HARAMAYA UNIVERSITY

COLLEGE OF HEALTH AND MEDICAL SCIENCES

SCHOOL OF NURSING AND MIDWIFERY

MASTERS PROGRAM IN NURSING

Department: Maternity and Neonatal Nursing

Course Title: Advanced Nursing Leadership, Roles, and Concepts

Topic : Roles and functions of nurse manager in financial management

Submitted by : Abas Ahmed

Submitted to: Dr. Aboma Motuma

Harar, Ethiopia

i|Page
Table of Contents Page
Acknowledgement .......................................................................................................................... iii
INTRODUCTION ............................................................................................................................... 1
Financial Management ................................................................................................................... 1
Building Blocks of Financial Management ...................................................................................... 2
ROLE OF NURSE IN FINANCIAL MANAGEMENT .............................................................................. 3
Finance Functions Of manager ........................................................................................................3
Budgeting ........................................................................................................................................ 3
Major types of budgets ................................................................................................................... 4
Other types of budget ..................................................................................................................... 4
STANDARD COST ............................................................................................................................. 4
ZERO-BASED BUDGETING ................................................................................................................5
SUPPLEMENTARY BUDGETS ............................................................................................................ 5
Cost Implication to Budgeting .........................................................................................................7
Costing Out Nursing Services ...........................................................................................................7
Financial Monitoring ....................................................................................................................... 8
Models of implementing health financing functions ...................................................................... 8
Summary ....................................................................................................................................... 11
References ..................................................................................................................................... 12

ii | P a g e
Acknowledgement
I would like to forward my deepest gratitude to my instructor Dr. Aboma Motuma (Phd) for his
constrictive comments throughout the preparation of the Seminar.

iii | P a g e
INTRODUCTION
In our day-to-day activities, money, budget and financial matters are important component of
daily living. To plan, spend and control the finance within the income limit is essential for
smooth functioning of management any organization. Institution or hospital depends on
efficient administration of finances with a close coordination of income and expenditure. In the
present scenario, the services demanded and available from a hospital is increasing both in
number and complexities. Hence it is essential that there should be efficient financial and cost
administration keeping in mind the cost effectiveness of the service rendered.
The core of financial management is the Budget and its administration or utilization. Budget is a
means for checking the progress made in keeping expense and cost compliance within an
organization's financial plan and expenditure.
To understand the concepts of costing and budgets, it is essential to place them in the context
of the whole financial system. Budget and financial management is a continuous process
throughout the whole year and is an effective tool in the process of administration, planning,
supervision and control.

Financial Management
DEFINITION
 It is a set of administrative activities concerned with arrangement of cash and credit for the
organization for enabling it to function as effectively as possible.
 Planning, organizing, directing and controlling the financial activities of an organization.
 Financial management refers to the efficient and effective management of money (funds) in
such a manner as to accomplish the objectives of the organization.
Nurses are finding themselves providing care in an environment where the economics of health
care are highly competitive and the costs of health care are closely monitored and frequently
contemplated. “Nurses are entering into a new reality of practice that is controlled by costs”.
Nurses need to keep in mind that money spent in any area must be budgeted. If unbudgeted
money is spent, if the category is over budget or over the projected budget, then that money
must be subtracted from another area. There is not an infinite supply of money that can be
spent, no matter what the reason.

1|Page
IMPORTANCE
Health care organizations need money and an efficient financial management system for
carrying out client centered activities for which tremendous expenditure is involved in:
1) The demand for quality health care has increased, along with the cost of providing high
technology treatment. The general pattern of inflation that is witnessed today means that
the more traditional forms of nursing care should also be increased.
2) For running any health care organization money and efficient financial managerial system is
needed to carry out patient/client centered activities. It involves tremendous expenditure in
maintaining building and infrastructure, procuring drugs, equipment and supplies, day to
day running of the hospital department. Investigation procedures, laundry, central supply
services and so on.
3) Recently health care organizations are generally showing trend in developing into a profit
making industry. The concept of "Free Service" in government hospitals is also on decrease.
There is a need and trend to levy some minimum charges for some of the services,
investigations and drugs. This has become necessary due to the high cost of almost all
facilities that are available for the client or public. Nurses need to play their role in the
financial management of these institutions. Nurses have a very important role and a crucial
part to play in improving the cost effectiveness of patient care. We are aware that a
substantial portion of the hospital budget goes towards "Nursing Costs".
4) Nurse Administrators as budget holders have a responsibility for helping the hospital service
health service to achieve its "value for money" objective. The nurse managers are involved
in spending from their hospitals, health authorities limited revenue budget. Keeping this in
view, it is important that they ensure payment for staff is always correct, that stocks and
supplies are used economically and they are subject to frequent monitoring and checks to
reduce the costs.
5) Nurse Administrators need to understand the "Standard Financial Instructions" issued by
the health authorities or hospital management, so that they also serve as a source of
information on means of economizing on unjustified expenditure.

