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PRESENTED BY:
MS.MONIKA KANWAR
NURSING TUTOR
M.SC. (N) [MENTAL HEALTH NURSING]
 INTRODUCTION
• Theword Budget is derived trom ihee rench word “Bougette” which
means leather bag/wal!et to carry out official papers.
• Every orgeniz8tion has8 predetermined set of goals shd objectives which
areatteinab\e pnly with the licly of proper planning and execution or plans
economically. The plans are in the form of statements are caT\ed Budget.
• Every organization prepare budget forits functioning. Budget expresses the
plan of hospital in health organization to provide optimum care ata
reasonable cost in financial terms.
• The process of budgeting has gained importance in the recent years
because of rising health care costs and the emphasis on cost containment.
• It is extremely important that budgeting be accomplished in sucha way
that it facilitates goal achievement.
 DEFINITION

A budgei isa tool for planning, quantifying ilie plans and controlling the costs.
According io Finhler, 1984
OR
A budget isa plan that uses numerical data to predict the activities of an
oganizaGon ove‹a peiod of ime and it provdesa mechanism for panhing
cach unit's needs and contributions, According tpCarruth and Noto, 2111111
OR
Budget iS an instnirnent of management used as an aid in planning,
programming and control of business activity
 CONTD....

Budget has defined as “an estimate of fulute needs arranged accotJing to an

orderly basis, covering all t\›c activities of a» enterprise fora definite period of
rime. According toGR Terry
OR
Budgets aremore than jusia few calculations. Ina business context,a budget
once constricted. bccomes an essential tool for the financial managemcnt ofthe
business. In faci operatinga btlsiness withouta budget isa very bad
managcment.
 IMPORTANCE OF BUDGET

• Budget is an essential management tool.

• Budget tells us hpw much money we need tocarry out our activities.
• Budget offersa useful fonnat forcommunicating fiscal objectives
• li helps us in controlling or spending.
• Budget monitors income and expenses.
• Budgeting keeps us on track for ourr naiicial goals.
• Budget helps to identify problem areas and facilitate effective solution.
• Budget provides means formeasuring and recording financial success wiih
the objectives of the organization.
PURPOSE OF BUDGET
 CONTD:.
• To plan, ot@anize, track, and improve finnncial situations of the
organization.
• Budget is a tools of administration. When planning, co-ordination,
control, evaluation, rcporling and reviews aic coinbincd ina budgetary
system, it becomes effective iool of adminisiraiion in management.
• Budget isa way of motivating managers to achieve tiicir responsibility
centres goals.
• Budget is forecast of income and expenditure (and thereby profitabil ity)

• it is an aid in making and coordinating short range plan.

 CONTD:.
• lt isa bench mark forcontrolling on-going activities.
• It isa means ofcducating thc managers jnen orgpnizatipn,
• To evaluate the performance of nurse administrators and managers and
increase awareness of costs,
• Under suitable conditions, standard costing and budgetary control may
go hand in hand and can harmonies and make the planning and
controlling more effective.
PRINCIPLE OF BUDGET
— 1. Flexibility

2. Management support

— 3. Employees Involvement
4. Statement of Organizational Goal
— 5. Responsibility Accounting

6. Organizational Structure
7. Communication ofResults

8. Sound accounting system

 CONTD....

I. Flexibility The budget shuuld be JTexibTe. If the basiC assumptions

underlying the budgct clia»ge during the year. the budget should be
restated. This will ertabTe the management to compare the acwal
level of operations with the expcctcd performance atthat levet.

?. Maiiazeinewi .sit ›ynrt. Top ipanageiDent support and cooperation is

essential for successful implementation of the budget. It should take
interest not pnly in setting the targets and finaIiz.ing the budgets but
also constantly monitoring ihe actual performance io find out the
deviations if any and take curative steps.
 CONTD::
3. Employees Involvement: The budget should be established on the
highest possible level of motivation. A IJ levels of management
should participate in setting targets and preparing budget.
• Participation of employees in bud@etiny process wiTT not only make
them carefully think about tl›c likely devclogtncnt ii› tl›c forthcoming
period and prepare budget accordingly, but will also motivate them to
strive heard to achicvc budgct lcvcTs pr cfficicncy and activity.

d. b£HftI11CfJ7 O/’OIVotIf"otianul sea/i. The organizational goals should

be clearly stated. These gpals should be setwithin the framework nf
corporate policy and strategy ina pre-requisite for budgeting.
 CONTD....
Resyonsibili9' Accounting. Individual employees should be informed
about expectations of the management. Only those costs over which
an individual has predominant conirol should be used in evaluating
performance of tidal individual. Responsibility reports ofien contain
budget to actual comparison.

