FISCAL MANAGEMENT

PLAN A BUDGET

(NURSING SERVICE IN HOSPITAL)

“The trouble with a budget is that it’s hard to fill up one hole without digging another”
-Dan Bennett
INTRODUCTION:
Historically, nursing management played a limited role in determining and monitoring
resource allocation in health care institutions. Nurse managers were often given budgets with little
rationale and were allowed only limited input in fiscal decision making. Because nursing was
generally classified as a “non-income-producing service”, nursing input was undervalued.
During the last two decades, however, health care organizations have come to recognize the
importance of nursing input in fiscal planning, and nurse leader managers in the 21 st century are
expected to be expert financial managers. The reality is that nursing budgets generally account for
the greatest share of the total expenses in health care institutions, and participation in fiscal planning
has become a fundamental and powerful tool for nursing.
The term budget is derived from a French word baguette means purse. Budget is generally a list
of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important
concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or
more goods. The budget is an annual plan intended to guide effective use of human and material
recourses, products or services and to manage the environment to improve productivity. The budget
is a powerful tool because it serves as a guide for nursing care activities and allocation of recourses,
supplies, support services and facilities.
FINANCIAL MANAGEMENT:
Finance is an area of any business which is concerned with earning or spending, saving or
investing, owing or borrowing funds. Planning pertaining to finance calls for managerial action in
determining objectives, setting policies and establishing procedures, sound financial management
has a vital importance at all levels of the administration.
DEFINITION :
According to TN Chhabra ―A budget is an estimation of future needs arranged according to
orderly basis covering some or all activities of an enterprise for a definite period of time‖
According to Dimock ―Budget is a balance estimated expenditure and receipts for a given
period of time. In the hands of the administrator the budget is the record of the past performance, a
method of current control and projection of future pans‖.
NURSING BUDGET:
Nursing budget is defined as a systematic plan that is an informed best estimate by nurse
administrators of revenues and nursing expenses.
HOSPITAL BUDGET:
Hospital budgeting is the process of estimating proposed expenditures and the means of
financing these expenditure.
IMPORTANCE OF BUDGET:
Budget is a numerical description of expected income and planned expenditure for an
organization for a specified period of time. It is a concrete, picture of the total operation of an
enterprise/ organization/ institution in monetary term, i.e., finance
The following point serves the importance of budget:
 Budget is needed for planning for future course of action and to have a control over all
activities in the organization
 Budget facilities co coordinating operation of various departments and sections for realizing
organizational objectives.
 Budget serves as a guide for action in the organization
 Budget helps one to weigh the values and to make decision when necessary on whether one is
of a greater value in the programme than the other.
BUDGET-HOSPITAL:
Different types of approaches are used in preparing the budget for a hospital. The basic reason
for preparing a budget is to enable the hospital to effectively meet its financial requirements. An
effective budget is a summary of the carefully conceived financial plans of all departments.
Therefore, it should be clear to the administration as to what the hospital’s financial requirements
are going to be.
FINANCIAL REQUIREMENTS OF HOSPITALS :
For any hospital, funds are required for the following:
1. Capital funding
 For preservation, upgrading, and replacement of physical facilities and equipment
 For new technology
 For expansion
2. Operating needs
 For working capital and operating expenses –salaries, materials and supplies, maintenance,
utilities etc.
3. Reserves
 For emergency needs
THE BASIC INPUTS:
An effective budget presupposes the following-
1. Clear understanding of the hospitals financial and service goals.
2. A hospital organization with clearly defined responsibility for each dept.
3. A system of accounting designed to provide a measure of performance
4. Active participation of staff members in the preparation of the budgets.
TYPES OF BUDGET IN HOSPITAL:
The budgetary plan results from the accounting plan, and includes:
 The capital budget
 The cash budget
 The operating budget
The capital budget:
Capital budget is the estimated fund requirement for capital items needed for growth, for
providing new facilities, and for replacement of worn out equipment, machinery, and furniture.
The decision on capital budgeting is primarily based on:
i. Needs of patients and existing alternatives available
ii. Up gradation of technology
iii. Effects of additional equipment on income and expenditure
iv. Availability of funds
There will always be competing demands from various departments vis-à-vis the common
requirements for the hospital as a whole, and funds are not generally available for meeting all the
demands. The request of funds for capital assets are generally met from general funds if there is a
surplus, by raising funds from outside, or obtaining capital funds from agencies. Therefore, it is
desirable to identify the sources of funds in each item in the capital budget.
The cash budget:
Because enough cash must be available to meet financial obligation on day-to-day basis or
they arise, there is a need to maintain the right flow of cash. Cash budget is the budget that records
the forecasted cash inflows from various sources and also records the forecasted demands for cash.
It translates the expense and revenue budget into statement of cash inflow and outflow. Steady
inflow of cash comes from settling the patient’s accounts at the time of discharge. However, If
hospital is unable to collect cash for service rendered at the time of discharge, accounts receivable
are to be created. Cash budget takes in to consideration projections for cash receipts, disbursement
and balances for a given future period of time. It enables management to predict the timing and cash
surpluses. The cash budget is usually broken down by monthly or quarterly periods. While
forecasting cash inflow, seasonal fluctuation based on past experience should be taken note of.
Keeping a safety margin, it would be worth investing surplus funds if any, in term deposits- the
period of investment depending upon requirement of liquid cash
The operating budget:
A satisfactory budget is based on knowledge of past performance and experience, extended to
future needs and requirements. Accurate statistical information is a guide to future needs and
requirements. Internal as well as external factors influencing the operation of the hospital have to be
studied. Any change in workload due to activities of other neighboring hospitals or population
trends will affect revenues. Internal constraints, policy decisions, paucity of funds to maintain
modernization and similar factors must be identified. Even with good quality data, the prediction of
revenues is somewhat unpredictable although expenditure forecasts may be more realistic.
Forecast of operating expenditure:
Operating expenditure is incurred on salaries, supplies, general utilities, maintenance and some
overheads.