Building Blocks of Financial Management

Good financial management covers the interrelated areas of:

Financial planning – estimates of income and expenditure / Budget formation

Accounting – methodical recording of income and expenditure
Financial monitoring – generation of periodical reports and returns of account
Financial Audit

2|Page
ROLE OF NURSE IN FINANCIAL MANAGEMENT
 Health care organization not considered as income generating institution earlier, are
gradually showing a trend developing into a profit making industry.
 Nurses need to play their role in financial management in these institutions adequately.
 This apart, the hospital administrators have become conscious about nurses’ role in
improving the cost-effectiveness of patient care.
 A substantial portion in the hospital budget goes towards nursing costs.
 Nurses also need to have a basic knowledge about budget and budgetary process so
that, they can participate in reducing costs in the hospitals and also justify their
budgetary allocations in the interest of patient care services and improved work
environment.

Finance Functions Of manager

 Paying the bills or obligations of an organization and collecting payments or funds due to
the organization is certainly a key responsibility of the finance function. But good financial
management requires much more than that. It involves planning, directing, controlling and
evaluating the financial activities and resources of an organization or enterprise. It requires
having policies and procedures that safeguard money and other financial resources or
assets.
 Collecting and reporting information on the financial activities and status of the
organization for those working inside the organization as well as external customers is
essential for good financial management and control. External customers who are
interested in an organization’s financial status include the organization’s parent company,
investors, donors, lenders and the community.
 Some other responsibilities of the Finance Function include establishing & maintaining
relationships with external financial institutions in order to securing funds to borrow for
capital expenditures, and choosing investments for both long & short term financial needs
such as an employee retirement program.
 Nurse leaders and managers need to understand basic principles of accounting in order to
participate in any of the various aspects of financial management, particularly budget
development and managing within the budget. All nurses should learn the common
financial terminology in order to build relationships, converse easily, and receive the best
support from their colleagues in Finance.

Budgeting
 It is a structured plan for managing income and expenses.
 It is a detailed plan of operations for some specified future period followed by system of
record which will serve as a check upon the plan.
 Is a plan for the allocation of resources and a control for ensuring that results comply with
the plans

3|Page
Prerequisite for budgeting
 Sound organizational structure
 Job descriptions
 Goals and objectives
 Formal budgeting policies and procedures
The budgeting process should provide for

Plans of anticipated activity

A mechanism for measurement of work effort on timely basis
Accountability by someone for variances from budget
An awareness of costs by all participants in the budgeting program

Major types of budgets

 Operating/recurrent- estimates of operating expenses, estimates of operating revenues
and estimates of activity. Example: personnel salaries, supplies, light water, drugs, repairs
and maintenance.
 Plant/Capital-estimates of expenditure for adding, replacing or improving buildings or
equipment for the budget period. Example: buildings, major equipment

Other types of budget

 Cash Budgets:- Cash budgets are planned to make adequate funds available as needed and
to use any extra funds profitably. They ensure that the agency has enough, but not too
much, cash on hand during the budgetary period. This is necessary because income does
not always coincide with expenditures.
 Labor or Personnel Budgets:- Personnel budgets estimate the cost of direct labor necessary
to meet the organization’s objectives. It includes recruitment, hiring, assignment, lay off,
and discharge of personnel. The nurse manager decides on the type of nursing care
necessary to meet the nursing needs of the estimated patient population.
 Flexible Budgets:-Some costs are fixed and do not change with the volume of business.
Other costs vary proportionately with changes in volume. Periodic budget reviews help
managers compensate for changes.
 Strategic Planning Budgets:-Long-range budgets for long-range planning are often called
the organization’s strategic plan and are usually projected for 3 to 5 years. Program budgets
are part of the strategic plan that focuses on all the benefits and costs associated with a
particular program. Business plans are detailed plans for proposed services, projects, or
programs.

