Prepared by:salwa mahmoud

Under supervision of
Dr/Rabab Mahmoud
OUT LINE:-
Introduction
Defination
Purpose
Budgeting process
Budgeting cycle
Tools used in budget prepration
Budget approaches
Types of budget
Purchasing committee
The activities of the committee
Product evaluation
objectives
At the end of these lecture each member should be able to :-
• What is the importance of budget
• Knowing whets meant by budget
• Enumerate the purpose of budget
• How to follow budget process
• To understand budget cycle
• Listing tools of budget preparation
• To know budget approaches &types
• What is the goals of purchasing committee &its activity
• Who evaluate the product
• What is the role of the nurse manger on budgetary performance
What Is a Budget?
A planning tool
What we’re going to do next year
 And why we need to do it
How much it’s going to cost to do it
What to expect in future years
Why bother to Budget?
Which of the four images do you think we should
adopt for Budgeting?

09/24/23 Academic Planning and Budget 5

Why are budgets always
associated with plans?
What is a budget?

Without a budget how can managers know whether they

can implement their plan?

Without financial, and other, benchmarks how can

managers know whether they are achieving their goals
and objectives?

09/24/23 Academic Planning and Budget 6

Definations:-
Budget a quantitative statement,usually in monetary
terms of the the plans and expectations of a defined
area over a specified period of time.
Budget is an ongoing activity in which revenues and
expenses are managed to maintain fiscal
responsibility and fiscal health.
Budget is a statement to estimate the income and
expenditure for a certain period of time(usually one
year)
Budget is a plan that uses numerical data to predict
the activities of an organization over a period of time.
Budgets
purpose
Allow management to project action plans and their
economic impact on the future so the objectives of
the organization are met.
It helps to ensure that the resources necessary to
achieve their objectives are available at the
appropriate time.
It increase awareness of costs and helps employees
understand the relation ships among goals ,expenses
and revenues .
It helps management control the resources expended
through an organizational awareness of costs.
Itis criteria for determining priority needs
It provides management with feed back about
resources management &the impact on the budget
Coordinating effortof
variousdepartments,establishing aframeofreference
for managerialdecisions.&providing a criterion for
evaluating managerial performance.
Budgeting process:-
Budgeting is a process of planning and controlling
future operation by comparing actual result with
planned
Determing the requirement of budget:
Effective budget occur when all personnel using
resources are involved in the process
(A)Planning first involves reviewing established goals
and objectives of both nursing and the organization
goals &objectives help identify the organizations
priorities and direct the organiztion effort.
(B)Gathering information about demographics of
population served,community influence
&competitors,sources of revenue,number of
admission,patient days,average length of
stay ,projected salary increase,price increase.
 Develop a plan:-
Budget plan my developed in many way by using
statistical techniques to assist in making projections
related to the budgetary period .management use the
past as starting point for projecting the future to
exclude the probability of errors.
 Implementation:-
In this step ,monitoring and analyzing the budget to
avoid inadezuate or excess funds at the end of the
fiscal year.
Monthly comparing between actual results with the
result projected in the budget to discuss&investigate
any deviations can occurs and examine its causes.
Each manger should be accountable for budget
deviations in her unit any budget plan should be
flxible to accept changes.
 Evaluation:-
The budget is reviewed periodically and modified as
needed throughout the fiscal year.
With each successive year of budget,manager can be
more accurately predicting their units budgetary
requirements.
Budgeting cycle
the nurse manager shoud use a systems approach in designing and implementing a
planing program budgeting cycle as follows:
1. Agency goals are reviewed to identify activities of highest priority, because
these are most likely to receive funding.
2. Objectives are revised for existing programs and written for proposed
programs to ensure that achievement .