Salaries and wages:

Manpower requirement are determined by workload. Staff to workload ratios must be reviewed
yearly. Salaries and wages account for 50 to 70 percent of the total expenditure. Additional staff
requirements, if any, have to be grouped separately and justification for the same must be indicated.
In additional to salaries, provision will have to be made for provident fund, gratuity or other
personnel benefits schemes.
Materials and supplies:
Food, drugs, dressings, and other consumables are directly related to workload or volume of
service.
Utilities:
These cover expenditure items in such as electrical, power, petrol, diesel, and other fuels, water,
telephones, and other services. AC plant, laundry, kitchen, CSSD, and incinerators accounts for a
high expenditure on utilities.
Maintenance:
Expenditure on routine maintenance of plant and equipments are generally well-predicted.
Expenditure on breakdown maintenance should be curtailed as much as possible by preventive
maintenance of planned and machinery, and by maintenance contacts for costly medical equipment.
Forecasting of operating revenues:
Forecasts of operating revenues is somewhat speculative even with good historical and recent
data. Operating revenue income is directly related to the volume of services provided. The largest
part of the revenue is non-government hospitals is from patient services.
Operating revenue generates from:
1. Direct patient care
 Inpatient services- medical, surgical, OBG, Pediatrics, cardiology etc.
 Outpatient consultations
2. Special professional services
o OT, labor room, ICU
o Physiotherapy etc
3. Supportive professional services
 X-ray and imaging, pathology laboratory,
 EEG EMG
4. Hotel service
 Room
 Food
Income from other sources comprises of interest income from investments and income from
donations and grants, rent and recoveries.
BUDGET PROCESS OR STEPS IN BUDGETTING:
 ASSESSMENT

