Budgeting

Prepared by:
Keizha V. Ronatay
Definition
Systematic plan that is an informed best estimate by
nurse administrators of revenues and nurse expenses.
Purpose
To plan the objectives, programs, activities of nursing
services, and the fiscal resources needed to accomplish
them.
To motivate nursing workers through analysis of
actual experiences.
To serve as a standard to evaluate the performance of
nurse administrators and managers and increase
awareness of cost.
Types of Budget
Capital Budget
Accounts for the purchase of major new or replacement
equipment.
Structural Budget
Developed when renovation or new structures are
planned.
Includes labor, materials, building permit, inspection,
equipment, and so on.
Operational Budget
Accounts for the income and expenses associated with
day-to-day activity within a department or organization.
Other Types of Budget
Personnel Budget
Cost of direct labor
Includes recruitment, hiring, assigning, lay off, etc.
Fixed-ceiling Budget
Uppermost spending limit is fixed
Open-ended Budget
Single cost estimate
Flexible Budget
Budget that can be adjusted or manipulated
Sunset Budget
Self-destruct budget
Zero-based Budget
Expenses should be justified
Contingency Budget
Budget used in case of emergency
Budgeting Process
1. Budget Preparation
Demographic Information and Marketing
It identifies unique market characteristics such as age,
sex, income, and so on, that influence patient behavior.
It relates to determining what type of patients are
consumers that institution targets.
Marketing is the process of creating a product or health
care service for patients.
Competitive Analysis
It probes into how the competition is performing as
compared to other health care organizations.
It examines other hospitals or practices strengths and
weaknesses.
Regulatory Influences
Regulatory requirements and reimbursement rates have
an effect on financial performance.
Strategic Plans
Guides the staff at all levels so that the entire
organization can have a shared mission and vision with
clearly defined steps to meet the goals.
2. Scope of Service And Goals
It provides information related to the types of service
and the sites at which services are offered, including
the usual treatments and procedures, hours of
operation, and the types of patient/consumer groups.
3. Budget Development
Revenue
Is income generated through a variety of means,
including billable patient services, investments, and
donations to the organization.
Expenses
Are determined by identifying the costs associated with
the delivery of service.
Expenses
Direct Expenses
Expenses directly associated with the patient
E.g. medical and surgical supplies, drugs
Indirect Expenses
Expenses for items such as utilities that are not directly
related to patient care.
E.g. gas, electric, and phones
Fixed Cost
Expenses that are constant and are not related to
productivity or volume.
E.g. building and equipment depreciation, utilities,
fringe benefits, and administrative salaries
Variable Cost
Fluctuates depending upon the volume or census and
types of care required.
E.g. supplies, drugs, laundry, and food costs.
Labor
Is another significant expense associated with medical
and nursing care
Salaries and benefits account for 50% to 60% of
operational costs.
Analysis/calculation of labor time includes
professional, technical, and support staff.
Staffing
The amount of staff and types of staff are often
accounted for in a staffing model.
Unproductive Time
Is calculated into a budget because there has to be staff
coverage when nurses or other staff members are not
working.
E.g. sick-, vacation-, personal-, holiday-, and education
time.
4. Budget Approval and Monitoring
Budgets are submitted to administration for review
and final approval.
Senior management, representing finance and
operations, often makes the final decision regarding
acceptance of budget.
The end!