financial budgeting for hospital

Presented ByPresented By

S. ManivannenS. Manivannen,, FCAFCA,,

Chartered AccountantChartered AccountantManaging Director - Parama Health Care Private Managing Director - Parama Health Care Private Limited.Limited.

Presented ByPresented By

S. ManivannenS. Manivannen,, FCAFCA,,

Chartered AccountantChartered AccountantManaging Director - Parama Health Care Private Managing Director - Parama Health Care Private Limited.Limited.

FINANCIAL BUDGETING FINANCIAL BUDGETING - THE NEED…..! - THE NEED…..!

What is financial Budgeting & who What is financial Budgeting & who does it ??does it ??

You think financial budgeting is prepared by the finance Man? - No

Financial Budgeting gives the number values to all the activities of a unit – Here health care system.

The finance man puts the number value to the activities that you plan to do.

Who should prepare BudgetsWho should prepare Budgets

Government Organizations

Private Enterprises &

The NGOs

Can spend the money allocated

Should keep some for admin and spend the balance for the goals

Should generate return on money

given and retain the capital

Financial BudgetingFinancial Budgeting and why and why

Each business or Service unit requires resources to operate in order to achieve the objective for which it is established

You as unit head are responsible for raising funds and ensuring that the funds are used efficiently.

The development of a sound hospital budget is fast becoming a matter of paramount importance in hospital administration.

Hospitals receiving grants, donations or budgetary allocations

Financial BudgetingFinancial Budgeting - The need - The need

Hospital raising funds through equity or debt

All of you have to estimate your requirements continuously

and check whether they are proceeding as per the budgetary estimates.

Financial BudgetingFinancial Budgeting - The need - The need

When community medical centers run by government are set up in a region and also act as centers for excellence, the management of such units should have a good understanding of financial management.

Financial BudgetingFinancial Budgeting - The need - The need

This is to ensure that the unfunded healthcare needs are met through efficient planning and utilization of the resources established

The ever increasing healthcare cost makes it essential to manage the financial resources to get maximum service units for every rupee spent

Financial BudgetingFinancial Budgeting - The need - The need

FINANCIAL BUDGETING FINANCIAL BUDGETING - - THE THE PRINCIPLES INVOLVED …..!…..!

A mission statement with specific objective and goals for the healthcare system under consideration.

The goals must be in measurable unitsShould be simple, direct and attainable

A strategic plan should be the basis of the budget

THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING

A plan to raise resources or modify specific goals if the current financial resources or allocations are not sufficient

This plan should relate to achieving the goals – For example setting up one more cardiac OT to meet increasing incidences of CABG surgeries

THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING

The budget should measure the current financial performance

Internalize the budgeting process.

Financial budgeting is only a aggregation of department wise budget prepared by each department within the healthcare system.

THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING

The financial budget should be based on the operational numbers of each department.

It should be linked to operational budget which should be derived from the marketing budget.

Actual financial results must be compared with the budgeted activities.

THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING

Variance analysis must be made

Mid course correction must be initiated

Units must operate within the budget

Policies for all the activities must be established

THE PRINCIPLES INVOLVED THE PRINCIPLES INVOLVED IN BUDGETINGIN BUDGETING

All the units of the healthcare system should comply with the policies and procedures

Each department or unit must evaluate the financial consequences of any new activity is started.

Types & methodology…!Types & methodology…!

THE TYPES OF BUDGETS

Conventional Budget system

Zero Based Budget

Input Output System

CONVENTIONAL BUDGET

Previous year figures

Manager

Incremental Charges / Additions

Budgets

Top management

Conventional budget or incremental budget is prepared on the previous year figures.

It assumes that whatever has happened in the previous year will continue with some changes.

It does not take in to account any changes in the situation.

CONVENTIONAL BUDGET

Whatever amount spent last is assumed to be sanctioned without analyzing whether it is required.

Conventional budgeting is always out of sync with the current happenings in the system.

CONVENTIONAL BUDGET

ZERO BASED BUDGETINGZERO BASED BUDGETING

ZERO BASED BUDGETINGZERO BASED BUDGETING

Zero Based Budgeting Exercise

Zero-Based Budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting.

In Traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned.

No reference is made to the previous level of expenditure.

ZERO BASED BUDGETINGZERO BASED BUDGETING

By contrast, in zero based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases.