EVALUATION PLANNING

IMPLEMENTATION

ASSESSMENT:
Assessment is the first step involved in the budgeting process. It consists of need identification,
a composite of unit needs in terms of manpower, equipment and operating expenses should be
identified during this phase.
Requisites for Budget Preparation
 Sound forecasting
 Adequate conceived accounting system
 Adequate cost accounting system
 Fixed line of authority
 Formation of budget committee
 Statistical information
 Support of top management
 Length of budget period
HOW TO MAKE A HOSPITAL BUDGET:
Making a hospital budget is only second to medical delivery systems in for a hospital. In fact, if
a budget is not properly written, the hospital may be unable to deliver medical services at all. So
many expenses and sources of revenue must be taken into consideration, so the budget process takes
an expert to get through it successfully. Let's find out how to start.
Instructions:
 Determine hospital revenue. Revenue can come from patient payments, tax dollars,
donations, insurance credits. Be sure to deduct a percentage of the patient bills that will
 remain uncollected, the charity work expected by the hospital and the pro bone work it does.
 Figure out expenses. Start with the physical facility. How much does it cost to keep up the
building or buildings. What is the maintenance cost of each department, engineering, air-
conditioning, heat, water, other utilities. Know what equipment costs, how much must be
replaced per patient day, and if any can be recycled. Include the non-medical cost of each
bed in the hospital. Include advertising.
 Know the cost of personnel, all employees and ancillary staff, including consultants,
outsourced contracts, perhaps laundry or nurse staffing services. For all employees of the
hospital, from janitorial to hospitalists, figure the fringe benefits the hospital must pay for
each.
 Add all medical equipment costs, ongoing and expected expansion or replacement of new
diagnostic equipment.
 Know the medical costs of each bed. How many staff hours are spent on each bed, occupied
or not. Use this figure as an average to get a cost per patient year. Add to that the non
medical costs per bed. Include every possible cost that keeps that bed in the hospital. Don't
forget replacement costs per annum for any and all patient needs.
 Don't forget parking garages, lots, landscaping, ground keeping or window washing.
 Include all insurance for the facility and personnel.
 Write in an emergency expense fund. Disasters occur and the hospital must be prepared for
them when they arrive.

PLANNING:
A budget plan may be developed in many ways. A budgeting cycle that is set for 12 months is
called a fiscal year budget. Most budgets are developed for one year period. But a perpetual budget
may be done on a continual basis each month so that 12 months of future budget are always
available.
Tips on Hospital Budget Planning:
Budget planning is a dirty word in most hospitals, but it must be done each year. The process is
usually an iterative one that requires full consensus between administration and hospital operations.
The following provides tips on ways to reduce the frustrations and improve the effectiveness of the
hospital budget planning process.
1. Paradigm of Shift:
 Plan the entire budget at once. One reason budget planning can be difficult is a splintered
approach. Developing a budget in silos will undoubtedly create problems as each department is
pitted against the other in the fight for funds. If planners look at overall volumes and net revenues in
conjunction with labor and non labor costs, the entire hospital can be assessed as a whole. Each
department is given due consideration and decisions are made on the basis of objective rather than
subjective arguments.
2. Be Flexible:
Traditional budgeting can be obtuse and inflexible. Using volume forecasts to drive the budget
provides a basis for both material and labor forecasts. Planners should look at the budget from a
holistic perspective. Forecasting revenues and expenses per unit of service. This also gives each
department more control over the budget process and empowers each to create arguments for funds
based on future patient levels and services.
3. Benchmarking:
Use volume benchmarks to help determine optimal revenue and expense levels. Benchmarks
can come from competing hospitals, prior years' budgets or best-practice departments. See
"Resources" for a listing. Predicting volumes is one of the biggest challenges hospital budget
planners face; however, in a variable budget, volumes are the primary drivers of revenues and
expenses. Only fixed expenses such as rents or lease payments are unaffected by volume.

4. Accountability:
Hold staff accountable for the budget. Develop a system of reinforcement that includes both
positive and negative feedback. One way to reinforce the budget while making the process easier is
to budget more than once a year. Ideally budgeting should be an all-year process, with multiyear
checkpoints for accountability. The monthly and quarterly closes make perfect checkpoints. From
an operations and marketing viewpoint, this allows planners to budget more effectively over a
longer period of time. Instead of just looking at the next year, planners can look at budgeting over a
five-year period, which is better for capital-intensive units.
The steps of planning budget for nursing unit are as follows;
Assistance of her/ his subordinates:
Nursing administrator requires the assistance of nursing superintendents and nursing
supervisors to present the needs of the coming year within the specified data and confer with those
who presented such need.
Review of the budget:
Nursing administrator should review the budget appropriation and actual expenditure of the
current year.
Preparing requirements:
He/ she should prepare requirements with the assistance of their subordinate officials for the
coming year from the supplied information by them.
Summary of new needs:
He/ she should prepare a summary of new needs and requirements both personnel and material
with the proper data supports of the requirements.
Submitting to institutional administrator:
Budget should be submitted to the administrator of the institute/ hospital for review, decision
and to incorporate into the master budget required for the hospital. In any change made by either the
administrator or the committee on budget, report should be furnished to her to be used in the control
of expenditure.
A copy of the nursing department appropriation is sent to the director after adaptation of the
budget these statements generally proved the budget for the period and difference between the
budget appropriation and actual expenditure. These reports should be kept reviewed by the director
and her associates and if expenditure exceeds the appropriation, the cause should be determined.
IMPLEMENTATION:
In implementation ongoing monitoring and analysis occur to avoid inadequate or excess funds
at the end of a fiscal year. In most health care institutions monthly computerized statements outline
each department projected budgets and any deviations from that budget. Each unit manager is
accountable for the budget deviations in their unit. If a major change is indicated, the entire
budgeting process must be repeated.
EVALUATION:
The budget must be reviewed periodically and modified as needed throughout the fiscal year.
STEPS IN PREPARATION OF NURSING BUDGET:
Review the goals of the hospital