O+ puuiza/ioiinl SU-if£'fiiz e. There should be wcll planned

organizational structure with clearly defined authority and
responsibility of different levels of management. Rote arid
responsibilities of budget committee and its president must be made
known to the people in the organization.
 CONTD....
7. Coiitntunica fine of’rc.suits. Proper communication systems should be
established for management reporting and information service so
that information pertaining to actual performance is presented to the
remedial action is taken wherever necessary.

‹Y. Sound nccoiiii/ine s v'stem Organization should have good

accounting system so as to generate precise, accurate. reliable and
prompt information which isessential for successful impTementntion
ofbudget system.
 CHARACTERISTICS OF
BUDGET
Following are the characteristics of budget:
• To be successfiil,a budget miisi be Well planned, Flexible, Realistic
and Clearly Communicated.
• Budget is framed in advance keeping an eye un a future plan of
action.
• It isa comprehensive plan of action.
• It is for future period and is based on objectives to be achieved.

• It isa financial/or quantiiative statement prepared for the execution of

pplicy formulated by the top management.
 CONTD.:
• lt is flexible enough toallow changes in the changing environment.
• On the basis of budget report, performance of the organization is
constantly monitored.
• It generally involves ari annual plan.
• It should bea synthesis of past, present and future.
• It should be in the form of statistical standard laid down inspecific
numerice\ terme.
 FEATURES OF BUDGET
• It must be written an approved by theappropriate authority.
• It should be modified or corrcctcd whenever, there isa change in
circumstances (Flexible).
• It is prepared on the basis of past experiences and trends in the
business.
• It is expressed in financial terms.
• It should be clearly defined.
• The budget should facilitate goal achievement.
• It should be based on the specific concepts of financial management.
 TYPES OF BUDGET

• There are various types of budget, each of them are classified

differently by the fiscal nanagcrs based on different criteria/basis.

TYPES OF BUDGET

5. Historical
vs forecast
1. Besed on 2. Based on 3. Besed on 4. Other
/statisticai
fiscal/non- period of Financial types of budget and
fiscal budget Coverage positions budget
treaded
budget
' 1 1
 CONTD::
1. BASED ON FISCALAND NONFISCAL BUDGET
FISCAL/FINANCIAL BUDGET:
• Cupit‹ile pvnditurc Budget. This type of budget includes the purchase
of land, building,a majat equipment of cun»iderab\e expense and life
long. Thcsc ercmajor invcstn cm and reduces flexibility in budgeting.
• Opei'utiiig Budget. Provides overview on agency functions for
upcoming year. It includes the cosi of supplies, minor equipment
repairs, and overhead expenses.
• Zen› haseâ Budgeting. This type of budget is not based on the previous
budgets. Instead, the budget starts thorn zero. All the expenses are
justified based on expectations or desires for the upcoming year.
 CONTD:.
• Pmgi-oni BuJget. It isa budget prepared specifically fora project or
program. This type of budget includes expenses and revenues related to
one specific project.
• Performanc'e Budget: It is based on the functions such as direct nursing
care, supervision, in service education, trussing audit and so on.
• Revenue a+id Expe+i.se Budget. It is expressed in financial terms and
takes the nature of proforma income statement for the future. It shows
items of profii and loss under classified headings.
 CONTD.:
NONFTNANCIAL BUDG ET:
• Direct Labor (Per sonal) Budget: Direct labor house budget
includes the wages and salaries of regular employees.
• Time, space, moteiiiil and Modiictioii budgets. These budgets are
expressed in quantities rather than in monetary terms. The budgets am
translated into financial teriils E.g.: direct labor hours, machine hours.
The nipee cost would notaccurately measure theresources used or the
results intended.
 CONTD.:
2. BASED ON PERIOD OF COVERAGE
• Annual Budget:A yearly budget. It isa financial plan that depicts income
and expenditure fora fiscal year of an organization.
• long fsrn Budget. It isa financial plan depicling income and expenditure
extended formore ihan one year in ihe foiure. Usually it is fora period ofS
years wiih strategic planning.
• Current Budget: A temporary or adjusted financial plan depicting the
amount of money tospend in the currentr ‹zI year that usually starts from
JulyI to July 30.
• Rollover Badget: It is one ihat forecast program, revenue, and expenses for
a period higher thana year, to accommodate applications that are larger
than the annual budget cycle.
 CONTD:.
3. BASED ON FINANCIAL POSITION
• CnsJi Budget: It is prepared by the way of projecting possible cash
receipts and payment over the budgei period.
• Balanc'ed defi“cit Budget: It isa lype of financial plan when expenses
exceeds the income.
• Bolanc'ed Budget. Ii isa financial plan having revenue and expenditure
cquel or ncar\y equal or cxponscs that do not oxcccd income, usually
found in the government sector.
• Surplus Budget: It is a financial plan depicting expected revenue
exceeding ihe estimated expenditure fora fiscal year.
 CONTD:.
4. OTHER TYPESO F BU DGET
• Fixed Biidyei: It refers to those cunlpurtents ct budget that wi\\ not vary
regardless of changes inpatient ccsus ornumber ofprocedures
Elzxihle Bul:wet.° It isa variable budget and refers to those components
ofthebudget that will detcmiine how the budget should fluctuate based
on those changes irt lhe number ofprocedures or units of activity.