STANDARD COST
Standard cost may be developed to predict what labor and supplies should cost. Multiplying the
standard cost by the volume predicts the variable cost.

4|Page
ZERO-BASED BUDGETING
 A budgeting approach that assumes the starting point for each budget item is Zero –
budgeting starts from a ‘zero base’
 Essential feature is a review of the necessity of each expenditure element/ activity as part
of the budgeting process.
 Every function within organization is analyzed for its needs and costs – all expenses are
justified for each new period.
 Budgets are then built around what is needed for the upcoming period, regardless of
whether the budget is higher or lower than the previous one.
 Identifies alternative and efficient methods of utilizing limited resources in the effective
attainment of selected benefits.
 More costly but more strategically sound.
With zero-based budgeting, no program is taken for granted. Each program or service must be
justified each time funds are requested. Managers decide what will be done, what will not be
done, and how much of an activity will be implemented. A decision package is prepared. The
package includes a list of the activities that make up a program, the total cost, a description of
what level of service can be performed at various levels of funding, and the ramifications of
including them in or excluding them from the budget. The manager may identify the activity,
state the purpose, list related activities, outline alternative ways of performing activities, and
give the cost of the resources needed. After decision packages are developed, they are ranked
in order of decreasing benefits to the agency. They can be divided into high, medium, and low-
priority categories and reviewed in order of rank for funding. Resources are allocated based on
the priority of the decision package. The cost of each package is added to the cost of approved
packages until the agreed-on spending level is reached. Lower ranked packages are then
excluded. A major advantage to zero-based budgeting is that it forces managers to set priorities
and justify resources.

SUPPLEMENTARY BUDGETS
Some budgetary flexibility may be obtained through a supplemental monthly budget. A basic or
minimal budget is planned, usually for a year’s time, to outline the framework for the agency’s
plans, establish department objectives, and coordinate departments. Then a monthly
supplementary budget is prepared based on volume of business forecast for the month. Moving
Budgets the moving budget may be used when forecasting is difficult. At the end of each month,
another month is added to replace the one just completed. It is an annual budget revised
monthly. As Sene is completed, Sene budget for the forth coming year is added to the moving
budget.
The budget period
Most health care agencies budget on a monthly basis for a 1-year period. The budget year often
begins July 1 and ends June 30.

5|Page
Advantages of Budgeting

They help fix accountability assignment of responsibility and authority.

They state goals for all units, offer standard of performance, and stress the continuous
nature of planning and control process.
Budgets encourage managers to make a careful analysis of operations and base
decisions on careful consideration.
Consequently, hasty judgments are minimized. Weaknesses in the organization can be
reveled and corrective measures taken.
Staffing, equipment, and supply needs can be projected and waste minimized.
Financial matters can be handled in an orderly fashion, and agency activities can
coordinated and balance.
Budgeting Process
Financial planning responsibilities need to be identified before budget preparation begins.
Steps
1. The first step in the budget process is the establishment of operational goals and
policies for the entire organization.
2. The top management should approve a long range plan of 3 to 5 years that reflects the
community’s future health needs and other community health care providers’ activities.
Because the situation changes over time, flexibility is built into the plan.
3. Then operational goals must be translated into quantifiable management objectives for
the organizational units.
4. The department heads use the organizational goals as a framework for the development
of department goals.
5. A formal plan for budget preparation and review including assignment of responsibilities
and timetables must be prepared.
6. Historical, financial, and statistical data must be collected monthly so that seasonal
fluctuation can be observed.
7. Departmental budgets need to be prepared and coordinated. During this phase, units of
service, staffing patterns, salary and non-salary expenses, and revenues are forecasted
so that preliminary rate setting can be done.
8. Next, departmental budgets are revised, and the master budget is prepared. At this
point, operating, payroll, non salary, capital, and cash budgets can be incorporated into
the master budget.
9. Then the financial feasibility of the master budget is tested, and the final documents is
approved and distributed to all parties involved.
10. During the budget period, there should be periodic performance reporting by
responsibility centers.

