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- 1. Chapter eleven Budgeting and Resource Allocation 12/05/2024 1 NSA
- 2. Budgeting • Budget – is a quantitative plan that defines the financial expectations of an organization or program for a specified period of time. • Budgeting – is the process involved in developing this financial plan • including comparing projections and actual results of past budgets and analyzing future financial expectations 12/05/2024 2 NSA
- 3. Budgeting …Con’t • Budgets serve two major functions: 1. Planning - budgets make it possible • to project action plans and their economic impact and • to ensure that there are enough available financial resources to enable an organization to meet its goals 2. Monitoring • budgets serve as guides to the effective and efficient use of resources over time • Factors affecting the budgeting • anticipated increases in salaries as well as price inflation for services, contracts, equipment, and supplies. • Regulatory changes may further affect sources and amounts of revenue. 12/05/2024 3 NSA
- 4. Budgeting …Con’t • Budget Cycles • There are three primary phases in the budget cycle: • developing the budget, • monitoring the budget, and • taking corrective action. • A fiscal year is the twelve-month period within which budget projections are measured against actual costs and revenues. 12/05/2024 4 NSA
- 5. Budgetary approaches • An incremental budget uses a line-by-line approach. • This means that each expense is listed and the amount projected for that expense is then calculated. • The starting point for an incremental budget is the previous year’s budget. • Zero-based budget begins with a zero balance instead of the previous year’s balance. • The manager must begin with zero and develop a budget based on projected needs for the new budget cycle. • All expenses must be justified, including activities and items that were in the previous year’s budget. • In other words, this budget is built from the bottom up. • Most organizations use a combination of these two budgetary approaches. 12/05/2024 5 NSA
- 6. Budgetary Monitoring • Monitoring is based on careful and regular tracking of the operating budget. • The operating budget is the annual budget of an organization. • It contains all relevant budget information in enough detail that the manager can carefully monitor the performance of the unit, department, or organization. • This information includes • Revenues consist of all sources of income, • Including fees for services, payments from third-party payers, grants from governments and charitable foundations, and development funds, or private donations that are earmarked for growth and expansion programs. • Expenses, or the costs associated with running an organization. • Include salaries, fringe benefits, equipment, and supplies. 12/05/2024 6 NSA
- 7. Budgetary Action • The third phase of the budgetary cycle • Consists of adjustments to the budget or to services based on the variance. • Discrepancies in the budget should always be followed by a corrective action • whether it is a revision of the budget or a modification in staff performance • For example, • If productivity is down, the nurse manager must develop strategies for increasing productivity to bring costs back in line with projections. • If a piece of equipment malfunctions and needs to be replaced, the budget must be modified to account for the purchase of the new device. 12/05/2024 7 NSA
- 8. Costs within Organizations • The costs associated with a budget can be viewed as either fixed or variable. • Fixed costs are expenses that don’t vary over time or activity level. • For example, payments on equipment and rent or mortgage costs are fixed for a specific amount of time. • Similarly, salaries and benefits are fixed but can vary if the use of staff fluctuates. • Variable costs change over time or in relation to activity or service level. • For instance, the use of dressings on a surgical unit will vary by type of patient and procedure. The volume of supplies can be projected based on experience, but the actual costs will vary from month to month. 12/05/2024 8 NSA
- 9. Costs within Organizations … Con’t • Budgetary costs can also be categorized as either direct or indirect in addition to fixed or variable. • Direct costs are those expenses that relate to service provision, • such as salaries and benefits for personnel providing care to patients or participating in activities related to a program. • Supplies are also considered direct costs if they are used in the provision of care. • Indirect costs are expenses that support the infrastructure of an organization and do not relate directly to the provision of services. • Rent for the public health nurse’s office would be considered an indirect cost. In a hospital environment, the salaries for housekeeping staff would be an indirect cost, while the salaries for registered nurses would be a direct cost. 12/05/2024 9 NSA
- 10. Developing a Budget • Organizations will have specific formats and guidelines for budgetary development. • However, the following general categories appear in most budgets. 1. Salaries and Fringe Benefits • Fringe benefits include costs associated with sick days, vacation days, and insurance benefits paid by the employer. 2. Additional Personnel Costs • Additional personnel costs in the budget may include payments for consultants or contract and per diem staff. 3. Rent • In most cases, rent is considered an indirect cost. 4. Equipment • This includes rented, leased, or purchased furniture, office machines, and computers. 12/05/2024 10 NSA
- 11. Developing a Budget … Con’t 5. Supplies • When creating a budget, supplies should be placed into two general categories: office-related and patient-related. • Office-related supplies are generally those items used in day-to-day operations, such as paper, pencils, and pens. • Patient-related supplies include dressings, medications, and disposable equipment. 6. Travel • This formula typically considers factors such as airfare, ground transportation, automobile mileage, hotel costs, and per diem rates. 7. Other Costs • This budgetary category may be used for miscellaneous items such telephone bills, printing costs, and postage. • If these costs are significant, they should be placed in their own separate category. 8. Indirect Costs • If an organization receives grant or contract funding, its budget will usually include a category for indirect costs. 12/05/2024 11 NSA
- 12. Developing a Budget … Con’t 9. Capital Expenditures • The capital expenditures portion of a budget includes costs associated with structural improvements or large equipment purchases. • Generally, capital items have a performance expectation of one year or longer. • Examples of capital items include costs for building renovation, new construction, x-ray equipment, computers, and vehicles for transporting patients. 12/05/2024 12 NSA
- 13. Labor or Personnel Budgets • Personnel budgets estimate the cost of direct labor necessary to meet the organization’s objectives. • It includes recruitment, hiring, assignment, lay off, and discharge of personnel. • The nurse manager decides on the type of nursing care necessary to meet the nursing needs of the estimated patient population. • How many nurses are needed during • what shifts, • what months, and • in what areas? • • Overtime costs should be compared with the cost of new positions. • Employee turnover, recruitment, and orientation cost must be considered 12/05/2024 13 NSA