Review the objectives of the existing programmes

 Prepare a budget proposal

Revise the existing programme with the revised proposal

Compute the expense for each programme

Adopt the alternative approach for realizing the proposed plan

Compare the proposal to identify the effective one

Prepare a budget request which details a fiscal plan for the preferred programme

Present the need of required staffs Review the budget appropriation and actual expenditure for the
current year conjunction with current hospital statistics

Prepare a new budget is to cover in terms of nursing service required

Determine the percentage of salaries in various department of nursing based on the time allocated

Estimate the requirement for the coming year

Prepare the summary of new needs to support

the request Submit the report to the head of the department

BUDGET MANUAL:
Since the budget is formulated at the instance of the top management, and its compliance
ensured by the subordinates, there has to be a formal communication channel between the two. This
could be in the form of oral or written instruction or directives. The Budget Officer initiates the
work relating to preparation of Budget Manual. Heads of departments provide the details. The top
management approves the first draft and subsequent changes. The policies and procedures are
continuously updated and revalidated. If this is not done, the manual will have several obsolete
procedures. It will lose focus. A Budget Manual is tailored to fit the needs of each hospital or group
of hospitals, where it is to be used. The content of a typical budget manual is outlined below:
General statement of hospital objectives and budget procedure
 Identification of persons involved in the exercise and definition of their authority, duties and
responsibilities.
 Routine of departmental budget preparation, their review and approval.
 Time schedule
 Budget revision- formation and implementation
 Budget report
 Review of performance
BUDGET ADMINISTRATION:
The method that an organization uses to create the budget will depend upon the type and
quality of information sources, the availability motivated and knowledgeable staff, and the
importance that the organization places on budgeting function. The budget exercise starts with
appointment of budget officer and constitution of a budget committee. Hospitals may not aim at
profit but they should be clear as to what portion of the total cost that will not be paid by the
hospital patients and which hospital management will have to meet out of grants, donations and
from other sources. On receipt of these, manager of each responsibility center initiates action within
his functional area to develop a long term strategic plan. The presentation of his plan is followed by
discussions with the members of the hospital executive committee. It provides an opportunity to the
executive committee members to discuss departmental plans with respective managers and amongst
themselves. A best possible plan combining the talents of entire group thus emerges. This approach
enhances communication, co-ordination, and harmony of various operational plans and efforts. The
exercise is not complete unless actual performance is compared with the target set in the budget, the
reasons for variations between the two are analyzed and corrective action where taken.
Budget committee:
The budget committee generally consists of a representative cross section of the major
functional areas or divisions within the institution, with the designated budget director usually
serving as the chairperson. Budget committees frequently include, among others those who hold the
following positions:
 Director of Nursing
 Director of Human Resources
 Director of Material Management
 Director of Engineering and Plant Operations
 Chief of Medical Staff
 Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer
Director of Nursing:
This position is responsible for the major function of the most health care institution and also
accounts for one of the largest, proportion of the institution’s and revenues.
Director of Human Resources:
This position is responsible for administering the institutions salary and wage program,
including its hiring and firing policies. Since in most health care institutions salaries and wages
constitute well over 50% of the organization’s total operating expenses, the director of human
resources is a valuable member of the budget committee.