6|Page
Cost Implication to Budgeting
Cost Containment:-The goal of cost containment is to keep costs within acceptable limits for
volume, inflation, and other acceptable parameters. It involves cost awareness, monitoring,
management, and incentives to prevent, reduce, and control costs.
Cost Awareness:-Cost awareness focuses the employee’s attention on costs. It increases
organization awareness of what costs are, the process available for containing them, how they
can be managed, and by whom. Delegating budget planning and control to the unit level
increases awareness. Managers should be provided a course about budgeting and be oriented
to the agency budgeting process before being assigned the responsibility. They should have a
budget manual that contains budget forms, budget calendar, and budget periods.
Cost Monitoring:-Cost monitoring focuses on how much will be spent where, when, and why.
Identifies, reports, and monitors costs. Staffing costs should be identified recruitment, turnover,
absenteeism, and sick time are analyzed, and inventories are controlled. A central supply
exchanger chart prevents hoarding of supplies and allows identification of lost items.

Costing Out Nursing Services

There are several benefits to costing out nursing services.

Charging our nursing services makes it possible for the customer to pay for what he or
she gets. The patient pays for the care rendered.
Customers start to realize that direct care has a price value. This helps them
comprehend costs of health care and, ideally, to value it
Hospitals can receive compensation for what they provide, to help maximize profits.
Nursing can be viewed as a revenue-generating center rather than a cost.
Charging a fee for services helps enhance the professionalism of nursing through the
traditional pattern of reimbursement for services.
Costing out nursing services stimulates productivity by visualizing productivity measures
to enhance the use of human resources, contain costs, and maintain quality.
Using a cost accounting system to assess and change the nursing department helps
establish a reputation for innovation and leadership. The most commonly used methods
for determining nursing service costs are per diem, or cost per day, of service; costs per
diagnosis; costs per relative intensity measures (RUMs); and patient classification
systems (costs per nursing workload measures).
Per Diem:-Per Diem methods are the oldest methods used for both rate setting and
reimbursement. Average nursing care cost per patient day is calculated by dividing the total
nursing costs by the number of patient days for a specific period. Per Diem relates nursing costs
directly to length of stay but does not identify patient needs, acknowledge differences in
diagnosis, specify nursing services needed, justify care given, or provide information for
management decisions.

7|Page
Costs per Diagnosis:- Information about the patient mix is often used to reduce the variability
in nursing care requirements. Some people recommend using nursing diagnosis or nursing care
standards for grouping patients according to their nursing care needs.
Costs per RIMS:-A RIM is 1 minute of nursing resource use. RIMS are coasted and allocated to
DRG case-mix categories through three steps: (1) The cost of a RIM is calculated by dividing the
total nursing costs for a hospital by the total minutes of care estimated or nursing resources
used to provide care to all patients. (2) The number of minutes used by the total hospital
population, including adjustments for downtime, such as sick leave and vacation time, is
calculated. (3) The cost of care for each patient is determined by multiplying the RIM by the
minutes of care required by the patient as estimated by an equation.
Costs per Nursing Workload Measures:-Patient classification systems were developed to
allocate nursing staffing before DRG-based reimbursement. Some to calculate the cost of the
nursing component of room rate has used nursing workload data. Cost accounting methods
allow calculations for whole patient care units and for individual patients; consequently, it is
possible to generate a separate charge for nursing services for individual patients. These
methods are also used to allocate nursing costs to DRGs or cost centers. Unfortunately, there is
limited irretrievability of data, because few hospitals record patient classification data for
individual patients in the patient record or on a database, data collection and analysis are
expensive, and practice may not adhere standards.

Financial Monitoring
 Daily Reports:–Income from inpatient admissions, private rooms. Income from outpatient
visits admissions. Income from diagnostics – Lab tests, X-rays, CT Scan.
 Monthly Reports:–Monthly statement of income & expenditure with department-wise
breakup.
 Quarterly Reports:–Statement of budget utilization for initiation of corrective measures
 Annual Reports:–Income and expenditure statement covering all aspects of previous
financial year.