• Oye›i-ended Btiâgei. Iti rnancial plan in which each operating

managers presentsa single cost estimate for each programme in the unit
without indicating how the budget should be scatcd down if less
funding is available.
 CONTD.:
S. HTSTOR2CAL VERSUS FORECAST/STATISTICAL BUDGET AND
TREADED BUDGET
• Hisiori‹'al Bridged. In historical budget, ihe previous year expenses are
considered asa basis for cost for the next yeat. Most healthcare institutions use
historical data to de VCIO B budget.
• Forecast or statistical Badger. It is developed by establishing a level of
anticipated activity based on historical or other data such as toss or gain ofa
specific program.
• Treaded Budget. It is one that is developed based on the previous year's
expenditure psttem. Ifa specific percentage of expenses occurs ina particular
month, thebudget will be developed using those trends to spread the costs.
 MASTER BUDGET
• When ihebudgets of alt departments are combined, ii results ina
“Master Budget”.
•A master budget is a financial document depicting income and
expenses, overhcad and production/scrvicc cost, month ly, annual
averages and total projeciiORS fora specified period.
• It also includes all operating budgcts such as saics, marketing, direct
labor, inventory, production etc.
• The iiiaster budget includes an operational and financial budget plan
fora specified period.
 CONTD.:
• Theoperating budget provides revenue, expenses, and profit. Profit is
the expected revenue of all sources with budget costs.
• A financial plan consists ofa cash budget and capital expenditure
budget,
 INTRODUCTION
• Theprocess of Budgeting has gained importance in recent years because
of rising healthcare costs and emphasis on cost containment.

• Budgeting is an essential component pfall six management functions.

• Budgeting is an integral pert of administrative manegement.

• It serves asa powerful tool of coordination and a useful device for

eliminating duplication and Wattage. It serves both planning arid control
functions in the process of management,
 DEFINITION
Budgeting is the formulation of plans lora given future period in numerical
terms.
According to Koontz
OR
Budgeting isa technique fnrformulatin¡j budget.
OR
Budgeting is ihe process of creatinga plan to spend money. This spending
plan is called Budget.
OR
PRINCIPLE OF BUDGETING
1. Principle ol’compiehensiveness
2. Piinciple of fiex ibility
3. Principte of annularity
4. Principlc of appropriatencss
5. Principlc of tiniversnlity
G. Principle oí’ specificity
7. Principle o1’exctusivencss
S. Principle of delcgation
9. Principle or coordinaiion
Principle of accouniability
 CONTD....
1. P+ i+Ifii›le nd c »/» «Jie i.vivciie.s.v. lt mums that budgeting shpuld
provide sound financial management by focusing the organizational
requirements. It should be ub,jcctive and pol icy oriented.

’. P i i « Flc I ft mecns tlict there should be flexibility in

budgeting.

.1 owni i i mla i i. It implies that budgeting requiresa review

of the performance of ihe previous year. It is an evaluation of its
adcquacy both in quantity end Quality.
 CONTD....
1. F/ i/tc*ip/c n/”apprapi°inteiiess. it weans that budgeting periods should
be aygropriatc to t!›c nature nd business or scrvicc ai›d thc type of
bLidgei.

fi. P eyei i It nlcans that budgct trust bc prcyared end

interpreted consistently throughout the organization from planning
process.