3. Existing programs are revised for existing programs to ensure that
achievement of these objectives will support agency mission .
4. Capital , and operating expenses are computed for each program , old and new.
5. Alternative methods are identified for realizing designated objective,and the
price of each alternative is determine.
6. Comparisons are made to determine which alternative is most cost-effective.
7. Abudget request is developed that details a fiscal plan for the preferred
program , indicates alternative methods for meeting
The same objective , and explains why the
recommended program is preferred .
To select one from several approches to a chosen
objective, a manger must waight the suitability &
feasibility of each alternative .the suitability of
aparticular program dependes on the degree to
which program philosophy ,design ,&outcomes
support the agency’s mission ,policies ,&value
structur .
An ambulatory surgery program might not be a suitable
addition to asmoll –town long –term geriatric
hospital with alarge catchments area .
A nurse must submit a supplementary budget –item
request or proposal at some time ather than the
regular budget-submission period .nurse may use
asingle-domain ,a dual-domain ,or a systems
perspective in presenting a supplementary budget
request for the top executive’s approval .using asingl-
domain to reflect nursing or amangement view
point .with a dual-domain perspective , the nurse
executive bases the supplemental goals
simultaneously.when using a system perspective , the
executive integrates nursing & mangement concerns
into a unified set of goals that reflect total agency
welfare .
Tools used in budget prepration :-
Several tools are used in preparing a nurse budget. The more
common are work sampling ,systems analsis,trend
analysis,cost-benefit analysis, &marginal analysis.
 Work sampling:-
Is an industrial engineering technique,in which an
individual from outside work group observes the activities
of a selected sample records the activity each to estimate
the percentage of the employer’s total work time spent in
each task.more reliable information about the distribution
of empoyee time among several tasks can be obtained by
work sampling than by employee self-report.
 In systems analysis:-
A nursing program is viewed as a complex whole .an
interrelated series of steps in which specific inputs of
employees material,&equipment are subjected to
designated through put processes to produce a
desired service out put.
 Trend analysis:-
Is a mathematical tool whereby a manager graphs data
from the preceding three to five years related to the
following factors :patient census, patient
diagnosis ,patient length of stay ,staff seniority, staff
turnover, staff sick or absent time ,hours of care per
patient-day delivered by each employee
classification,and daily cost of direct nursing care per
patient-day.
 A cost-benefit ratio:-
Is a numerical relationship between the value of a
program’s costs &the value of the program’s
benefits .the cost-benefit ratio is expressed as a
fraction . If the fraction is greater than 1. if benefits out
–weigh costs ,the program is economically worth-while
.the cost –benefit ratio is useful in selecting the best of
several alternative programs.
 Marginal analysis:-
Is a mathematical tool by which a manger computes the
additional value to be derived from expenditures above
a program’s manimum spending levels . This analysis is
useful becuse of the phenomenon of diminishing
utility ,or the tendency for benefits to decline from
each additional unit of input above acritical point .
Budget approaches:-
Budget may be developed in various formats depending
on how the department is viewed by
adminstration .thay may be considered :
 Incremental budgeting:-
• Incremental ,or historical budget is traditionl process
in which budgets divided into the components shown
in the operating budget out line are prepared every
year on the bases of what was spent the year before .
• The two most basic components of the budget are
income by it’s source &expence the budget process.
Begins with an analysis of the income &expenses of the
previous year .
Special attention is given to departments &categories that
were substantially over budget or under budget &the
reason for these deviations from the previous budget .
The reason for the deviation are taken in to concidration
in projecting the next years income &expenses
Variances often cause problems for individual
departments
Budgeting projections are also based on plans to expend
or limit services ,add new staff ,&so forth
