February 7, 2015 Saturday

Reyes, Adrienne Veronique

NAS 253

BUDGETING
A budget is telling your money where to go instead of
wondering where it went. ~Dave Ramsey

What is Budget?
A

forecast of the
resources required to
deliver the services
offered by the
organization
Is an annual plan,
intended to guide
effective use of human
and material resources,
products or services and
to manage the
environment to improve
productivity.

formal, quantitative
expression of
management's plans,
intentions, expectations
& actions to control
results
Ensures that the best
methods are used to
achieve financial
objectives.

Basic Planning
A good budget is
based

on objectives

simple

*Each budget system

is designed for the
situation at hand

flexible
balanced
has

standards

uses

available resources first to avoid increasing costs

Basic Planning
A budget plan
for health care
institutions
generally
consists of 4
components:

1. A revenue budget summarizing the

income that the management expects to
generate during the planning period.

2. An expense budget describing the

expected activity in operational financial
terms for a given period of time.

3. A capital budget outlining the

programmed acquisitions, disposal and
improvements in the institution's physical
capacity.

4. A cash budget consisting of money

received, cash receipts and disbursement
expected during the planning period.

Basic Planning
In BUDGETING, the nurse manager:
has

financial responsibility

is

accountable for managing

the nursing budget

makes

all the decisions

about how to adjust the
nursing budget to manage
programs and costs

The nursing budget serves 3 purposes:

1.

To plan the objectives, programs, and activities of

nursing services and the fiscal resources needed to
accomplish them.

2.

To motivate nursing workers through analysis of

actual experiences.

3.

To serve as a standard to evaluate the performance of

nurse administrators and managers and to increase
awareness of costs.

*The purposes mentioned above should include the group's mission, strategic
plans, new programs or projects, and goals.

Procedures
1.

Determine the productivity goal.

2.

Forecast the workload.

3.

Budget patient care hours.

4.

Budget patient care hours and staffing schedules.

5.

Plan nonproductive hours.

6.

Chart productive and nonproductive time.

7.

Estimate costs of supplies and services.

8.

Anticipate capital expenses.

Types of Budgeting
1.

Centralized Budget

developed and imposed

by the controller,
administrator and/or
director of nursing with
little to no consultation
with lower level managers.

2.

Decentralized
Budget

has the middle level

manager involved in the
planning and budgeting
process

Budgeting Approaches
1.

Open-ended Budget
characterized by a single
cost estimate for each
program in the proposed unit

2.

Fixed Ceiling Budget

the uppermost spending limit
is set by the top executive
who then asks managers to
develop budget proposals for
individual units.

3.

Flexible Budget
contains several financial
plans for each level of
activity or for different
operating conditions. The
top management can
select the budget or shift
the spending level
upwards or downwards,
whichever is best for
optimum productivity

Budgeting Approaches
4.

Performance Budget
based on the functions and
activities of personnel
involved in the operation
budgeted.

6.

5.

7.

Program Budget
costs are computed for a
program as a whole or the
entire program itself, rather
than the individual
activities or functions.

Zero-based Budget
justifies in detail the cost of
all programs, both old and
new, in every annual
budget preparation.

Sunset Budget
designed to self-destruct
within a prescribed period
to ensure cessation of the
funded program at a
predetermined date.

Budget Stages
1.

Formulation Stage

The formulation stage is usually a set number of months (six or

seven) before the start of the fiscal year for the budget.
a. Develop objectives and management plans.
b. Gather all financial, historical, and statistical data and
distribute to cost-center managers.
c. Analyze data.

Budget Stages
Reports that can help assist the nurse manager in the formulation stage:

Daily staffing reports

Monthly staffing reports

Payroll summaries

Daily lists of financial categories of patients

Biometric reports of occupancy

Biometric reports of workload

Monthly financial summaries of revenues and expenses

Budget Stages
2. Review and Enactment Stage
a. Prepare unit budgets.
b. Prepare unit budgets for approval.
c. Revise and combine into organizational budget.
d. Present to budget council.
e. Revise and present to governing board.
f. Revise and distribute to cost-center managers.

Budget Stages
3. Execution Stage

a. Direct and evaluate expenses and receipts.

b. Revise budget if indicated.

Terminologies
Fiscal

Year is the
budgetary or financial
year. It may be the
calendar year (January 1
December 31) or any
other period depending
on the organization.

Hours

of Care the
number of of care
allocated per patient per
day (24 hours) in a unit.

Revenue

the income
from sales of products
and services.

Revenue

Budgeting also
called rate setting, is the
process by which an
agency determines
revenues required to
cover anticipated costs
and to establish prices
sufficient to generate
these revenues.

