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BUDGETING IN NURSING PRACTICE

INTRODUCTION
The economic welfare of any health agency depends on effective budgeting for nursing operations
because the nursing function represents so large a share of total expenditures (about one-third of total
operating budget for most hospitals). Managers at all levels of the nursing hierarchy are responsible for
budget preparation and implementation. The budgeting procedures serves both planning and control
functions of management. In recent years nursing budgets have become more detailed and have been
more closely scrutinized by hospital administrators because rising costs and growing public demands for
care have caused health costs to increase more rapidly than the overall rate of inflation. We must value
ourselves as providers and think of our practice within a context of organizational inability and quality of
care. To do this we add “financial thinking” to our repertoire of nursing skills and we must determine
whether or not the services we provide add value are of high quality, affect health outcomes positively and
minimize costs.

MEANING
The word “Budget” derived from the old English word “budgeter’ means a sack or pouch which the
chancellor of the exchequer used to take out his papers for laying before the parliament, the government,
financial scheme for the ensuring year . Now the term “ budget’ refers to the financial papers, certainly
not to the sack.

DEFINITION
1.Budget is a concrete precise picture of the total operation of an enterprise in monetary terms.
-H.M.Donavan
2.Budget can be defined as allocation of scarce resources on the basis of forecasted needs, for
proposed activities, over a specified period of time.
-De Ann Gillies
3. Budget is a plan for the allocation of resources and a control for ensuring that results comply
with the plans.

NEED FOR PREPARING BUDGET:


Budget is essential for policy planning and control. The budgets are essential due to following
reasons,
1. Budgets are required for formulating future policies.
2. They are needed for ensuring coordination among various departments or segments of an
enterprise.
3. Budget act as a tool of control in the hands of management. Budgets fixed for various persons
will be the criterion fixed for assessing performance.
4. Budgets act as motivation for various employees. When targets for performance are fixed then
persons will try to achieve them at the earliest. They have been given a goal for which they
should work.

CHARACTERISTICS OF BUDGET:
1.A budget should be based on past figures. The possibilities in future should also be taken into
account.
2.A budget should be flexible so that it can be modified according to the requirements of the
situation. Rigidity in budget, sometimes, creates difficulties.
3.The persons at various levels should be involved in preparing a budget. This will help in getting
willing co-operation of everybody while implementing budgets.

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4.A budget should be a specific statement. The quantities or monetary information should be
clearly mentioned in a budget.
5. There should be an active involvement of top management while preparing a budget.

PRINCIPLES OF BUDGET:

1. Budget should provide sound financial management by focusing on requirements of the


organization.
2. Budget should focus on objectives and polices of the organization.
3. Budget should ensure the most effective use of scarce financial and non – financial resources.
4. Budget requires that a programmed activity planned in advance.
5. Budgetary process requires consistent delegation for which fixed duties and responsibilities are
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. Setting budget target requires an adequate checks and balance against the adoption of too high
or too low estimate.
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 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.

CLASSIFICATION OF BUDGET:

Budget consists mainly three sections, i.e. manpower budget, capital expenditure budget
and operating budget. The manpower budget includes wages and other benefits provided for regular and
temporary workers. The capital expenditure budget includes purchase of land, buildings and major
equipments of considerable expense and long life. The operating budget includes the cost of supplies,
minor equipment, repairs and overhead expenses.
There are several types of budget as follows:

1. Incremental budget: It is one based on estimated changes in present operation, plus a percentage
increase for inflation, all of which is added to previous year budget.
2. Open ended budget: It is a financial plan in which each operating manager presents a single cost
estimate for what is considered optimal activity level for each programmed in the unit, without
indicating how the budget should be scaled down if less funding is available.
3. Fixed – ceiling budget: It is a financial plan in which the uppermost spending limit is set by the
top executive before the unit and divisional managers develop budget proposals for their areas of
responsibility.
4. Flexible budget: It consists of several financial plans, each for a different level of programme
activity.
5. Rollover budget: It is one that forecasts programme, revenues and expenses for a period greater
than a year, to accommodate programme that are larger than annual budget cycle.
6. Performance budget: It is based on functions, which allocate functions not divisions, e.g, direct
nursing care, in-service education, quality improvement, nursing research.

