Concept about Budgeting – This book covers the entire syllabus of “Leadership & Management” prescribed by the BNMC for Diploma in Nursing Science & Midwifery Students.
We tried to accommodate latest information and topics. This book is an examination setup according to the teachers’ lectures and examination questions. At the end of the book previous university questions are given. We hope in touch with the pook students’ knowledge will be upgraded and flourished. The unique way of presentation may make your reading of the book a pleasurable experience.
Concept about Budgeting
Budget is defined as a statement of anticipated results during a stipulated period expressed in financial and nonfinancial terms. Three essential steps in the control process include establishing standards, comparing results with standards taking the required corrective action.
In term of these steps, the preparation of budgets is, in effect, the steps of establishing clear and unambiguous standards of performance mostly in monetary terms. Budgets cover a stipulated time period-usually a year. The budgeting process starts when the top management sets the strategies and goals for the organization.
(Ref by- 1. Clement/Management of Nursing services and Education/24/83)
Definition of Budgeting/Budget:
According to Taylor
“Budget is a financial plan of the government for a definite period”.
According to Anonymous
“Budget can be defined as a numerical statement expressing the plans, policies and goals of an organization for a definite period in future”.
According to Donovan
“Budget is a concrete precise of the total operation of an enterprise in monetary terms”
(Ref by- 1. Clement/Management of Nursing services and Education/24/83)
Purpose of a Budget
1. To provide a quantitative expression of the plans of the hospital or the institution.
2. To evaluate financial performance in accordance with the plans.
3. To control costs.
4. To supply a mechanism for translating fiscal objectives into a projected monthly spending pattern.
5. To enhance fiscal planning and decision making.
6. To clearly recognize controllable and uncontrollable cost areas.
7. To provide a useful format for communicating fiscal objectives.
8. To allow feedback of utilization of moneys spent.
9. To identify problem areas and facilitate effective solution.
10. To provide a means for measuring and recording financial success in accordance with the objectives of the organization.
(Ref by- I. Clement/Management of Nursing services and Education/24/83)
Another Answer
Purposes of Budgeting
The main purpose of budget is to ensure the most effective use of scarce financial and non- financial resources. The purposes of budget are as mentioned below:
1. It provides detailed plan to reduce uncertainty.
2. It controls expenses by efficient and economical manner.
3. It provides the mechanism for measurement of work effort on a timely basis.
4. Ensures the accountability by someone for variances from budget.
5. Ensures the budget planning.
6. Coordinates effort among organizational departments,
7. Establishes a frame of reference for management decisions.
8. Provides a criterion for evaluating managerial performance,
9. Allows for feedback, concerning the events to which actual spending confirm the budgetary sending.
10. Offers a useful format for communication
11. Provides best care that science can make possible on as economical a basis as possible.
12. It aids in planning and controlling.
13. It guides for action and future needs.
14. It serves as an instrument for economic and social policies.
15. It conserves the resources by regulation.
(Ref by- BT Basavanthappa/Nursing Administration/3/407)
Types of Budgets
1. Incremental budget: This is based on estimated changes in the present operation, allowing for a percentage increase for inflation, all of which is added to the previous year’s budget.
2. Programme budget: This is one where costs are computed for entire program, i.e., group total cost for each service program, e.g. Maternal and Child Health Program(MCH), Family Planning Program (FPP), Universal Immunization Programe (UIP), etc.
3. Open-ended budget: This is a financial plan in which each operating manager presents a single cost estimate for the optimal activity level for each programe in the unit, without indicating how the budget should be thought down if appropriate funding is not available.
4. Flexible budget: This comprises several financial plans, each for a different level of program activity. It is based on the fact that operating conditions rarely abide by expectation.
5. Revenue and expense budget: This is expressed in financial terms and takes the nature of a preform income statement for the future. It may be prepared in a detailed form or abstract statement, reflecting the items of profit and loss under classified headings.
6. Zero-based budget: This requires the nurse manager is required to examine and justify each cost of every program, both old and new, in every annual budget preparation.
7. Sales budgets: This is the starting point in a budgetary program, since sales, activities give shape to all other activities. Sales budgets are compiled in terms of quality as well as of value.