Any of these actions requires in the budget , usually an
increase , which is the reason why this budget is called an
incremental budget
In incremental budget ,the projected changes in cost
&income are simply added to the previous years
budget
After analysis of the organizations past budget
&future plans, dollar figures are assigned to all
departments & to all catagorias on both the income
&expenditure sides of the budget
For organization as a whole the income more or
credit side of the budget is supposed to equal the
expense.or debit,side of the budget
This balancing of the budget is not generally required
of each departement within the organization , but it’s
highly desired &it may be required more in the future
Zero –base budgeting
Zero base budgeting is a methode of budgeting used to
control costs . In a zero – base budget , the budgeting
process starts from zero .&everything must be justified by
each new budget cycle. Each function in a zero – base
budget must stand on it’s own merits , &the meriys of each
function are reviewed annually.
Construction of a zero – base budget is extremly time-
consuming,because each service program must be
described in detail &subjected to cost analysis , the
manager must activities associated with the programe,
which classification of worker will for each activity,
frequency , rate,or durationm
1. The chief advantage of zero – base budgeting is that
detailed cost analyses&generation of alternative methods
2. En courage operating managers to develop financial skills
&accept personal responsability for conserving resources
3. Consequently .cost analysaes are performed throughout
budget
4. It reveals duplication of effort &lack of coordination
among departments
5. Identifies cost increases imposed by regulatory agencies
&contract requirements
6. The agency can quickly shift to a lower level of
effort,rather than scuttle an entire service programe
7. Zero – base budgeting is an effective staff development
tool because it encourages managers to innovate.
Disadvanteges of zero –base budgeting:
1. Communication problems multiply as additional
mangers are involved in the budgeting process
2. If the top executive does not keep middle and lower
level mangers fully informed about the agency’s
long –range goals and fiscal procedures ,head nurses
and divitionaldirectors may be unable to design
workable budgets for the decition packages they are
assigned to develop.
3. Few operating mangers are skilled in the cost-
analysis techniques used to compute cost –benefit
ratios for alternative levels of program activity.
Program budgeting:
Of the several types of budgets used, a planning
program budget of a zero-base budget best first the
needs of a cost –conscious nurse manger. In this
budget ,costs must be classified by program.
Accurately enough to permit multiyear
planning ,detailed descriptions of program activities
are needed together with cost analysis of the preferred
program and alternative methods for realizing the
same objective,it’s easiest to prepare a planning
program budget for a nursing department when the
entire agency uses a program budgeting approach
Advantages of program budgeting:-
1. It educates managers to the constraints that limit
spending
2. In detailing activity costs for each program
3. Manger learns how laber costs are affected by union
contracts,governmental regulations
4. The manger’s ability to clarity the financial
consequences of expanding or contracting a
particular service program
Disadvanteges of program budgeting
1. It encourages centralized decision making
2. Many quality improvement programs cut across
departmental or divisional lines
3. The decision to fund a cross –department program
can be made only by top executives
4. Inability of health professionals to describe clinical
programs in terms that financial experts can
understand,and the difficulty in identifying health
care outputs that can be measured in financial
terms
Program budgeting is a part of budget planning items
such as
• Continuing education programs
• Employee benefits fairs
• Health promotionprograms should be in corporated
into the annual budget
The budget for each program should enumerate fixed
expenses such as rent ,advertising ,fixed speaker
fees,and department overhead ,&variable
expenses ,such as for food ,handouts
Flexible budgeting:-
Flexible budgeting takes into account variations or
ranges from low to high point .it determines a range
of volume instead of an actual volume,which is much
more difficult to plan and manage .

