting
an environmental assessment, and identifying financial objectives.
Development of the budget: Collecting and analyzing data from past budget, allocating
amounts based on priority, and approving the operational and capital budgets.
Implementation and monitoring: Analyzing variances and adjustments during the fiscal period,
negotiating and revising the budget as necessary, allocating departmental and cash budgets.
Evaluation: Obtaining performance reports and analyzing efficiency .
STEPS IN BUDGETRAY PROCESS
1. Assess what needs to be covered in the budget.
Budgeting today generally reflects all inputs from all levels of the organization.
2.Develop a plan.
Fiscal Year a budgeting cycle set for 12 months
Fiscal year may not coincide with the calendar is then broken down into quarters or subdivided
into monthly, quarterly, or semi-annual periods. Select optimal time frame for budgeting.
3.Implementation and Monitoring
Ongoing monitoring and analysis occur to avoid inadequate or excess funds at the end of the
fiscal year.
4. Evaluation
Reviewed periodically and modified as needed throughout the fiscal year. Managers develop a
more historical approach to budgeting as they grow more adept at predicting the units budgetary
requirements.
FACTORS AFFECTING BUDGET PLANNING
Budget planning is determined by the specific type of activity for which it is implemented.
Nursing service has very specific parameters, activities and needs which from the basis of budget
planning.

The basic factors to be considered in budget planning are the type of patient/s, the kind or class
of the hospital, the policies on personnel and equipment, standards of nursing care and nursing
supervision.
1. PATIENT
The nature of the patient's needs is primary consideration in budget planning. These needs are
determined by the condition of the patient, the length of stay in the hospital and the acuteness of
the illness.
Categorizing the patient is made through the type of care given by the physician such as medical,
surgical, maternity, pediatric, and geriatric among others. The method of patient assignment can
be functional, case, team, or primary. The severity of the illness serves as the basis for length of
stay in the hospital.
2. HOSPITAL OR HEALTH CARE FACILITY
The available facilities and resources with which to address the needs of the patient are also
factors in budget planning. In nursing management, these concerns include the size of the
hospital, specifically its bed occupancy and capacity. Bed capacity must be enough to
accommodate the possible number of patients. Other aspects of a hospital to be considered
include its physical layout, the size of the wards or units, the Nurse's Station, the treatment
rooms, and other relevant facilities and resources available such as equipment and supplies.
3. PERSONNEL
These facilities would be useless without the personnel to utilize them, and so it is important to
be well-acquainted with personnel policies in place, such as the salaries paid to nursing
personnel, leave benefits enjoyed by the personnel, i.e. whether these leaves are confined to
those required by law or include others, and provisions for staff development programs including
instructional staff and training structures available, e.g. periodic seminars for staff.
4. STANDARD OF NURSING CARE AND SUPERVISION

This consists of the cost of training and maintaining personnel and acquiring equipment that will
be needed by the health care facility, based on the volume of patients and the nature of their
needs.
It begins with documentation of the nursing care method employed which refers to reports. The
manager determines whether the method of patient assignment shall be functional, on a case
basis, on a team basis or to a primary nursing method.
She identifies what labor-saving devices and equipment are necessary. There must be a
determination of the amount of centralized service provided such as sterile equipment,
centralized oxygen service and line supply.
The manager determines the affiliation of nursing students or medial students to the system,
considering that as a rule, inexperienced students need more supervision, equipment and supplies
PREPARATION OF THE NURSING BUDGET:
(Budgeting Process)
Generating and controlling a divisional budget is a major responsibility of the nurse
executive. The budget is a major operating document of the nursing division. The following steps
illustrate how the nurse executive can prepare the nursing division budget:
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
Example of hospital goals and projections:"This division is going to lose 4 beds from
February to November and then gain 12 additional beds after that. A gerontologist and clinical
specialist in gerontology have been added to the staff. This division will then admit older and
sicker patients. If the shortage of nurses continues, nursing service will have to consider
alternative staffing pattern to deal with this situation".
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.
FACTORS THE AFFECT NURSING SERVICE BUDGET
1. Types of patient admitted.
2. Personnel policies such as hours/day on duty per week, vacation, sick leaves,
Medicare/Philhealth.

3. Size of hospital, number of patient services given.

4. Kind and amount of care.
5. Proportion of nursing care provided by the professional nurse and nursing
aides.
6. Amount and quality of supervision available and provided, job description and job
classification.
7. Methods of assignment whether functional, care, team, primary.
8. Methods of performing nursing procedures, charting, record keeping.
9. Standards of nursing care.
10.Physical layout of hospital and labor saving devices.
11.Responsibility of nursing service for non-nursing functions such as dietary
or housekeeping.
12.Method of reporting required by the administration whether simple or
complex.
13.Method of appointment of medical staff size and activities, frequency of
treatment and orders.
14.Affiliation with medical, nursing and midwifery school.