I›. P i i e S cci ter i. It weans that ihe budgei must allocate

identifiable objects and plan program activities in advance. It should
contain both long-tern and sliori-tern expenses items.
 CONTD:.
7. Principlc• n/‘ Evthisi cue .i. According to ihe principle of
exclusivcncss, budget is concerted with money, not with issues.
Setting budgei targets requires ihe utmost care to check against and
balance between tpo high pr tpp lpw estimates.

‹\. Princ'ip/c o/ Delegation: The principle specifies that the budgeting

process needs consistent delegation. For thai, it needs to allocate
duties and responsibilities to frame and execute budget among
managers at different levels.
 CONTD:.
9. Princ'iple of Coordination lt states ihat coordinating efforts should
be made by various departments in establishinga frame of rcference
for managerial decisions in budgeting and providinga criterion for
evaluating managerial pcrformancc.

/0. Principle of Accountabflfty: It specifies that the manager must

spend money asindicated in the budget plan. They must use scsrce
financial and now-rnanciBT resources most elTectively.
 PURPOSE OF BUDGETING
I\Main Purpose/Primary Goal:
To ensure the most effective use of sccrce financial and non financial
resources.

Specific Purposes:
• It provides detailed plan to reduce uncenainty.
• It controls expenses by cfficicnt and ccpnamicaT manner.

• It enhances the budget planning.

• Coordinates efforts among organizational departments.
 CONTD::
• Offersa useful formnt forcommunication.

• It aids in planning and control.

• It guides foractions and fuiure needs.
• Allows for feedback, concerning lhc events tp which actual spending
con firm the budgetary sending.
• It cnnserves the resources by regulation.
 APPROACHES TO BUDGETING
I. TOP-DOWN APPROACH:
• According to the top-down ap £OBCI, top inanagcincnt develops the
organization's budgct. They outline goals and objectives of the budget.
• There is I itlle participation of middle and botiom-level managers in
budgetxgpcocesv

2. BOTTOI\4-UP APPROACH: This apyroacl›\ a pcrticipctory approach

tobudgeting process.
• Lower level management is involved in preparing 8udgets under the
guidance by upper level management.
• Each Department prepares its budget. Later on operational budgets are
 STEPS IN BUDGETING

Budget
evaluation phøøe

Buögei allocation
and appropriation
 CONTD....

• Constitute the budget committee. Have meeting regularly.

• Involve all individuals having rcsponsibiii r« budgeting in its
development.
• Be clear about theorganizational structure tn support plan.
• Have knowledge and orientation regarding the budgeting process.
• Deciding and developinga philosophy for liscal cfTairs/approaches of
budgeting (either tap-down or bottom-uy approach) to achieve goals.
• Sending circular to departments to furnish record of money
received/sanciioned, expense, and future requirements.
 CONTD:.
2.
i. Platt budget Jnuiidalinri ac'/iv'ifies. Gather infpnnatipn about cost
estimates, personal issues together with anticipated changes and
their impact e.g.: patient’s deniogmphic, stabilization in medical
practice, referral pattern etc. to facilitate forecasting or projecting
activity from each departitient.
ii. E.sfn/ifi.sb limat gnal.s and Ol ectiyes. General purpose provide
overall direction that serve asa basis for decision-making. The
objectives should be consistent with goals, objectives, and policies
of the organization. Develop it as per the guidelines of governing
body or board of trustees and in consultation with the finance
officcr, which will constitutea tcntalivc outline of the financial plan.
 CONTD:.
iii. G'pd‹iir f›t‹dgef oOii,sttiiiyti‹m: Assumptions must be known and
utilized throughout the process. These must be uniform and
coordinated organization-wide. Premises must be in line with
services, personnel, and materials, technology advancements, etc.

ii Speci{i pingi antyr ioi ities cut yloii piegi-‹vns: Develop and specify
prog'tams according to preference and various ranses of possibilities
with management strategies to achieve their long-term goals.
i. Pi epare spec ic' ineasurcible oper ating ohjec'tives: Prepare
particular objectives thot should be measurable, attainable and time-
bound
 CONTD....
'i'. Pluu loiig-range uuJ pi gi am l›uJgets.
• Plsn msster end differenl opcratinE bud;jets based on
1. The approach to be used
2. The method ofbudgeting to used forpolicy
• Plan monitoring methods. such as iinotivational tools and variance reports,
eic. with their specific nieasure/eriieria.
• Plan qualitative methods such as Progmm Evaluation Review Technique
(PERT) and Critical Peth Method (CPM) forplanning end sclicdul ing.
• Prepare blueprint of budget activiiics-time frainc tsble using the Gantt
Chart.
 CONTD::

i. Develop unit end deynrtiiiental budgets. Develop operating and capital

budget.
• Developa masier budget consistent with approaches to achieve goals.
• Prepare fniancial plan and budget to achieve the overall goats within the
constraints of available resources.
• Developa draft cash how budget.
• Forecast future.
• Anticipate changes and their impact
• Consider thebroadest possible range of alternatives.
• Plan the most effective approach using cost-benefit/effective analysis.
 CONTD....

