BUDGETING

JYOTHILAKSHMI.J
BBCON
 Meaning
• The word”Budget” derived from the old
English word”Budgettee”means a sack or
pouch which the chancellor of the exchequer
used to take out his papers for laying before
the Parliament,the Government ,financial
schemes for the ensuring year.
 Definition
• Budget is an operational plan, for a definite period usually a
year, expressed in financial terms & based on expected income
& expenditure.
• Budget is a concrete precise picture of the total operation of an
enterprise in monetary terms.
 Purpose
• Budget supplies the mechanism for translating fiscal objective
into projected monthly spending pattern.
• Budget enhances fiscal planning & decision making.
• Budget clearly recognizes controllable & uncontrollable cost
areas.
• It offers a useful format for communicating fiscal objectives.
• It allows feedback for utilization of capital money.
• It helps to identify problem areas & facilitates effective
solution.
• It provides means for measuring & recording financial success
with the objective of the organization.
 Importance

➢ Budget serves as a guide for action in the organization.

➢ Budget helps one to weigh the values and to make decision
when necessary as to whether one is of a greater value in the
program than the other.
➢ Budget is needed for planning for future course of action and
to have a control over all activities in the organization.
➢ Budget facilitates co-ordination operation of various
departments and selections for realizing organizational
objectives.
 Steps in budgeting process
• Determine the requirements: Inputs from all
the levels of hierarchy must be obtained.
• Develop plan :Budget for 12 months is
[Link] –based budget.
• Analyze and control the operations: Continous
monitoring is essential.
• Review the plan: Periodic revision and
modification.
 Budget – a tool for effective
administration
• Executive programe: Under direct supervision of chief
executive.
• Flexibility in timing: Necessary changes in the light of
changing economic situations.
• Executive responsibility:Fulfill the intent of the
legislature and due economy .
• Multiple procedure: Method of budgeting may vary
according to the nature of operation.
• Executive direction: Appropriation should be made for
broadly defined function of the department.
• Reporting: Maintain full financial and operating reports
coming from all levels of administration.
 Contd..
• Adequate tool: Chief executive must have an
adequately equipped budget office attached to
him and authority to earmark monthly or
quarterly allotment of appropriation.
• Two – way budget organization: Traffic
between central office and the agency offices
responsible for budgeting and programming
should move in two –way rather than one –
way street.
Features of Budget
 Principles of Budget
• Budget should provide sound financial management by focusing
on requirement of the organization.
• Budget requires that a program activities planned in advance.
• Budget should focus on objectives and policies of the
organizations.
• Setting budget target requires an adequate checks and balance
against the adoption of too high or too low estimate.
• Budget period must be appropriate to the nature of business or
service and to type of budget.
• Budget should ensure the most effective use of scarce financial
and non financial resources.
 Contd…
• Budgetary process requires consistent delegation for which
fixed duties responsibilities are required to be allocated to
managers at different level from framing and executing
budget.
• Budgeting should include coordinating efforts of various
departments establishing a frame of reference for
managerial decisions and providing a criterion for
evaluating managerial performance.
 Contd….
• Budget necessitates a review of the performance of the
previous year and an evaluation of its adequacy both in
quality and in quality.
• While developing a budget,the provision should be
made for its flexibility.
 Contd…
• Budget necessitates a review of the performance of the previous
year and an evaluation of its adequacy both in quality and in
quantity.
• While developing a budget, the provision should be made for its
flexibility.
• Budget is prepared under the direction and supervision of the
administrator of financial officer.
• Budget are to be prepared and interpreted consistently
throughout the organization in the communication in the
planning process.
 Classification of Budget
[Link] Manpower budget:- It includes wages & other benefits
provided for regular & temporary workers.
2. The Capital expenditure budget:- It includes purchases of land,
buildings, & major equipments of considerable expense & life
long.
3. The Operational/Operating budget;- It includes the cost of
supplies, major equipments, repairs & overhead expenses.
 Types of Budget
1. Incremental Budget
2. Flexible Budget
3. Rollover Budget
4. Open ended Budget
5. Fixed – ceiling Budget
6. Performance Budget
7. Programme Budget
8. Production Budget
 Contd…
[Link] and Expense Budget
[Link] Expenditure Budget
[Link] Based Budget
[Link] Budget
[Link] Budget
[Link] Budget
 Increment Budget

