BUDGETING
INTRODUCTION
Budgeting is the heart of administrative management. It serves as a powerful tool of
co-ordination and negatively an effective device of eliminating duplication and the wastage.
These are served by devices such as justification of estimates, supervision of the use of
appropriate funds, timing of the rate of expenditure.
DEFINITIONS
A budget is an estimate of future needs arranged to an orderly basis covering some or
all the activities of an enterprise for a definite period of time.
-[Link]
Budgeting is the formulation of plans for a given period in numerical terms.
-Harold Koortz
PURPOSES
o Budget supplies the mechanism for translating fiscal objectives into project
monthly spending pattern.
o Budget enhances fiscal planning and decision-making.
o Budget clearly recognizes controllable and un-controllable cost areas.
o Budget offers a useful format for communication fiscal objectives.
o Budget allows feed back of utilization of budget.
o Budget helps to identify problem areas and facilitates effective solution.
o Budget provides means for measuring and recording financial success within
the objectives of the organization.
FEATURES OF BUDGET
It should be flexible.
It should be synthesis of past, present, future.
It should be product of joint venture for co-operation of executives department heads
or different level of management.
It should be in the form of statistical laid down in specific numerical terms.
It should have support of top management throughout the period of its planning and
implementation.
IMPORTANCE OF BUDGET
o Planning future course of action
o Coordinating co-operations of various department
o Serves as a guide for action
o Helps in decision making
o Helps in translating fiscal objective to projected monthly spending pattern
o Helps in recognizing uncontrollable and controllable cost areas
o Tool for communication
o Provides feed back
o Identify problems areas
PRINCIPLES OF BUDGET
o Budget should provide sound financial management by focusing on
requirement of the organization.
o Budget should focus on objectives and policies of the organization.
o Budget should ensure the most effective use of scarce financial and
nonfinancial resources.
o Budget requires that programme activities planned in advance.
o Budgetary process requires consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for
framing and executing budget.
o Budget should include co-ordinating efforts of various departments .
o Selling budget target requires an adequate checks and balance against the
adoption of too high or too low estimate, almost care is a must for fixing
targets.
o Budget period must be appropriate to the nature of business or service and to
type of budget.
o Budget is prepared under the direction on the supervision of the administration
or financial officer.
o Budget are to be prepared and interpreted consistently.
STEPS IN BUDGETING
Collection of Past Data
Assess Success and Failures of Past
Setting Objectives for Forecast Year
Objectives Arranged in Terms of Indicated Units
Preparation of Reports on Expenses
Preparation of Budget Report
Review of Budget Report
Evaluation for Modification or Changes
Final Presenation Before Board of Trustees for Decision
CLASSIFICATION OF BUDGET
There may be different types of budgets. These may classified on the basis of
o Coverage of functions - master and functional budget.
o Natured and activity covered - capital and Revenue budget.
o Period of Budget -long-term and short-term budgets.
o Flexibility adopted - fixed and flexible budget.
Master and Functional Budget
A mastered budget is prepared for the entire organization incorporating the
budget of different functions. For example, when we refer to the annual budget of Govt. of
India. It incorporates the budget out lays of different ministries.
A functional budget is prepared incorporating a major function and its sub functions
since an organization may have a number of functions, numerous functional budgets are
prepared. For example, production budget, cash budget in an organization.
Capital and Revenue Budget
An organization activities involve two process. Creating facilities for carrying out
activities and actual performance activities. Creating facilities for carrying out activities
include capital expenditure whole returns accrue over a number of years
Revenue budget involves the formation of target for a year or so in respect of various
organizational activities such as production, marketing, finance, etc.
Long-term and short-term budget
Many organization integrate their yearly budgets with long-term projection of business
activities and along with yearly budget; they prepare budgets for a longer period of 2-3 years.
The short-term budget is for a year and is divided periods for effective implementation.
For example, cash budgets are prepared on yearly basis as well as on monthly or quarterly
basis to facilitate better cash management.
Fixed and Flexible Budgets
Generally, organizations prepare budgets which pertain to only certain projected
fixed volume of operations for a year or so such budget are known as fixed or static budgets.
A budget which is designed to change in accordance with the activities of the
organization is known as flexible budget .
TYPES OF BUDGETING
There are mainly two types of budgeting.
Performance budgeting
Zero base budgeting.
PERFORMANCE BUDGETING
A performance budgeting is an input/output budget or costs and results budget.
Performance budgeting, results into the following.
o It correlates the financial and physical aspects of every programme or activity.
o It improves budget formulation, review and decision making at all levels of
the organization.
o It facilitates better appreciation and review of organizational activities .
o It makes possible move effective performance audit.
o It measures progress towards long-term objectives.
ZERO BASE BUDGETING
Zero base budget is based on a system where each function, irrespective of the fact
whether it is old or new, must be justified in its entirely each time a new budget is formulated
.The process of zero base involves four basic steps.
Identification of decision units that is cluster of activities or assignments within a
manager's operation for which he is accountable.
Analysis of each decision unit in the context of total decision package
Evaluation and ranking of all decision units to develop the budget request.
Allocation of resources to each unit based upon
Benefits of Zero Base Budgeting
Effective allocation of resources.
Improvement in productivity and cost effectiveness
Effective means to control costs.
Eliminator of unnecessary activities.
Better focus or organizational objectives.
Saving time of top management.