Terminologies
Average

Daily Census the

census if summarized for a
specific number of days
and divided by that
number of days.

Year

to Date describes
the accumulated units of
service at a particular in
the fiscal year

Patient

Days used to
protect revenues.

Caregiver

each nurse
who works with patients
is called a caregiver. In
nursing, the three
common types of
caregivers are registered
nurses (RNs), licensed
practical nurses (LPNs),
and nurse aides (NAs).

Terminologies

Cost Factors
Cost is money expended
for all resources used,
including personnel,
supplies, and equipment.

Expenses
Expenses are the costs
of providing services to
patients. They are
frequently called
overhead, and include
wages and salaries,
fringe benefits, supplies,
food service, utilities and
office and medical
supplies.

Expense Budgeting
Expense

Budgeting is the process of forecasting,

recording, and monitoring the manpower, materials and
supplies, and monetary needs of an organization in such a
manner that the operation can be controlled.

Purposes:
To predict labor hours, material, supplies, and cash flow needs for future
time periods
To establish procedures for making comparative studies
To provide a mechanism for determining when changes in procedures need
to be made, provide gross information on the kinds of changes needed, and
provide evidence that control has been established or reestablished

Types of Expenses/Costs
Fixed

costs are not related to volume. Among fixed costs

are depreciation of equipment and buildings, salaries,
benefits, utilities, interest on loans or bonds, and taxes.

Variable

costs do relate to volume and census (patient

days). They include items such as meals and linen.
Supplies are usually volume-responsive, meaning that total
costs increase or decrease according to use.

Sunk

costs fixed expenses that cannot be recovered even

if a program is canceled. Advertising is a good example.

Types of Expenses/Costs
Direct

costs are the costs of providing the product or

service and are often considered to be those directly
related to patient care, such as personnel costs and the
variable of cost of supplies.

Indirect

costs are those incurred in supporting the

provision of the product or service, are not directly related
to patient care, and include utilities, administration,
housekeeping, and building maintenance.

The Cost of Nursing Care

Nursing charges should be quantifiable. A patient acuity

system serves this purpose.

Patient Acuity System usually separates patients into

four or five levels of nursing care and enumerates
nursing requirements for each level. Charges should be
set by level and negotiated with third-party payers.

Types of Budgets
1.

Operating or Cash Budget

Personnel Budget
In planning the personnel budget, the nurse has
quantitative information related to staffing and can
accurately predict the number of full-time equivalents
(FTEs) needed for patient care.

Strategies to reduce budget overages include the

following:

Maintain good staff retention

Use nurse extenders to perform non-RN functions

Monitor and control unscheduled absenteeism

Implement an effective on-call system

Institute a flex-team in related clinical areas to avoid overtime and

agency nurse expenses

Create a large pool of part-time nurses

Budget according to trends

Negotiate for a reasonable budget that considers turnover and orientation

PATIENT ACUITY LEVEL

PATIENT DAY)

HHPD (HOURS PER CARE PER

4.0 hours

6.4

10.5

16.0

The personnel budget is based on total number of hours

of care needed which is determined by the acuity levels
(1-4).

Formula:
Average census x nursing hours x 1.4 x 1.4
7.5

Example: Oncology Unit

*Average daily census = 17.1
*HHPD = 10.5
*1.4 is a constant representing 7 days in a week with a full-time
employee working 5 days a week: 7 / 5 = 1.4
*1.4 is a constant which allows for 0.14 FTE for vacation, sickness, etc.
for each 1.0 FTE
*7.5 is one workday
17.1 x 10.5 x 1.4 x 1.4
7.5

= 38 FTEs

Operating or Cash Budget

Nonproductive Full-Time Equivalents

Nonproductive FTEs are hours for which an employee is paid but
does not work. These include vacation days, holidays, sick days,
education and training time, jury duty, leave for funerals, and
military leave. These should be determined and added to personnel
expenditures as replacement FTEs.

Supplies and Equipment Budget

This includes all supplies and equipment used in provision of
services, except capital equipment and supplies charged directly to
patients.

Types of Budgets
2.

Capital Budget

A capital budget projects the planned costs of major

purchases. This also deals with maintenance, renovations,
remodeling, improvements, expansion, land acquisitions,
and new buildings. The financial manager for nursing is
the nurse manager, who should evaluate past decisions
and advise the nurse administrator whether they were
good or bad.

Monitoring the Budget

In

developing the nursing budget, it is necessary

that the unit structures are comparable in type
and quantity in workload. If a program is not
successful, then a decision should be made about
whether to rework or cancel it.

Thank You!