• Communicate clearly the goals, objectives and the updated

assumptions to all departments.
• Various units and departments should coordinate their plans wide each
other in case ofa bottom-up approach.
• Have discussion and negotiations with the heads of departments and
get feedback.
 CONTD....

• Prepare the final draft of each operating budget by thedepartment after

reviewing by rite finance officer.
• Submit toaulhoriry/ f\nunciaT officers.

• Combinc all operating budgcts to preparea tnastcr budget plan.

 CONTD....
4. Budget Approval Phase•
• Get approval from approving authority per the policy of the
organization.
• Undet the extmmriral approval system in government setup, ihe
approving autTloriry is tl›c somc foi all govcrn ncnE-funded hospital i.e.
through joint secretary, and hearth minister and presented in the
parTiamcnE and nppravcd by hocprime ministcr, the chainnan.

• Under thcintra nural agyrova) systcin, approving authority is tlc head

of an institute through heal of department wilhin the organization. The
finance officer in the yoveminy body prcsent the final draft and board
of tnistecs approve it.
 CONTD....
5. BudgetA llocatioii and Ayproyriation Phase:
• Under theextmmural approval system in government setup, the budget
is allocated to the organization after the final approval of the budget
voted on the account of maintenance.
• The sanctioning of finance is on finding, policy, performance, actual
expenditure of Inst year, and plans: the finance sanction is in
install nent.
 CONTD....
6. Budget Implementation and Moniiorine Phase:
• The departments use the sanctioned budget for ihe planned activities
and programs, as mentioned in the Gantt Chan.
• It uses motivational measures as incentives for employees towork.
• Monitor theutilization of budget by using PERT andCPM method.
• The department prepares budget variance reports.
 CONTD....
7. Budget Evaluation Phase:
• The organization consiiiutes a budget monitoring committee
comprising tl›e representatives of cach dcgcrtment; the financial
advisor reviews the budgel.

• The committee reviews the budget in terms of forecasting expenses,

cash position, and deviaiion from thebudget.
• It evaluates the program and financial perfonnancc continually and
makes adjustments to encourage progress to achieve goals.
8UOCW4RY
 INTRODUCTION
• Theprocess of Budgeting has gained importance in recent years because
of rising healthcare costs and emphasis on cost containment.

• The budget process consist of ectivities that encompass the

development, implementation, and evaluation ofa plan for the provision
of services and capital assets.

• Budgeting process isa systematic activity that developsa plan for the
expenditure ofa usually fixed resource, such as money ortime, duringa
given period to achieve a desired result. Budgetary process is a
sequential activity where various steps are followed.
 DEFINITION
The budgeting process is ihe process of puttinga budget in place. This
process involves planning rind forecasting, iniplcincnti rig, monitoring, and
controlling, and finally evaluating ilie perfomiance of ilie budget.
OR
The budgeting process isa systematic activity that has an expenditure plan
of usually fixed resources ufa given period to achieve the desired results.
The budgetary process isa sequential activity. The budget process activities
include thc development, implcmcntalion. evaluation ofa plan tp prnvidc
services and capital assets.
 PREREQUISITE OF
BUDGETARY PROCESS
According to Furst, t981, following are ihe prerequisites that should be
met bcfore the actual process of budgeting.

• The goals and objectis'es must be known.

• There must ben organizational structure to supporl the plan.

• The budget period must be clearly defined.

• The accounting system Musi be clear.
• The manager should have theknowledge about budget process. They need
tohave iheorientation regarding format or process utilized in the specific
institution.
 CONTD....

• Feedback must be available to departmental managers to measure and

bmide their perfonriancc.

• Assumptions must be uni rom and coordinated organization wise.

• Development of forecnstcd units of uc tiviry.

• Prioritizing thc goals of organizctipn according to i nporta»ce and

affordable withina specific period ol’ time before the capital or program
budget is prepared.
 FEATURES OF
BUDGETARY PROCESS
• Incorpomtesa long-term perspective.

