Budgeting Concepts

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Chamberlain College of Nursing: NR-533- Financial Management in HC Org
Budgeting Concepts (graded)
Motivating employees of a healthcare organization is important for the success of the organization. If employees are not motivated to support the budget, it will typically not be successful. As the
nurse leader, discuss two strategies to increase employee motivation related to the budget process.
FINANCIAL
Budgeting Concepts
As we begin this week’s lesson, it is important to reflect upon the importance of the operating budget to ensure adequate resources for a specific department or area and understand the integral
role of the nurse leader in this process. The operating budget is a plan for the organization’s revenues and expenses. It usually covers a period of 1 year, most often referred to as the fiscal
year (Finkel, Jones, & Kovner, 2013). Depending upon the organization, the fiscal year may be January 1 to December 31, or it may be July 1 to June 30 or other dates as established by the
organization.
Preparing the operating budget is one of the most time-consuming aspects of the manager’s role. It is important to understand the goals of the organization for the following year. That information
will provide the manager guidance in preparing the budget, and the goals for the cost center for the manager focus on what should be accomplished in the coming year in that cost center.
Every organization will have a set process and guidelines for budget preparation. Most organizations also offer training and mentoring for novice leaders to assist in the budgeting process.
Seasoned leaders also may have questions, and support is generally available. The role of the nurse leader in the annual budget process may differ between organizations. In some organizations, the
nurse leader may submit a list of capital items and the rationale for requesting this item. Some leaders may have more of a say than other leaders in what gets approved and what areas are cut from
the budget. The control and analysis of costs within an organization are critical as the loss (deficit) or profit (surplus) of an organization depends upon the costs and the revenues.
Purpose of Budgeting
The budgeting process has many benefits for the organization. These benefits include identifying cost areas where designated funds will be allotted; improving the financial planning of the
organization; providing overall feedback for specific areas; assisting with projecting monthly spending patterns throughout the organization; and assigning financial accountability and
responsibility for specific areas. Some organizations incentivize their managers and senior leaders with a bonus if they meet certain measures by the end of the fiscal year, specifically related to
salary expenses, retention, and employee turnover rates. Typically, financial data are tracked at least monthly, quarterly, and yearly. Some organizations may have a more frequent or less frequent
monitoring, review, and reporting process.
Types of Budgets
There are several types of budgets in which the nurse leader may be involved in preparing or offering input. As we discussed, the operating budget is concerned with profit and loss for a specific
department or area. The program budget may be for a specific service line or program. The capital budget is generally reserved for larger expense items needed for the designated area.
Budgeting Approaches
As mentioned earlier, the budgeting process is very complex. There are several approaches. Incremental, fixed, zero-based, or a continuous budget approach are generally needed to incorporate all
aspects of the budget. An incremental approach considers the percentage increase in salaries due to inflation. The average range is 2–5%.
The fixed approach considers an amount that does not change based on usage.
In a zero-based approach, all expenses and revenues start at zero, and every expense is justified. In the flexible approach, adjustments to the set budget target levels are considered based on
change in volume or activity; volume or activity can consist of patient census, number of operations, and many other variables. The continuous budget approach maintains the current budget by
updating projections monthly or quarterly during the 12-month period.
Below are some definitions that will be helpful to refer to throughout the course.
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Hours per Patient Day

Hours per patient day (HPPD) is the number of hours of nursing care required or delivered per patient. To calculate HPPD, the total care hours required for the year are divided by the number of
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Budget Preparation
In the budget preparation process, some tough questions will have to be answered, such as whether employees will get a raise during the next year; whether they can replace the old operating suite;
or whether they can add a new service line. Personnel costs are typically the largest and most complicated item in the budget. Variable and fixed costs are included in the budget preparation
process. To project for variable costs, the easiest way to determine this is to divide the current year-to-date (YTD) actual cost results by the number of months left to get an average monthly
amount; then multiply that result by 12 months to determine the projected annual cost. To determine the fixed costs in your budget, include specific events that will occur such as nurses week
events, and include a reasonable average estimated amount per month (that is comparable to the previous year) to ensure that funds will be included in the following year. If the expenditure pattern
has changed and has become more or less than the previous year, the budget should be adjusted to reflect the change accordingly.
Revenue is another critical factor for healthcare organizations to survive. Managers generally work hard to keep patient satisfaction high, improve the quality of care, control costs, and keep
staff and clients happy, among other factors (Finkler, Jones, & Kovner, 2013). The following information summarizes the steps in the operating-budget process.

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Summary
This week, we started our introduction to the course and explored operating-budget concepts. We also reflected on the role of the nurse leader related to operating budgets in healthcare
organizations. Understanding budgeting concepts will provide nurse leaders an opportunity to control and manage costs in their departments. Next week, we will discuss forecasting, which is an
essential role of the nurse leader to provide information about the future.

Reference
Finkler, S., Jones, C., & Kovner, C. (2013). Financial management for nurse managers and executives. (4th ed.). St. Louis, MO: Saunders.
• Chapter 1: Introduction and Overview
• Chapter 13: Operating Budgets
• Chapter 16: Controlling Operating Results
Required Article:
Hamrock, E., Paige, K., Parks, J., Scheulen, J., and Levin, S. (2013, March/April). Discrete event simulation for healthcare organizations: A tool for decision making. Journal of Healthcare, 58
(2), 110–24.
Finkler, S., Jones, C., & Kovner, C. (2013). Financial management for nurse managers and executives. (4th ed.). St. Louis, MO: Saunders.

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