BUDGET PROPOSAL FOR NURSING EDUCATION INSTITUTIONS.

The administration of the school or college of nursing require a budget well probably allocated directly,
but as in most hospital, schools of nursing and college, it will be included in the total budget of the hospital
with a certain amount remarked for the school or college. In general, the items which are budgeted for the
average government schools of nursing in India are:i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

Salaries for professional, clinical and domestic staffs,

Stipends for the students,
New equipments and supplies,
Linen and other supplies,
Office supplies includes stationary and postage,
Maintenance of library or setting up new library,
Maintenance of transport and cost of petrol (fuel),
Contingency fund for educational tours, professional activities, capping and
ceremonies, prizes, entertainment etc.

graduational

Item

Income

Expenditure

No.

Actual last
year

Current year
Budget

Actual

Budget next year

Proposed Approved

HOW TO MAKE A HOSPITAL BUDGET

Making a hospital budget is only second to medical delivery systems in for a hospital. In fact, if a
budget is not properly written, the hospital may be unable to deliver medical services at all. So
many expenses and sources of revenue must be taken into consideration, so the budget process
takes an expert to get through it successfully. Let's find out how to start.
INSTRUCTIONS
Determine hospital revenue. Revenue can come from patient payments, tax

dollars, donations, insurance credits. Be sure to deduct a percentage of the patient bills that will
remain uncollected, the charity work expected by the hospital and the pro bono work it does.
Figure out expenses. Start with the physical facility. How much does it cost to

keep up the building or buildings. What is the maintenance cost of each department, engineering,
air-conditioning, heat, water, other utilities. Know what 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. Include advertising.
Know the cost of personnel, all employees and ancillary staff, including

consultants, outsourced contracts, perhaps laundry or nurse staffing services. For all employees
of the hospital, from janitorial to hospitalists, figure the fringe benefits the hospital must pay for
each.
Add all medical equipment costs, ongoing and expected expansion or replacement of new
diagnostic equipment.
o

Know the medical costs of each bed. How many staff hours are spent on each bed,
occupied or not. Use this figure as an average to get a cost per patient year. Add to that the non

medical costs per bed. Include every possible cost that keeps that bed in the hospital. Don't forget
replacement costs per annum for any and all patient needs.
What about expansion? Are you planning a new wing, or the renovation of an old

one? Are you expanding into a new specialty that could bring in extra revenue? Estimate that
revenue when planning your budget.
Don't forget parking garages, lots, landscaping, grounds keeping or window

washing.
o

Include all insurance for the facility and personnel.

Write in an emergency expense fund. Disasters occur and the hospital must be
prepared for them when they arrive.
To do the budget, use a spreadsheet. Enter all categories and the cost of each. Add

all taxable items and the percentage of each. You probably get reduced rates on utilities, or least a
break on the taxes on them. Enter all formulas for those. It is possible your state or your hospital
system has one already available. If the spreadsheet exists, use it or modify it for your own
needs. If it does not, make one, so making next year's budget is simply a matter of entering
numbers and letting the computer do the work.
ROLE AND RESPONSIBILITIES OF THE ADMINISTRATOR / PRINCIPAL IN
BUDGETING
Responsibilities
i.
ii.
iii.

Participation in planning budget,

Consult and take assistance of his or her subordinates,
Request sufficient funds to suggest a sound programme such as to provide for developing
programme provision, expansion of programme, to attract and hold qualified staffs to
provide for expansion of physical facilities, supplies, equipment, for improving instruction

iv.

(schools and college) and also to carry out adequate functions of institution.
Submit budget request with justification with proposed expenditure. The administrator
defines her/his budget so that nursing unit will have available to allow experimentation

v.

also.
When the budget is allotted, the administrator should support the budget. He / she should
interpret the subordinates, any changes that may affect instruction services for the adopted

budget. She /he secures for the adapted budget. Once the budget is adapted, it is the
responsibility of the administrator to see that expenditure should not exceed the
vi.

appropriation made.
Since the nurse administrator also is responsible for budget, he / she should cover the
routine budget control.

CONCLUSION:
A budget defines the limits of financial support for the educational institution, therefore it controls the
scope and quality of the institutions programs. Goals and aspirations of the faculty are to adjust to the varying
conditions and needs of the institution.
BIBLIOGRAPHY:
1.

Gallaher HA. Educational Administration in Nursing New York, Mac Millan Co, 1965. P. 97-122.

2.

Basavanthappa BT. Nursing Administration, New Delhi. Jaypee Brothers and medical Publishers. 2000.

P.152-164.
3.

Lehmann RS. Nursing Management Desk reference. Philadelphia. WB Saunders Company. 1994. P. 422-

448.
4.
264.

Yoder Wise. Leading and Management in Nursing, St. Louis. Missourii Mosby Publications. 1995. P. 263-