• Establishes linkage to broad goals.

• Focuses budget decisions on results and outcomes.

• involves and promotes effective communication.

• Provide incentives to government management and employees.

 PRINCIPLES OF
BUDGETARY PROCESS
• Establish buinâ wale Broad goals provide overall direction for the
gpvernizcnt and serve asa basis for decision-making
• Drreloo« g « /i‹•a /o /«/ii‹’« vtio/ Define specific policies, plans,
programs, and management strategies to ncllicvc its long-term goals.

• Develop ‹i builder: The budgei musi be consistent with developed

strategies. Preparea financial plan and budget within the available
resources.
• £i'n/iin/e erfo+ mance arid ninke wontfic'atioii.s: Evaluate the program
and financial performance continually end make changes accordingly.
 STEPS IN BUDGETARY
PROCESS
• Budeet Estimate Preoai ation Usually the finances and budget
preparation is dealt by account section of the institute/hospital. The
record of revenue/income and expenditure is usually centralized.
- They keep therecord of cash deposited or the money sanctioned from
the Minisny, even io head of department is usually under the head of
institution.

- Each department is also keeping c record of money received/

sanctioned and expenses.
 CONTD::

• Budget Approval:
EUAt u h The approving authority is the same for all
government funded hospitals i.e. through Joint Secretary, Health
Secretary, Health Minister. It is then present in the parliament and final
approval is signed by Prime minister who is the chairman of planning
commission.

Ia ur] A ch The Intra mureT approval system i.e. within the

organization approval system. It has to go in two steps:
- Firstly by the head of hospital
- Then by thehead of institute
 CONTD....

• BridgedA llnc ilinii:

After the final approval thc budget is voted on account of maintenance and
then allocated to organizations. The fin»nce is sanctioned in installment
based on hospital funding, nlanagcnlcnt policy, pcrfomlancc, acrual
expenditure of last year and future plans.

• Budget Mniiitoriii q.
Budget mo»itorii›g is usually made by thebudget reports. There is budget
monitoring committee comprising of representatives of each department,
financial advisor to review budgct prepared in terms of forecasting,
expense, cash position, and deviation from budgei.
 PLAN BUDGET
• It refcrs to estimated expenditure need tp be implemcnted on various
projects and programmes included in the budget during the given

• The organizational objectives, mission, vision, and policies are

reviewed before the commencement ofthenext financial year.

• The expenditure is forecasted in terms of input and output of the

organization. Based on thecomparison with ihe past year expenditure
and turnover madc,a budget is prepared.
 CONTD...
• A plan budget is forecasted budget.

• This budget is usually made forattaining an idea of expenditure in

different areas of functioning. Thus, the orgnnixmtion can have inhand
prior infonnation regarding expected expenditure.

• Planned Budget is used in planning the cntirc budget ofa nation as it

forecast the entire need of thenation lot the next financial yeat.
 CONTD...
• It represents curreni development and invesimeni outlays of the
government.

• It nrises due to planned proposal

 NON-PLAN BUDGET
• It refers to the expenditure other than the plan expenditure.h s the estimated
expenditure provided in budget to spend on lhe routine ftinctioning or the
govcmmcnt.

• Every organization or nation may face unexpected crisis even through it is

functioning ina planned budget.1n such situations the expenditure has to fi
regulated as per the intensity uf the crisis. lt is ir this time the non-plan budget
comes into the action.

• A non-plan budget is prepared immediately after the crisis occurs and there will
be an administrative level meeting, in whicha proposal of budgei to meet lhc
crisis is made
 CONTD...
• It refers to the routine expenditure of ihe budgei.

• It arises out of the scope of government plan.

• Example of non-plan budget was the budget preparcd after the

occurrence of wars, natural calamities1 ike hoods, volcanic eniptions,
etc. which is happened sudden and uncxpcctcdly.
 INTRODUCTION
• Zero based Budgeting was firsi time applied in ihe Year 1971, in
TexansU •S•A•

• It was adopted in India in the year 1986 asa technique for determining
expenditure budgets.
• lt has been adopted by many departments of lndian Government and
also by some state Government likc Maharashtra and Rajasthan.
• In Zero-Based Budgeting every department function is reviewed
comprehensively and alt expenditure must be approved rather than
only increase. No reference is made to the previous level of
expenditure.
 MEANING
• Zero Based Budgeting isa type of Budgei starting from theZero base
evety fiscal ycnr.

