History • Budget word was first coined by the

British Kings in early days from the word ‘BOUGETTE’ .

• The important milestones were:– 1215 AD: constitutional exposure– 1718 AD: consolidated fund act passed

which considered budget as financial statement of Govt activities for facilitating accountability of public fund .

– 1882 AD: Budget entered the parliament for first time seeking advice

Meaning • A forecast of the resources required

to deliver the services offered by the organization

• A plan for coordinating the financial goals of an organization

• A formal , quantitative expression of management’s plans, intentions, expectations & actions to control results

In summary • A budget is a financial plan that

includes estimated expenses as well as income for a period of time.

• Fixed or variable/ either controllable or non-controllable .

• Fixed expenses do not vary with volume, whereas variable expenses do

Basic of budget • Cash Book: Date/ particulars/

receipts / payments• Ledger Statement:• Receipts & payment accounts-

prepared for one year.Receipts Payments

Opening balance cash Salaries Opening balance bank Fees

Receipts Balance

Continues • Income Vs. Expenses

• Balance sheet • Liabilities Assets• Source of money land • Donations building • Grants cash • loan bank deposit/saving AC

Income Expenditure Receipts Opening storesGrants Purchases

Receipts Expenses Income

Purposes Control costs

Establish annual & monthly budgetIdentify &

analyze actual

experience compared

to the budget

plan

Accurately report all financial

and statistical

data

Characteristics • It is a plan or program, framed on the

basis of past experience• A scheme for action• It should estimate revenues &

expenditures as accurately as possible

• It is comprehensive plan of action

Features Flexible

Synthesis of past, present & futureProduct of joint venture or participation of executive at different levelsIt should be clearly definedForm of statistical standard laid down in specific numerical formRepresent expected revenue as compared with anticipated expenseFacilitate goal achievement

Principles • Provide sound financial management• Focus on objectives & policies of an

organization• Be flexible• Budget necessitates a review of the

performance of the previous year & an evaluation of its adequacy

Importance of Budget • An essential management tool • Budget tells you how much money

you need to carry out your activities• Budget enables to monitor income &

expenditure• The budget is a basis for financial

accountability & transparency

Types of Budget

Capital Budget• Fund needed for the capital items for the

growth• New supplies & facilities & the replacement of

worn out equipment, machinery and furniture.• The decision on capital budgeting is primarily

is based on:i. Needs of patients and existing alternativesii. Effects of additional equipment on income &

expenditureiii. Availability of funds

Operating Budget• It provides an overview of an agency’s

functions by projecting the planned operations , usually for the upcoming year.

• The nurse manager might include: personnel salaries , employee benefits, insurance , medical- surgical supplies, office supplies , rent , heat , light , house-keeping

• Both controllable and non-conrolable expenses are projected

Personal Budget • Estimates the cost of

direct labor necessary to meet the nursing needs of the estimated patient population.

• The current staffing patterns, number of unfilled positions and last year’s report can provide a base

Cash Budget • Cash budget are

planned to make adequate funds available as needed and to use any extra funds profitably

• The ensure that the agency has enough, but not too much , cash on hand during the budgetary period

Budgeting methods

Incremental • Simplest method• Budget for the coming year is projected • Requires little budget expertise from the part of

the manager Zero-Based • Assumes the base for projecting next year’s

budget is zero• Manager’s are required to justify all activities &

programs as if they are initiated for the first time.• Every proposed expenditure must be justified

with:• current environment • fit with organizational objectives

Continues…

Flexible

• budget flexes over the year : up and down• Flexible budget automatically calculates what the

expense is

Performance

• This method emphasizes outcomes and results instead of activities and outputs

Budget Process

Budget calendar • For practical purposes , the nursing

budget follows three stages of development:1. Formulation2. Review and enactment stage3. Execution

• The entire budgeting process is given a specific time frame and a target date is assigned for each step.

Formulation Stage• It is usually set number of months (six

or seven) before the start of the fiscal year for the budget.

• The main functions are 1. Develop objectives and management plans2. Gather all financial , historical and

statistical data and distribute to cost-center managers

3. Analyze data

Review & Enactment Stage

• Prepare unit budget• Present unit budgets for approval• Revise and combine into

organizational budget .• Present to budget council• Revise and present to governing

board• Revise and distribute to cost-center

managers

Execution Stage• Execution of the budget involves

directing and evaluating activities .• The nurse administrators who

planned the budget execute it.• Revision are scheduled at stated

intervals usually once or twice during the fiscal year, if indicated.

Advantages Places everyone on the management team

Helps to create cost awareness Helps to measure individual & departmental productivity as well as profitabilityProduce cost savings

Provides a plan or forecast of what is expected.

Help clarify accountability & responsibilityProvides for communication within the organization

Disadvantages

Restrict the

activities

Under estimation

Over budgeti

ng leads

to over expend

iture

Planning a

Hospital

Budget

Stages of Budget Plan (Hospital)

1. Prepare assumptions, in statistical terms about the kind of services (outputs) the hospital expects to provide.

2. Prepare the economic forecasts in respect of new developments.

3. Outline the budget goals and policies as per the directives of governing board

4. Prepare a budget package incorporating written instructions.

Continues.. 5. Each department head to analyze financial &

statistical data generated by his department as well as provided to him by the administration on finance department.

6. Summary of each department is recorded between the administration and the department head and also includes observation of financial officer

7. The finance officer to develop the department’s revenue budget and forward the departments budget hearing summary to the concerned department head

Continues.. 8. The finance officer to prepare a

preliminary operating revenue budget for the whole hospital by summarizing and collating the individual’s department budget

9. Finance Officer to summarize the total budget into a proper budget format

10. In the final step , budget is presented by finance officer to the governing board or finance committee for their approval

Preparing a Budget EstimateIncome/

Expenditure

Actual Current year Budget Next Year

Last year Budget Actual Proposed Approved

Role of Nurse Manager• The administrator requires sufficient funds to

support sound program• The administrator submits a budget request and

a justification for the proposed expenditures.• Budget is presented to the president• The budget is reviewed , analyzed and modified

on the basis of discussions of president and budget committee

• Once revisions are made , president presents the budget to board of trustees for approval

Continues.. • When the budget is approved , it has given

authorization to make expenditure and to collect income as indicated in the budget

• When the budget is adopted , administrator is committed to support the budget

• Once the budget is approved , it is the responsibility of the administrator to see that expenditures do not exceed the approximates 1 made to the institution

References 1. Jogindra Vati (2013). Principles &

practice of nursing management and administration, I ed., New Delhi, Jaypee Brothers Medical publishes (P) Ltd.

2. Marquis, B. L., & Huston C. J. (2009). Leadership roles and management functions in nursing: Theory and application (6th ed.). Philadelphia: Wolters Kluwer Health.