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7. Programme budget: It is one where costs are computed for a total programme, i.e group total
costs for each service programme, e.g, MCH, FP, UIP etc.
8. Zero base budget: It requires the nurse manager to examine, justify each cost of every
programme both old and new in every annual budget preparation.
9. Sunset budget: It is designed to “self destruct” within a prescribed time period to ensure the
cessation of spend in by a predetermined date.
10. Sales budget: It is the starting point in a budgetary programme, since sales are basic activities
which give shape to all other activities. Sale budgets are compiled in terms of quantity as well as
of value.
11. Production budget: It is the budget that aims at securing the economical manufacture of products
and maximizing the utilization of production facilities.
12. Revenue and expense budget: It is expressed in financial terms and takes the nature of a
proforma income statement for the future. It may be prepared in a detailed form or in an abstract
statement showing the items of profit and loss under classified headings.
13. Capital expenditure budget: It is prepared for assuring planned timely capital investment in the
business to ensure the availability of capital at the right time over longer period.
14. Cash budget: It is prepared by way of projecting the possible cash receipts and payments over the
budget period.

STEPS IN BUDGETING:

While designing and implementing a planning programme, the nurse administrator/ manager
should follow steps as given below.
1. Review the goals of the agency or hospital to identify activities of highest priority because
these are most likely to receive funding.
2. Review the objectives of the existing programmes and written for proposed programmes to
ensure that achievement of these objectives will support agency.
3. Existing programmes are revised and proposed programmes designed to maximum goal
accomplishment.
4. Manpower, capital and operating expenses are computed for each programme, old and new.
5. Alternative methods are identified for realizing designed objectives and price of each
alternative is determined.
6. Comparisons are made to determine which alternative is most cost-effective.
7. A budget request is developed which details a fiscal plan for the preferred programme
indicates alternative methods for meeting the same objective, and explains why the
recommended programme is preferred.

BUDGETING PROCESS:

BUDGET PLANNING:
Planning involves establishing future goals and objectives and the step necessary to achieve them.
Budget forces managers to look in to future and may thus help them to identify problems and take
corrective steps before the problem becomes unmanageable. Budgeting moves the budget – organization
or individual – from a haphazard reaction method of management to a formal, controlled method.
Planning has two additional advantages improved communication and functional coordination.

Communication: Operating budgets are prepared for the entire organization yielding the master budget
and therefore all levels of management are involved and the organization’s goal are communicated to
them. The process of compiling, reviewing, and revising date for the budget opens up lines of

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communication between subordinates and superiors and among managers of those departments whose
operations are related and interdependent.

Coordination: Lack of coordination results in insufficiency and increasing costs. The operating budgets
becomes the master plan of action for the entire organization, reflecting the coordinated efforts of all
levels of management. This helps the organization to operate smoothly and efficiently so that particular
goals and objectives are met.

PREPARATION OF BUDGET:
The budget document can usually be prepared within four to six weeks. The operating manager’s
responsibility is to develop a comprehensive decision package for each program or activity the manager
should review historical and background data in order to understand the relationship of that activity to
overall institutional operations. Before preparing a budget for her own nursing unit, the head nurse or
supervisor should identify recent and forthcoming changes in medical and nursing practice so as to
calculate the effect of those changes on future nursing costs.
In preparing the budget request for a capital expenditures the manager should present the idea for
proposed equipment in narrated form with accompanying sketches or diagrams. By definition, the
program budget includes all expenditures of any type that are associated with a particular program.
However, the nurse manager must be primarily concerned with the manpower costs of her decision
package, because personnel salaries constitute the largest expenditure item in the nursing budget and the
largest single component of hospital costs and home health agency costs.