Fixed budgeting:-
A fixed budget is based on a fixed annual level of
volume.this approach to budgeting does not take
seasonal or monthly variation into considerat.
Types budgets
Operating budget:-
Also known as the annual budget ,is the organization’s
statement of expected revenues and expenses for the
coming year.it coincides with the fiscal year of the
organization,a specified 12-months period during
which the operational and financial performance of
the organization is measured.the fiscal year may
correspond with the calender year-january to
december-or another time frame .many organizations
use july 1 to june 30, the federal government beging
it’s fiscal year on october 1.
The operating budget may be further broken down into
smaller periods of 6 months or 4 quarters ,each quarter
may further separated into three 1 months periods. The
revenues & expenses are organized separately, with a
bottom-line net profit or loss calculated.

Cash budget:-
The cash budget isthe actual operating budget in detail.a
cash budget indicates wither cash flow will be adequate to
meet anticipated payments,such as dept obligations ,
including replacement and expansion of
facilities,unanticipated requirements,payroll,payment for
supplies and services.the cash budget is the day-to-day
budget and represents money coming in and going out.
Negative cash flow
The major factors that influence negative cash flow are
as follows:
1. Time lag between delivery of services and collection
of payments.
2. The difference in cycles between the timing of net
income and flow of cash
3. Lag created by the large up and down cycles of
volume during different seasons(cash deficit during a
busy census cycle or surplus during a low census
cycle).
Personnel budget:
The salary budget ,also known as the personnel budget
projects the salary costs that will be paid and charged
to the cost center in the budget period .managing the
salary budget is directly relatedto the manger’s ability
to supervise and lead the staff .better managers tend
to have more stable staff with fever resources spent
on supplementary staff turnover,or absenteeism.
Anticipated salary expenses factors such as benefits:-
Benefit time:paid time,such as vacation,holidays ,and
such days for which there is no work output.
 The Operating Budget
In order to develop the operating budget we need to
understand the plan.
What are the goals and objectives?
What is the environment within which the organization exists?
What are the organization’s SWOTs?
What are the detailed operational plans needed to achieve the
goals and objectives?
Should we just solve problems?
Should we do new things, and should the new things be
additive or replace some of the current activities?
What helps us answer many of the questions posed above?

09/24/23 Academic Planning and Budget 36

Shift differentials:most facilities use a set percentage
to determine shift differential .for example,10 percent
for evenings .15 percent for nights,and 20 percent for
weekends and holidayes.
Overtime:fluctuations in workload,patient
voume,variability in admission patterns,and
temporary replacement of staff due to illness or time
of all create overtime in the nursing unit
On-call hours:if the nursing unit uses paid on call
system ,the approximate number of hours that
employees are put on call for the year should be
estimated and that cost added to the budget.
Premium :some organizations offer premiums for
certification or clinical ladder steps.in this situation ,a
fixed dollar amount may be added to the base hourly rate.
Salary increases:merit increases or cost-of-living raises also
need to be factored into budget projections .these
increases are usually calculated on base pay.

Capital budget:
It’s an important component of the plan to meet the organization
long term goals.this budget identifies physical renovation,new
constriction and new or replacement equipment.
Organization define capital items must have long life more than
6years which not used in daily activities as call light
system,hospital beds,typewriters,visual aids equipment
emergency forcommittee.
Budgets
Flexible Budgets – budgets that take account of
changing business conditions
Operating Budgets – based on
the daily operations of a business
Objectives Based Budgets - Budgets driven by
objectives set by the firm
Capital Budgets – Plans of the relationship
between capital spending and liquidity (cash) in
the business
Budgets
Variance – the difference between planned values
and actual values
Positive variance – actual figures less than planned
Negative variance – actual figures above planned
Purchasing committee:
The main goal of this committee is to make control over
the hospital budget.this committee consists of group
include:
The hospital medical director,representatives for each
of varied medical and paramedical departments ion
the hospital.
Medical departments include surgical obstetrics
medical .paramedical department include
dietary ,laundry, inventory,personnel affairs,nursing.
The activities of the committee are:-
1. Provides information which needed about
anticipated price increases ,cost of repair of
equipment
2. Makes sure that the equipment to be purchased are
approved by administration
3. Prevents the purchase of unnecessary equipment or
that have not been tested
4. Evaluates new product and equipment befor
purchasing
Product evaluation committee
A product evaluation committee usually has as it’s
members representatives of nursing ,central
supply,infection
control ,finance ,purchasing,administration,and
education
This committee is responsible for evaluation and
purchase of supplies and equipment.the following are
among it’s goals:
• Standerization,with all units using the same products
• Lower prices,through higher volumes
Providing a clinical perspective in focusing on the qulity
of the product for improved patient care
Minimizing inventory levels wherever possible
Decreasing the cost of education and training by
standerdization
Nursing role on budgetary performance:
Staff canactually affect the organization’s finances .to avoid
negative effect:
1. Decrease misuse of sick time
2. Decrease excessive overtime or turnover,and wasteful use
of resources
3. The manger plays akey role in explaining the
organization’sfinancial goals and how each individual is
responsible for helping the organization meet these goals
4. Increasing employee awareness about to safe supplies
tominimizing costs
5-techniques to decrease absenteeism and turnover
may be instituted
6-displaying equipment costs on supply sticker or
requisitions
7-participation in quality improvement and action
teams also serves to inform staff of cost factor
Thank you