8. Rollover budget: This one forecasts programs, revenues and expenses for a period more than a year, to accommodate programs that are larger than the annual budget cycle.
9. Fixed-ceiling budget: This is a financial plan in which the uppermost spending limits are set by the top executive. The unit and divisional managers develop budget proposals for their respective areas. 10. Production budget: This is the budget that aims at securing the economical manufacturing of products and maximizing the utilization of production resources.
11. Performance budget: This is based on function not divisions, e.g. direct nursing care in service education, quality enhancement, and nursing research.
12. Cash budget: This is prepared by way of projecting the possible cash receipts and payments over the budget periods.
13. Sunset budget: this is designed to self-destruct within a prescribed time period to ensure the expenditure is stopped by a predetermined date.
(Ref by- I. Clement/Management of Nursing services and Education/24/84)
Prerequisites to Budgeting/ Prerequisites of Preparing a Budget for Nursing Institute
The following conditions are necessary for the development and implementation of a budgetary program.
1. Organizational structure: There is need for a sound organizational structure with clear lines of authority and responsibility. All employees know their responsibilities and the person to whom they are responsible; they have the authority to do what they are responsible for and are held accountable for their actions.
Organization charts and job descriptions are available, and goals and objectives are set for areas of responsibilities. Budgets are then developed to conform the pattern of authority and responsibility.
2. Non-monetary statistical data: Such as number of admissions, average length of stay, percentage of occupancy and number of patient days are used for planning and control of the budgetary process. Someone must be responsible for colletting and reporting the statistical data.
3. Charts of accounts: Are designed to be consistent with the organizational plan. Revenues and expenses are reported by responsibility areas, thus providing historical data that are valuable for planning and providing budgetary control for evaluation as performance can be compared to plans. Nurse managers focus their attention on the principle of management by exception by nothing what is not going as planned so they can take necessary action.
4. Managerial support: Is essential for a budgetary program. Although budgeting is done at the departmental level, it must be valued by top administration. Managers must be willing to devote their time and energy to the budgeting process. They are most likely to do that when they are familiar with the principles of budgeting and its usefulness for planning and controlling, through budget education.
5. Formal budgeting policies and procedures: Should be available in a budget manual in which objectives of the budgetary are clarified and instructions for budget development are discussed in detail. Samples of standardized forms are available.
A calendar of the budgeting activities with the schedule for each stage of the program is presented. Procedures for review, revision and approval of budgets are discussed in detail.
(Ref by- BT Basavanthappa/Nursing Administration/34/407)
(Another Answer for SAQ)
In order for a budget to be meaningful, the following prerequisites should be met:
1. The hospital must have a clearly defined organization structure with responsibilities defined and assigned.
2. Responsible personnel at all levels of management must participate in budget development.
3. The personnel involved must have an understanding of the service ideals and financial goals of the hospital.
4. There must be an adequate system that provides reliable financial and statistical information to the person responsible for the budget.
5. Budgets must allow enough freedom to accomplish departmental objectives.
6. Budgets must be flexible enough to allow for unpredictable expenditures.
Principles of Budgeting
Budgeting needs to follow certain principles:
1. A budget should provide sound financial management by focusing on the requirement of the organization.
2. A budget should focus on objectives and policies of the organization. It must flow from objectives and give realistic expression to the realization of such objectives.
3. A budget should ensure the most effective use of the available financial and nonfinancial resources.
4. A budget should ensure that program activities are planned in advanced.
5. This process requires consistent assigning of fixed duties and responsibilities to managers at different levels for planning/framing and executing the budget.
6. Budgeting should aim at ensuring coordination among the various departments establishing a frame of reference for managerial decisions and providing criteria for evaluating managerial performance.
7. Utmost care must be taken in fixed targets. A budget should not adopt too high or too low estimates.
8. The budget period must be appropriate to the nature of the business or service and to the type of budget. 9. A budget is prepared under the leadership of the administrator or financial officer.
10. A budget should be prepared and interpreted in consistency with communicating the planning process in the organization.
11. While working on the budget a review of the performance of the previous year is necessary and an evaluation of its adequacy both in quantity and quality.
12. While developing a budget, provision should be made for its flexibility.
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