EXECUTION OF BUDGET:
After the enactment of the budget, the next step in financial management is its execution.
Execution of the budget must be based upon two principles namely,
1.that it must conform to the terms of the Appropriation Act and
2.that its machinery must work with a very high degree of integrity and efficiency.
The lifeblood of nursing facility is financial solvency. One of the most important aids for
administration in sound financial planning and controlling in the budget.
Once the budget is approved and appropriated, it can be executed and implemented.
Budget execution and implementation permits the initiation or continuation of public health programs and
projects as budgeted. The last activity in the budgeting cycle is budget evaluation consists of analyzing
the accomplishment of public health program goals and objectives in relation to expenditures. Budget
evaluation are best accomplished in sequence with strategic plans, however budget evaluation should be
conducted at least midyear and at the completion of the budget year. Accountability for fiscal management
is achieved through the budget evaluation.

ADVANTAGES OF BUDGETING:
1. Budgeting is a natural competent to planning.
2. Budgeting provides standards against which performance can be measured.
3. Budgeting provides additional insight into organizational goals and plans for their
achievement.
4. Budgeting helps to identify and/ or anticipate problems in time to implement appropriate
corrective action.
5. Budgeting serves as an environment warning system and helps to identify the needs for
change.
6. Budgeting nurtures a futuristic frame for reference.
7. Budgeting promotes communication and coordination.
8. Budgeting promotes effective control.
9. Budgeting tends to motivate people.
10. Budgeting promotes record keeping.
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11. Budgeting improves the allocation of resources.

DISADVANTAGES OF BUDGETING:
1. Budgeting can be a demotivating factor if unreasonable goals are established.
2. Budgeting can promote conflict as managers may have differing perceptions of budgets
3. Budget may be so restrictive that it mitigates innovation.
4. Budgeting may be seen only as a mechanical numbers – oriented exercise of filling out
paperwork.
5. Budgeting may over emphasize the achievement of measurable goals at the expense of
achieving non-measurable goals.

ROLE OF NURSE ADMINISTRATOR/MANAGER IN BUDGETING:

1. She is visionary in identifying or forecasting short and long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.
2. She is knowledgeable about political, social and economic factors that shape fiscal planning in
health care today.
3. She demonstrates flexibility in fiscal goals setting in a rapidly changing system.
4. Anticipates, recognizes and creatively problem-solves budgetary constraints.
5. Influences and inspires group members to become active in short and long range fiscal
planning.
6. Ensures that client safely is not jeopardized by cost constraints.

FUNCTIONS OF NURSE ADMINISTRATOR/MANAGER IN BUDGETING:

1. Identifies the importance of, and develops short and long range fiscal plans that reflects unit
needs.
2. Articulates and documents unit needs effectively to higher administrative levels.
3. Assess the internal and external environment of the organizations in forecasting to identify
driving forces and barriers of fiscal planning.
4. Demonstrates knowledge of budgeting and uses appropriate techniques.
5. Provides opportunities for subordinates to participate in relevant fiscal planning.
6. Co-ordinates unit level fiscal planning to be congruent with organizational goals and
objectives.
7. Accurately assess personal needs using predetermined standards or an established patient
classification system.
8. Co-ordinates the monitoring aspects of budget control.
9. Ensures that documentation of clients need for services rendered in clear and complete to
facilitate organizational reimbursement.

CONCLUSION:
Budget is the heart of administrative management. It served as a powerful tool of co-
ordination and negatively an effective device of eliminating duplicating and wastage. These ends are
served by devices, such as justification of estimates, supervision of the use of appropriate funds, timing of
the rate of expenditures, and the like. Budgeting inculcates; or should inculcate, cost consciousness, and
their feeling should permeate all levels of administration including the operating level. Lastly budget
presents an opportunity for evaluation programmes and policies thereby identifying obsolete or
unnecessary activities and giving a call for their discontinuance.

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BIBLIOGRAPHY:

1. Basavanthappa, “ Textbook Of Nursing Administration”, Jaypee publications, First


edition, 2000, Pp -152-164.
2. Yoder Wise, “Text Book Of Managing In Nursing’, First Edition, Mosby Publications,
1995.
3. Dee Ann Gillies, “Nursing Management’, Second Edition, W.B. Sounders Publications,
1989.
4. A.R.Tyagi, “Public Administration”, Sixth Edition, Atmarams and Sons Publications, 1993,
Pp 675-688.
WEBSITE:
1. www.google.com
2. www.tnmmu.co.in

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