• Each department reviews budget comprehensively to seek approval

forall expenditures. It ranks priority area according to the importance
and requirement. It also allocatcd resources according to prinrity
areas, without considering past perfomiance ot spending.
 DEFINITION
Zero Based Budgeting is defined as “Operating, planning, and budgeting
process which rcquircs each managers to justify the cnlire budget
request in detail and shift the burden of prool’ to each manager to justify
why he/she should spend any moocy”.
OR
Zero Based Budgeting isa method ofBudgeting inwhich all expenses
must be justified and approved foteach new period.
 FEATURES
• Budget is prepared froma 2ero bcsis or from scratch.

• It focuses on idcnlifying and prioritizing activilies according to its

importance/need.
• It needs toevaluate all possible alternative sources of fund.

• The estimation of expenses siiouid be on cost-benefit analysis.

• The method is aciion oriented and dynamic.
• lt works on therange pr possibilitics on cost rcduction.
 STEPS
Following steps are followed in Zero based Budgeting:
• Identify organizational program

• Divide the program into packages

• Each package should haste its gonls, activities and needed resources
• Calculate the cost for each package from thebase zerp.
• The costs are calculated afresh fot each budget period.
 ADVANTAGES
• Identify opportuniiies.
• It fnrccs thc nurse nianaijcrs to plan cscli program package as fresh.

• Identify mission
• Cost effective way to inlprcve operations.

• Efficient allocation of rcsourcc», as it is based on needs and benefits,

increases con munication and coordination within the organization.

• increasing stafT motivation by providing greater initiative and

responsibility in decision-making.
 DISADVANTAGES
• Difficult tp definc decision units and decision packages, as it is time-
consuming and exhaustive.
• Forced to justify every detail related to expenditure.
• Necessary to train managers as Zero-Based Budgeting must be clearly
understood by managers ct various levels to be successfñ\\y
implemented.
• Difficult to administer and communicate thebudgeting because more
managers areinvolved in the process.
• Compressing the information down toa usable sire might remove
critically important dctails.
 MEANING
Performance budget refers io budgei in ierms of functions, programmes,
and performance units rejecting the revenues and expenditure of an
organization ot Government.
OR
A performance budget is one which presents the purpose and objectives
fpr which funds are rcquircd, ltte costs of thc programmes proposed for
achieving those objectives and quantitative data measuring the
accoippl ishinent and worked performed under csch programiric.

According toJ.Bulkhead
 FEATURES
• Thebudget must indicate purpose and objectives for getting funds.
• It must also show thecost and oulput of each program and program
activity.
• It is applicable for long term plans.

• it is an output oriented budget t)›a‹ rocuses i»ore on achievement

rather than menns ofachievements.

• Thc cost and bcncfit of cach› activity arc analyzcd for waking
decisions regarding allocation of tnnds.
 STEPS/PROCESS
l. Formulation of objectives
* Identifying various programmes and projcct which will accomplish these
objectives
3. Evaluation and selection of programmes, projects on the basis of cost benefit
analysis.
Development of perromance criteria fOr variOtlS programmes.
Preparing financial plans for each program and thefinal annual budget.
Assessing Ehc {jcrformancc of each programme and comparing thc same
with budgeted performance.
7. Correcting deviations.
 PREPARATION OF BUDGET
UNDER PERFORMANCE
BUDGETING
Following steps are followed while preparing ihe budget under
performance budgcting:

• Allociitio+i o[! Re.sources.' Submit the requircrr«snts as per programme

classification.
- Indicate its Bst activities, their costs, the iictivities to be taken up
during next year. the results expected, pattern of assignment of
responsibilities or time phased plnn for expenditure and work.
 CONTD...
• Biidert Execution
- Initiate the action fpr implementatinn after getting the grants.

Monitor theactivities and regulate flow or expenditure.

- Prepare the time phased reporis showing expenditure and work and
keepa record.

Evaluate ecch programme in the light of results obtained and

expcndiNrc incurred.
 ADVANTAGES
• It states clearly the purpose and objectives for which funds are needed.
• It improves performance of units ina continuous manner.
• It brings transparency in the budget formulation process.
• It helps in decision making regarding allocation of funds.
• It integrates the process of planning programming and budgeting.
• lt acts asa tool for reviewing efficiency of programs.
 LIMITATIONS
• It focuses on quaniiiative evaluation rather ihan qualitative evaluation.
• It is ineffective wilhout a proper and systcmatic accounting and
reporting system
• It is diflicult to quantify social benefits.