Director of Material Management:

This position represents the other half of the operating expense equation, the non-salary-and-
wage expenses. The director of material management provides knowledge of inflation trends; new
market products; purchase and trade discounts; fixed asset requirements; and the requirements for
receiving, storing, processing, pricing and distributing the institution’s operating supplies.
Director of Engineering and Plant Operations:
This position is responsible for the institution’s buildings and equipment, including repair and
maintenance. The director of engineering and plant operations can provide a wealth of information
about such things, as well as experience in new construction, remodeling, utilities efficiency, and
other areas of concern.
Chief of Medical Staff:
This positions represents the other half of the patient care equation, the medical staff. It is
imperative that the physicians be represented in the budgetary planning and control process. They
are not only the institution’s major consumers, but they can be its best marketers and salespersons .
the medical staff, who are on or near the cutting edge of the medical technology and therapy, can
assist in identifying new procedures, treatments, and other related services that can benefit the
institution and the community it serves.
Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer:
All three frequently serves as ex officio members of the budget committee. Their attendance at
meeting and active interest in the budget committee’s activities add credibility to the budget process
and help to keep top management aware of the budget process, its direction, and the anticipated
results.
Budget officer:
He assists monitoring performance comparing actual results with the budget. The
responsibilities of a budget officer can be conveniently combined with those of Management
Accountant. He works under the guidance of a budget committee. He acts as a coordinator when it
is being prepared. He provides appropriate background information for the previous 2-3 years about
income, expenses and statistical data about departmental performance by cost control variables-
number of procedures, department wise and grade wise manpower, etc. capacity details and
production norms are also indicated. He subsequently assists in monitoring performance comparing
actual results with budget. The responsibilities of budget officer can be conveniently combined with
those of Management Accountant.
Budget calendar:
It indicates specific dates for preparing individual parts of the budget, discussing them with
departmental heads concerned, for review and revision and getting them approved. This ensures
each segment receives adequate attention and the whole exercise is completed by due date. The
work should not interfere with normal routine of those involved in the budget exercise.
Budget period:
The budget period indicates the time span covered by a budget. It is generally one year,
coinciding with the financial year. The process cycle time is relatively short and there are no
substantial seasonal variations, which could affect month- to- month activity level. The annual
budget should be integrated with long range plan. This could cover three to five years. Capital
Expenditure also covers a three to five years period since it takes considerable time to conceive
requirements of fixed assets and their acquisition. The first year of Capital Expenditure Budget
should run concurrently with the annual budget.
Budget revision:
Since a budget serves as a datum against which the actual performance is compared, ordinarily
the budget is allowed to run its course for the entire period for which it is conceived. A mid-year
review is undertaken and if there are major changes in basic parameters and suitable alterations are
made in the budget projections for latter part of the year. Unless warranted, exhaustive changes are
not made in the original budget.
MECHANICS OF BUDGET PREPERATION:
INCOME:
The sources incomes are charges for hospital services
BED CHARGES:
The beds are generally classified under four categories; A, B, C and D. this classification is
done more to segregate patients according to their ability to pay. Number of beds available under
each category is predetermined. Facilities offered by each of these categories- such as space per
bed, number of beds in a room, separate bed for patient’s companion within the room, quality of
linen and furniture, provision of TV and air conditioning, nurse or ward boy in attendance-are
different. There may be little differentiation as regards medical attention and food supply. One can
compute category- wise cost based rates considering these factors. These rates can be made
subjected o cross subsidy to match ability to pay. Category-wise occupancy records are maintained.
The ultimate objective is to ensure targets income from beds should be generated from expected
capacity utilization at revised rate.
OTHER HOSPITAL SERVICES:
Income from other hospital services such as OT, X-ray and pathology tests for the budget year
could be similarly computed. However, unlike in respect of beds, service offered by a department is
identical to all patients. The fees charged for a service of that department, often, depends upon the
class of bed occupied by them. Forecasting income using different rates for identical services
become difficult. One can, therefore, compute the income for the budget year using average rate for
the previous year. At the most, the departmental output could be classified for four or five
categories, for which statistics are readily available and there is substantial cost difference between