Models of implementing health financing functions

National health service system (state-funded)
Social health insurance
Private voluntary health insurance
Community-based health insurance
Direct purchase by consumers
Others:-Payroll taxes (earmarked tax), Saving-based schemes, and External assistance.

8|Page
State-funded system (tax based health financing ):- Key features
 Risk pooling, Contribution not based on income, wealth or expenditure
 Funds not earmarked for health and Traditionally main source of finance in developing
countries

Social health insurance

 The is quasi independent insurance fund unlike the general revenue funded system.
 It is compulsory membership and payroll-based contribution.
 Both the employee and employer pay some sort of salary.
 The premiums are related to average cost of treatment for group as whole.
 The fund is independent of the government but with in the frame work of regulation.

Private voluntary health insurance

 Usually operate individual risk rating.
 Can also operate on revealed preference and self-assessment offering policies with
different level of coverage.
 Is a supplementary source of finance.
 Excludes pre-existing and self- inflicted illnesses +HIV/AIDS & STD.
 Can be for-profit or not-for-profit.

Community-based health insurance

Premium are set according to the risk face by the average number of the community.
Enrolment is voluntary,
Usually targets a different set of people.
Funds are held by private non profit entity.
There is no distinction b/n high and low risk.
Complementary to social insurance (for people left out from SHI).
Some are advocating community based health insurance as one and best alternative to
out of pocket payments.
Currently community based pre-payment scheme gained favor and is rapidly expanding
in different parts of Africa.

Direct purchase by consumers (user charges/fees)

 Are direct out-of-pocket
 Paid for use of public and private health facilities.
 Takes different fee structures.
 Is not progressive in practice though the potential exists.

9|Page
  The level of fees affect its fund raising potential and access.
 Can be used to encourage certain pattern of consumption.

Fee waivers and exemptions

 Fee waiver is the right conferred to an individual that entitles him or her to obtain
health services in certain health facilities at no direct charge or reduced price due to lack
of ability to pay.
 Exemption refers to a service that is provided at no charge to all patients on the account
of addressing public health goals where the market often fails to deliver due to
existence of externalities.

Eligible for Fee waiver

Poor, Street children and homeless citizen, Displaced persons, and Unconscious/emergency.

Exemption system
Services that are rendered free of charge because of public nature that widely affect the
general public:-TB services, MCH, HIV, Leprosy, Fistula, Epidemic control and follow-up.

10 | P a g e
Summary
We have reviewed that strong financial management is critical to any organization’s success.
Profit is not a four letter word and without proactive clinical, operational and financial
management an organization will not be successful. Nurses at every level contribute to the
financial performance of the organization; every clinical decision has a financial impact. Nurse
Managers and leaders in particular must increase their financial knowledge and skills and
partner with the Finance department to assure that the resources required for quality care are
available. It is necessary that nurses possess basic knowledge about budget and budgetary
process, so that they can actively participate in reducing costs, prevent 'wastage of material and
expenditure and duplication in management of the patient care services. They can, thus, justify
their budgetary allocation in the interest of patient care services and improved work
environment. To raise funds in a most economical and suitable manner is a crucial role of nurse
in improving the cost effectiveness of patient care. Using these funds as profitable as possible.
To look for ways to improve the supply of stocks and services to a unit.
We also have discussed how the budget is a critical tool used to assuring an organizations
financial and operational success. The budget process is ongoing and requires all nurses to
strive for cost containment without jeopardizing safe, quality patient care.

11 | P a g e
References
Cleverley, W.O., Song, P.H. & Cleverley, J.O. (2011) Essentials of Health Care Finance
(7th Ed) Sudbury, MA: Jones Bartlett Learning.
Nursing Leadership and Management. Amsale Cherie, Ato Berhane Gebrekidan. Addis
Ababa University In collaboration with the Ethiopia Public Health Training Initiative, The
Carter Center, the Ethiopia Ministry of Health, and the Ethiopia Ministry of Education
2005.
Finkler, S.A., Jones, C.B. & Kovner, C.T. (2013) Financial Management for Nurse
Managers and Executives. (4th Ed) St. Louis, MO: Elsevier Saunders.
Nursing leadership and management for patient safety and quality care / Elizabeth J.
Murray. Philadelphia : F.A. Davis Company, [2017].

12 | P a g e