BUDGET PROCESS
BUDGET STAGES OR BUDGET PROCESS
The nursing budget follows three stages of development.
o Formulation
o Review and enactment
o Execution
Formulation Stage
It is usually a set of number of month before the beginning of the fiscal year for the
budget. One of the first steps in writing a budget is gathering data for accurate prediction of
expenses and revenues (income). Primary sources of data are the objectives for the division
of nursing and each cost centre. Other data include programmes from other departments that
will require use or expansion of nursing resources, expansion of nursing clinics and client
teaching programmes, incentive awards, -library requirements, clinical and office supplies
and equipments, etc.
Review and Enactment Stage
Review and enactment stage are budget development process that pull all the pieces
together for approved of a final budget. Once the cost centre managers present their budgets
to the budget council, the chief nurse executive will consolidate the nursing budget. The chief
executive officer of the organization and the governing broad will then give their approval.
Throughout this process, conferences will be held at which budget adjustments are made.
Execution Stage
Execution of the budget involves directing, executing and evaluating activities. The
nurse administrator and managers who planned the budget execute it. Revisions in execution
of the budgets are scheduled at stated intervals, frequently once or twice during fiscal year.
FUNCTION OF BUDGET IN NURSING
o Identifies the importance of and develops short a long range fiscal plans that
reflects unit needs.
o Articulate and documents units needs effectively to higher administrative
levels.
o Assess the internal and external environment of the organization in forecasting
to identify driving forces and barriers of fiscal planning
o Demonstrate knowledge of budgeting and uses appropriate technique.
o Provide opportunities for subordinates to participate in relevant fiscal
planning.
o Co-ordinates unit level fiscal planning to be congruent with organizational
goals and objective.
o Accurately assesses personal needs using predetermined standards or an
established patient classification system.
o Co-ordinates the monitoring aspects of budget control.
o Ensure that documentation of clients need for services in clear and complete
for facilitate organizational reimbursement.
ROLE OF NURSE ADMINISTRATOR IN BUDGETING
o Is visionary in identifying of forecasting short and long-term unit needs, thus
inspiring proactive rather than reactive fiscal planning.
o Is knowledgeable about political, social and economic factors that shape fiscal
planning in health care today.
o Demonstrate flexibility in fiscal goals setting in a rapidly changing system.
o Anticipates recognized and actively problems solve budgetary constraints
o Influences and inspires group members to become active in short and large
range fiscal planning
o Recognizes when fiscal constraints have resulted in an ability to meet
organizational or unit goals.
o Ensure that client safely is not jeopardized by cost constraints.
LIMITATION OF BUDGETING
The success and utility of budgeting depends on the co-operation and participating
of all membe of management. All person should direct their effort according to the plan.
Many time budgeting has paid only lip services to its executing.
Also sometime too much is expected from a budget and in case expectation are not
fulfilled the blame is put on the budget. An efficient budgeting programme requires that
responsible person should understand the philosophy, objective and essential of budgeting.
BUDGET FOR EDUCATIONAL INSTITUTION
Both the school/college and hospital should have separate budget. The budget for the
school or college is annually planned by the nursing director, principal and general manager
and approved by the managing director.
1. Affiliation fee
2. Medical facility
3. Audit fee
4. A V aids
5. Bank charges
6. Electricity
7. Examination expenses paid
8. General expenses
9. Library books
10. Postage and telephone
11. Scholarship
12 Staff salaries
13. Vehicle maintenance
14. Furniture
[Link]
The budget is classified into 3 heads as
1. Revenue
2. Expenditure
3. Capital
1. Revenue: It includes assets, fixed deposits, investments, loan, advances and income.
2. Expenditure: It includes capital, recurring annual mandatory and non recurring.
The recurring annual mandatory expenditure in-cludes:
University Administration Fees - Rs. 50,000/
Affiliation Fees Rs.3,00,000/- and every year Rs 50,000/- per course
Inspection Fees Rs 25,000/-
State council-Rs 7000/ every year for recognition.
INC recognition fees Rs 50,000/ per course.
INC inspection or affiliation fees is 7,500/
Re-inspection fees 7000/
Affiliation fees to other institution.
The recurring monthly expenditure also include
Rent
Salary
Stationary items
Contingency
Guest relation
Housekeeping indent
Pharmacy indent
AV aids
Journals
Books
Maintenance: Repair, Replacement, Electricity, Phone, Drinking Water, Sewage
Disposal.
NON RECURRING EXPENDITURE INCLUDES:
DME endowment
Endowment Fund (property or income left to someone like insurance) Rs 20,00,000/- in
two installments (before one year 10,00,000/ and second year Rs. 10,00,000/) which is paid
to the DME office.
Security fixed deposit Rs. 10,00,000/ with the joint account of registrar of the university
and trustees.
Solvency certificate(state of having more money than one owes) for Rs. 30,00,000/ from
nationalized bank for a period of 5 years.
University endowment
Approximately the Revenue is Rs. 21,24,000/ and where as the Expenditure is Rs.
20,52,859/
Annual auditing is done to plan for the next year -budget and to evaluate the current year
budget
CONCLUSION
It is a continuous process of carrying out activities to prepare a budget or a financial
action plan. The budget is a document or quantitative plan for managing income and
expenses. It uses numerical data to predict activities of an organization over time and
provides a mechanism for planning according to the needs and contributions of each unit. It
includes the amount of capital, material, and people into time-phased goals and milestones.