them. Persons in charge are encouraged to forecast the activity of their respective departments and
corresponding income during the budget year.
OTHER RECEIPTS:
The amount could be targeted at the previous year’s level. Some hospital authorities leave their
deficit from operations uncovered open ended hoping to offset the same through donations. These
are generally received from one or more business persons or collected by the leaders of the
community with which the hospital is associated. Businesses look upon these donations as business
transactions if they are able to secure tax concessions thereon. Receipts of donations could be
planned. They could be identified with certain individuals on the management board who have been
instrumental in getting such donations in the past. There could be special collection drives, holding
charity film shows, etc. With limits to what one could charge to patients, income from non patient
services is receiving greater attentions
DONATIONS:
Nonprofit healthcare institutions depend to a considerable extent on donations from persons
and organizations. These donations could be in the form of physical assets (land , building,
equipment and instrument, labor and material). These must be brought into the hospital books at
their current market or disposable value. The same treatment will apply when items donated
consists of shares, bonds and other financial instruments. The donors could lay down restriction
regarding their usage. This must be spelt out in the balance sheet.
GRANTS:
Grants are funds provided by a government body or department to an institution, for example a
hospital, to be used for a specific purpose, activity or facility. Grants or irrevocable rights to grant
are recognized as revenue in the period in which they are receiving. This may be at the time the
grant is authorized, but, in practice, most units wait until the cash is received. Grants could be in the
nature of reimbursement of expenses incurred on specific activities or given without any
preconditions. When the grants are made for specific activities, care should be taken to provide
matching expenses. The time lag between incurring the expenditure and subsequent reimbursement
should be considered when formulating cash budget.
INTEREST / DIVIDEND INCOME:
Income from these sources is linked to investments provided in the balance sheet such as
fluctuations (a) in exchange rates on capital funds and (b) rate of interest / dividend likely to prevail
during the course of the year. If the investment is made from reserves, income there from forms part
of the general revenues of the period and could be used for meeting any expenses that need be
incurred for running the hospital. If the investments are in the respect of earmarked funds, the
budget should provide expenses that need be incurred to meet the objectives of the investment or
should be added to the funds earmarked for the project. The finance Manager is expected to manage
these funds.
NEGATIVE INCOME/DEDUCTIONS FROM INCOME:
To keep up with their images as a service organization and also to secure tax concessions,
hospitals offer concessions ranging from absolutely free service to marginal reduction in rates
charged. Often, these concessions are offered on the hospital basis. In one hospital, members of its
Governing Body made visited the hospital daily, and during their daily rounds, they entertained
requests from patients for reduction in bills amounts on pecuniary grounds. According to the
hospital authorities, the reduction in income due to concessions was not substantial. No one knew
the exact quantum since the bills were accounted at their net amounts.
An observer felt that the quantum of reduction in income could be very large if one were to go
by the length of the queue in front of their office. Besides, the founding donors were also entitled to
sanction reduction in bill amounts. A study revealed that the annual cost of concessions offered to
some of the donors was much more than their original donation. Most of the hospitals offer free
medical service to its employees. This concession tends to result in an open-ended liability and
leading to IR issue. Some hospitals cover their employees under some health insurance scheme to
avoid these pitfalls. Some tend to set a ceiling for each employee and show the amount as a part of
employee benefits rather than reduction in revenues.
DEDUCTIONS FROM INCOME:
The budget should provide income at full rates. Deductions should be shown separately
grouped under indoor and outdoor patients and analyzed under:
(a) Charities, source of funding, community – if this is a relevant factor;
(b) Staff,
(c) Special schemes, and
(d) Bad debts.
The objective of the exercise is to ensure the concessions offered are need based and do not
result in disproportionate reduction in income not visualized by the management. Hospitals agree to
charge special rates to employees of some commercial and industrial organizations or members of
some health care schemes as a part of marketing effort. The cost of this concession should be
assessed and provided in the budget as a marketing cost.
PAYMENT TO DOCTORS:
A percentage of fees charged on some hospital services or a fixed amount is paid to outside
consultants and, sometimes, even to the medical staff on its own payroll. Some show the total
amount charged to the patients as income and the payment to doctors as an expense. This
presentation is better than showing the hospital income net of such payments, whereby there is no
reference to such transactions in the final Income and Expenditure Statement of the Hospital.