This process requires the budget request justified in complete detail by each program starting from the Zero base.

ZERO BASED BUDGETINGZERO BASED BUDGETING

The Zero-base is indifferent to whether the total budget is increasing or decreasing.

"With zero-based processing one can forget about last year, assuming that the program is brand new

and see if one can provide a detail of expenses for what one would need to fully accomplish the program.

This technique will help one to develop a complete picture of what the program actually needs to cost and not just what it has been costing.”

In effect we create a clean slate. The analogy we will use is if the hospital is was empty today and we were told we had to start operating it as a Hospital in six months.

INPUT OUTPUT METHOD

Break down the healthcare system in to a set of activity center.

Medical Departments

Service Departments

Admin Department

These are further classified in to final service departments and intermediary service departments

The departments which render services directly to the patients are final service departments

Departments which provide service to the other departments and not to the patients directly are known as intermediary service departments.

INPUT OUTPUT METHOD

Healthcare system challenges this method of classification since some departments earn revenue directly as well as serve the other departments.

The ideal way to solve this complexity is to decide based on billable activities.

INPUT OUTPUT METHOD

Decide on the unit of service. It is also essential to link the levels of services with costs and transfer of cost from support departments to final departments.

The ideal way to solve this complexity is to decide based on billable activities or services which directly reach the patients

INPUT OUTPUT METHOD

Cost of intermediary services are allocated to direct services departments

The final services costs are matched with the revenues

INPUT OUTPUT METHOD

INPUT OUTPUT METHOD

Medical Departments

Service Departments

Admin Department

Out Patient Departments

Ward

ICU, CCU, & NICU

Operation Theater

Pharmacy

Diagnostic & Radiology

Bio-Medical

Nursing

Purchase

EDP, HR

Maintenance

Marketing

Inpu

t = In

vest

men

t / E

xpen

ses

Inpu

t = In

vest

men

t / E

xpen

ses

Fees for services Fees for services

RevenuesRevenues

Room Rent Room Rent

SurgeriesSurgeries

Investigation & ProcedureInvestigation & Procedure

PharmacyPharmacy

F & B F & B

Capital Budgeting

Revenue Budgeting or Working Capital Budgeting

CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS

Capital Budgeting

Infrastructure

Equipment

CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS

Revenue Budgeting

Estimates of manpower cost, material costs, overheads, financial cost and estimation of working capital

CLASSIFICATION OF BUDGETSCLASSIFICATION OF BUDGETS

TIME FRAME

Five Year Plan

Annual Budgets

Monthly Budgets

We need to estimate revenues and expenses for every department under following categoriesManpowerMaterialOverheadsTechnologyFinance

SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS

Under each head mentioned above

Direct

Indirect

SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS

Further classify in to

Fixed

Variable

And assess the capacity utilization of all the elements of cost like material, manpower, Overheads and technology

SOME MORE OBSERVATIONSSOME MORE OBSERVATIONS

Integrated Budget – A sample

SUMMARYSUMMARY

Need for Budgeting tool

Principles involved in budgeting exercise

Types and methodology – Conventional, Zero based and Input-Output Method

Classification in to capital and revenue budgeting

Time frame

Further estimation under manpower, materials, overheads, technology and finance

Differentiating between fixed and variable expenses

Estimation of capacity utilization

SUMMARYSUMMARY

The Importance of audit

Types of audit

Audit as a tool Audit to give confidence to external agencies

like the government, donors and investors including banks

Audit and its importance to Audit and its importance to hospitalshospitals

Internal audit

External audit

Audit and its importance to Audit and its importance to hospitalshospitals

What is audit ?What is audit ?

A study, linking management to

Administration, operations, finances.

10/02/201348

What is audit ?What is audit ?

review the work process,

Assess effective utilization of resources,

to fix accountability

to reduce risks in operations with proper internal control.

10/02/201349

Front office informationRegistrationBillingCollectionAdmission

Material ConsumptionPayment to consultantsEquipment auditUtilization ReviewOperational review

Focus areas for hospital auditFocus areas for hospital audit

Use audit as a tool to monitor whether we are deploying the resources properly or not

Audit as a tool should be used for improving the systems in place

Audit as a tool should be used to control or reduce cost

ConclusionConclusion

Thank you..,Thank you..,

Parama Healthcare P LtdParama Healthcare P Ltd

Email: smv@paramahealthcare.comEmail: smv@paramahealthcare.com