➢ It is one based on estimated changes in present

operation, plus a percentage increase for inflation, all
of which is added to previous year budget.
 Flexible Budget
• It consists of several financial plans,each for a
different level of program activity.
• It is based on the fact that operating conditions
rarely conform to expectations.
 Rollover Budget
➢ Is one that forecasts program, revenues and
expanses for a period greater than a year.
➢ To accommodate program that are larger
than annual budget cycle.
 Open Ended Budget
➢Is a financial plan in which each operating
manager presents a single cost estimate for
each program in the unit, without indicating
how the budget should be scaled down if less
funding is available.
 Fixed – Ceiling Budget
• It is a financial plan in which the uppermost
spending limits is set by the top executive, the
unit and divisional managers develop budget
proposals for their areas of responsibility.
 Performance Budget
➢It is one based on which allocate
functions, not divisions.
➢Eg. Direct - Nursing care, in service
education, quality improvement, nursing
research.
 Programme Budget
➢Is one where costs are computed for a total
programme, i.e, grouping total coasts for each
services programme eg. MCH, FP and UIP
etc.
➢These base budgets requires the nurse
manager to examine, justify each cost of every
programme both old and new in every annual
budget preparation.
 Production Budget
➢It is the budget that aims at securing
the economical manufacture of products
and maximizing the utilization of
production
 Revenue and Expense Budget
• It is expressed in financial terms and takes the
nature of a proforma income statement for the
future.
• It may be prepared in a detail form or in an
abstract statement showing the items of profit
and loss under classified headings.
 Capital Expenditure Budget
• It is prepared for assuring planned timely
capital investment in the business to ensure the
availability of capital at the right time over
longer period.
 Zero Based Budget
• It requires the nurse manager to examine
,justify each cost of every program both in old
and new ,in every annual budget preparation.
 Sunset Budget
➢ It is designed to ―Self Destruct within a prescribed time
period to ensure the cessation of spend in by a predetermined
date.
 Sales Budget
➢It is the starting point in a budgetary
program,since sales are activities which give
shape to all other activities. Sales budget are
compiled in terms of quality as well as of
values.
 Cash Budget
• It is prepared by way of projecting the possible
cash receipts and payments over the budget
period.
Budgeting Process
Assess
• Check what needs to be covered in the budget.

• Input from all levels of the organizational

hierarchy,since budgeting is most effective when all
personnel using the resources are involved in the
process.

• A composite of unit needs in terms of labour,

equipment and operating expenses can be compiled to
determine the organizational budget.
Develop a plan
• A budgeting cycle that is set for 12 months
(fiscal year) is broken down into quarter or
subdivided into monthly or semiannual periods.
• Selecting time frame for budgeting is important.
• Errors are most likely is the budget is projected
too far in advance.
Implimentation
• Ongoing monitoring and analysis occur to avoid inadequate or
excess funds at the end of fiscal year.

• In most health care institutions, monthly statement outline of

each department are made.

• Most units can expect some change from the anticipated budget,
but large deviation must be examined for possible cause and
remedial action must be taken if necessary.
Evaluation
• The budget must be reviewed periodically and
modified as needed throughout the fiscal year.
• With each successive year of budgeting,
managers can accurately predict their unit’s
budgetary requirements
 Essential requisition for budget
preparation
1. Sound forecasting

2. An adequate and well-conceived accounting system

[Link] defined lines authority.

[Link] budget committee in an organizaton.

[Link] defined business policy.

[Link] information

7. Period of budget
 Steps in Budgeting for the nurse
manager or administrator
✓ Review the goals of the hospital

✓ Review the objectives of the existing programs

✓ Prepare a budget proposal

✓ Revise the existing program with the revised proposal

✓ Compute the expense for each program.

✓ Identify the alternative methods for realizing designated objectives and price of each
alternatives is determined.
✓ Compare the proposal to identify the effective one

✓ Prepare a budget request which details a fiscal plan for the preferred program.
Steps in Budgeting for Nursing in
Hospital
➢ Request the assistant nursing officers and supervisors to
present their needs for the coming year by a specified date
and confer with those who have presented such need.
➢ Ascertain whether any changes are contemplated such as
opening new facilities for patients or changes in other
departments which affect the nursing services.
➢ Review the budget appropriation and actual expenditure for
the current year in conjunction with statistical data as to the
numbers and distribution of patients,nursing hours,per
patient by services, operations and others.
 Contd…
➢Prepare the program which the new budget is
to cover in terms of the nursing hours to be
given to patients,the distribution of the hours
among the various groups of personnel,the
ratio of supervisors and head nurses to
patient’s care and the provision for the
administration of nursing unit.
 Contd..
➢ Estimate the requirements for the coming year from the
information supplied as the expenditure for
supplies,equipments and repairs to date.
➢ Determine the percentage of salaries of personnel who
have both educational and nursing service function to
be allocated to each function on the basis of time
devoted to each.
➢ Prepare a summary of new needs, both personnel and
material with data to support the request.
➢ The budget report submitted to the head of the nursing
department after carefully reviewed by her/his
associates.