• It is difficult to accurately estimate benefits arising out of each

activity.
 DISADVANTAGES
• There is possibilité of inaccuracy in forecasting and expenses.
• It mcssures theResults quanfitativcly.

• lt needsa proper accounting, monitoring and reporting system.

• ft is di fficult to measiire the social benefit of fonctions.
• The process is time consumi»g and expcnsivc,
• Due to its flexibilité feature, programs may change ai ihe rime of
implcmcntation.

• it requires more skilled man hours to plan and implement the process.
 INTRODUCTION
• Budget estimate is the calculation of the amount of expenditure that is
expected inart organization ina ycar,
• This estimate is based on the previous year expenditures and
according to the new programmes and projects of the organization,
• This is also influenced by the market rate fluctuations.
• This helps the top level managers in proper administration of the
organization without financial crisis.
• White preparinga budget estimate forecasting of the coming events is
a must.
 CONTD...
• It should bea synthesis of the pasi, present and ihe fuiure.
• The financial manager’s should be awarc about, what happened in the
organization, what is happening in the organization and what will
happen intheorganization.
 BUDGET ESTIMATE
PREPARATION
1. Goventing Body: Responsible for General planning function.
Selects the budget steering commiHee, deteniiines the budgetary
objectives, and reviews and approves ihe master budget.

*. 7/ie adniinistroiar: Responsible for the fonnu)ation and execution

of the budget by correJatirty the governing board’ss•als with the
guidelines for budget preparation and supervising the budget
preparation
 CONTD....

?. the Budyet Direcmr: Responsible for budgeting procedures and

reporting.

• Establishesa completion timetable.

• Supervise data collection and budget preparation
• Serves as the chairperson of thc steering committee, which approves
thebudget before it is submitted to the governing bodies.
 CONTD....

4. Department J7eadc:
• Prepare and review goats and objectives and prepare the budgets for
their departments.
• Departmental budgets need tobe prepared and coordinated.
• During this phase, units of scrvice, stalling patterns, salary, and non-
salary expenses and revenues are forecasted so that preliminary rate
setting can be done.
 INTRODUCTION
• It is revising the estimate of the budget during the budgetary period.
•A revised budget is prcparcd immediately aficr tire crisis occurs in
order to face the situation.
• It is due to the unexpected crisis even though it is functioning ina
planned budget.
• In such situations the expenditures has to be regulated as per the
intensity nf the crisis.
• Example: An unexpected cant quakc will lead to loss of lives,
destruction of buildings, desiruction of farm lands, poverty in a
country, In order to cope up with this situation, the Budget should be
revised.
 INTRODUCTION
• It is an exercise carried out during the middle ofa plan period to
assess the direction in which ltte plan is moving and totake corrective
actions wherever required
• Mid Term Appraisal (MTA) reviews the experience in the first three
years of the five year plan and seeks to identify ateas where corrective
steps may be needed

• Midterm appraisal (MTA) provides an opportunity to rake stock of

economy and to introducc policy correctives and new initiatives in
critical areas in rhe context of new priorities, ihe success achieved on
the investment frpnt.
 CONTD....
• It presentsa candid assessment of the resources position facing both
the centre and thc statc and thc implications.

• The MTA makes an assessment of the public finance and highlights

the total investment of the plan initially estimated,

• lt is slated to be much more thana review of how much money is

going into various schemes and projects.
 ESSENTIAL
REQUIREMENT FOR THE
PREPARATION OF BUDGET
1. Forecasting- Sound forecasiing may be related to purchase,
expansion of activitics, advertising, end other working needs

2. Accounting- Well conceived accounting systeiii iiiust be necessary.

1. Line of Authority- Budget preparation, Operation and supervision

requims clearly defined line of authority. Usually in nursing schools
and colleges, Principal iS the head of thebudget committee.
 CONTD....
4. A budget committee —A budget commiiiee is necessary, while
preparing the budget. Principal in college of nursing is the head of
thebudget committee. Oiher members include representatives from
the management, head of the various departments, and
administrative officer.
Functions includes:

• forecasting the needs of the institution.

• Revision of Budget
• Further analysis of the budget
 CONTD....
fi. Business policies- Thcrc should be clearly dcfincd busincss
policies, which servesc basis for budget prepamtion.

6. Statistical information- Budget should be inthe form of figures

7. Top level management support- It is essential to ensure successful

instillation of the budget.

It. Periods of Budget- The length of budget period should be clearly

nlcntiuned.