EXPENSES:
Formats of expenses could take the following forms:
(1) Involving cash outflow,
(2) use up of resources such as inventory or,
(3) creation of liabilities (or their combination).
For their inclusion in forthcoming annual budget, they should benefit the organizations current
operations and not extend to future periods. Major items of expenses and their incidence in some
hospitals are listed below. The figures indicate percentage of total cost. Expenses should be
accounted on mercantile basis.
Pattern of Expenses:
The pattern of expenses could vary by hospitals: Types, sizes, location and other distinctive factors.
Expenses In %
Materials 22.5
Employees expenses 27.3
Dietary services 3.0
Utilities – electricity and water 10.5
Engineering and property maintenance 11.0
Other hospital expenses 7.0
Administration including consultancy 11.0
fees
Depreciation 4.0
Interest paid 3.7
Total 100
Materials budget:
Expenses on medicines, injections, operation theatre material, X-ray plates, reagents used in pathology

laboratory, and such other material used while treating a patient in various departments, directly or indirectly,

could be termed as direct material. The value of this type of materials varies with level of activity. Over a period,

standards or norms are developed in terms of specifications and quantities for each material for different lines of
treatment, operations or procedure. If such norms are available, requirements of various categories of material

could be computed by multiplying per unit requirements with activity level expressed in terms of numbers thus:

Activity In turns of number

Medical supplies Cost per patient day
Radiology Cost per film
Obstetrics Cost per delivery
Operating theatre Cost per operation/type of operation
Catering Cost per patient/meal
Pharmacy Cost per patient/day
The Materials Budget could be used to:
1. Estimate expenditure on material purchases and provide information required for income and
expenditure, balance sheet and cash flow budgets. The information is used for deciding insurance
cover, determine space and manpower requirements.
2. Plan level of inventories.
3. Schedule purchases in required quantities, to be secured from appropriate sources when required
time.
4. Assess quantum of losses through deterioration, leakages and over aging. Many hospitals make
patients buy medicines and medical supplies for use during patient’s stay in the hospital. These
purchases are in standard packs, which may not be fully used on such patients. The surplus stock is
used on indigent patients. It is not a good practice. The surplus material could get mixed with
general stocks of the hospital. This practice should be given due recognition when computing
materials budget.
Purchase Budget:
Purchase budget provides for two additional inputs over direct materials cost:
1. Items, other than those used on patients , such as general stores, linen, stationary, engineering
stores and sometimes, even equipment.
2. Variations in opening and closing inventory. If the current inventory were disproportionately
higher than immediate requirements, the purchases would be less than actual consumption.
Each department estimates its material requirements, indicating the basis of how the figures
have been arrived. The Purchase Manager acts as a coordinator, and formulates the Purchase Budget
combing the requirements of all departments. Actual purchase activity could be centralized.
Personnel Budget:
Personal budget is prepared keeping in mind the requirements for manpower planning and
incidentally for estimating employees’ cost for the budget year. Employees’ expense is the second
most important item of cost in terms of incidence, next only to expenditure on materials. Budgeting
employees’ expenses can be a part of manpower planning exercise. Major component of employees
cost could be payment to honoraries, consultants and expenditure on fringe benefits. The
expenditure incurred on unionized staff, though significant in terms of numbers, is not very large.
One has to add cost of services, which are outsourced, such as security, housekeeping and routine
maintenance, to the employees cost to arrive at the total labor cost. Most of the hospitals complain
of high employees cost but the rarely care to analyze the composition of this vital item of cost.
Hospital staff could be categorized under:
 Management-medical and administrative
 Medical
 Nursing
 Paramedical
 Engineering and technical
 Administrative and clerical
 Unskilled
Fringe Benefits:
Fringe benefits could be broadly categorized under:
1. Retirement benefits: These include Provident Fund, Gratuity, and Pension. These are
predetermined by the Company’s policy. These can be estimated as a percentage of regular pay.
2. Cash benefits: Such as Bonus, leave Travel Concession, House Rent, etc. These are related to
the grade in which an employee is placed.
3. Others: Such as subsidized lunch, transportation, medical, training, uniforms, etc.
These can be estimated under the guidance of Personnel Department. There is no ideal ratio
between the numbers of employees in each category. The total number could be anything from 2 to
5 per bed depending upon facilities provided hospital services that attract the most of the patients,
in-house facilities, and physical structure of the building and management policies. Since the
objective of Personnel Budget include manpower planning, it is necessary to draw an organization
chart, establish an optimum level of employee strength in terms of numbers, categories, and
specialization, based
1. Number of working days and shifts per day each department works
2. Standard manpower considering available infrastructure.
3. Number of days an employee is present during the year.
4. Previous record of average absenteeism percentage.
5. Industry norms for employees productivity, e.g. number of beds per nurse or attendant.
6. Existing strength.
7. Provision for wastage, training, and acquisition of new equipment.
Nursing staff requirement is generally estimated based on the Nurses; Bed ratio for different
area of the hospital- higher ratios for ICU’s and lowers for general category beds. Another better
method is to estimating is based on calculating nursing hours requirements for 24 hours for various
types of patients- Intensive care, Surgical, Medical, and paediatrics, patients chronic diseases ward
(tuberculosis patients) patients etc. will require different nursing hours per day. In hospital, areas
working 24 hours 7 days week schedule are identified and the staff requirements suitably provided.
In OT nurses requirements will be based on number of OT tables and categories of operations.
In OPD nursing requirement will be based on number of patients attending per day. There is
variability for both the number of patients with regards the day and season.
Overtime:
Overtime payments are necessary for emergency work and unplanned absenteeism. Some
employees often create situations that need overtime payments artificially to generate additional
income for themselves on a regular basis each month and their colleagues. It creates bad morale
amongst other employees who are not similarly placed to take secure overtime payments. The
budget makes provision for over time departments-wise or in total. The managements generally feel
that under normal circumstances, there should be no overtime. In some hospitals, overtime hours
are offset by compensatory offs for equivalent time period.
Other Operating Expenses:
Energy Costs
Sources of energy used by hospitals are: electricity, gas, coal and steam. It is necessary to estimate
energy cost departmentally for control purpose as well as to arrive at realistic departmental costs.
Generally, there are separate meters for extended space and group of machines. One could estimate
the power consumption on the basis of area, horsepower rating or manufacturer’s specification.
Maintenance/ Plant engineering
Maintenance is undertaken to keep or restore assets of the organization in a condition to render
an acceptable level of performance. In a multispecialty hospital medical equipment maintenance
involves the following areas.
1. The classification of equipment
2. The maintenance expenditure
3. Routine preventive maintenance
4. Critical and Defect analysis
Marketing
Expenditure on marketing is determined by the management at its discretion. It could be related
to the expenditure during the previous years, a percentage planned income or based on marketing
effort likely to be made during the year. The top management decides on how much to spend on
marketing and the manner in which it is to be incurred. The amount allocated depends upon the
perceived need and availability of the funds. Marketing is mainly used to create awareness amongst
the community and to increase utilization of hospital facilities which are underutilized.
Administration:
Administration expenses cover expenditure on rent, rates and taxes, travel, communication,
professional fees, medical books and journals, and participation of seminars and conferences. The
hospital should be adequately insured against loss of property on account of fire, accident, riots, and
possible claims from patients against negligence.
BUDGET CONTROL:
Budgets by themselves will achieve little unless they are supported by budgetary control
procedures. Budgetary control mechanisms ensures the actual results are in line with what was
planned and agreed up on, and if there are deviations, identify the reasons and to the extent possible
make individual accountable for them It can be achieved through:
 Keeping a constant watch on over the budget in action
 Periodically reviewing of actuals with the budget
 Analyzing deviations in actual performance
 Taking remedial action where indicated
 Revising the budget if conditions warrant
The ultimate financial statements that result from budgeting from and from the operations of
the hospital are the income and expenditure statement and balance sheet, which reflect the
financial performance of the hospital for the period and at the end of the period, respectively.
Income and Expenditure Statement:
Income and expenditure statement reflects the results of the hospital’s operations for a stated
period. Only broad classification of accounts is done. Details are furnished in separate schedules. At
times, functional indicators like income and expenditure statement per inpatient day, income per
outpatient etc. can also be given. Usually, outpatient and inpatient income and expenditure are
separately accounted. The income and expenditure of various departments are worked out
department wise. This is essential for the purpose of evaluating financial performance of each
department, and in determination of costs of providing each service.
BALANCE SHEET:
A balance sheet represents financial position as on a specific date. It is statement of assets and
liabilities. It reflects what the hospital owns and what it owes to others. Only total figures are given
against each classification of the main accounts. Detailed schedules can be annexed if required. A
hospital’s assets and liability consist of Assets
1. Fixed assets: These are physical assets for long term intended use
 Building- Wards, departments, hostels, residential accommodation
 Lands and grounds
 Plant and equipment- Boilers, sterilizers, AC plant, lifts, central oxygen and suction, mechanical
laundry etc
 Furniture-Hospital furniture and general purpose furniture
 Diagnostic and therapeutic equipment and machines
 Vehicles
2. Current assets: They consist of the following
 Cash in hand and bank
 Deposits and investments
 Accounts receivable
 Other receivables
 Inventory of supplies and materials in stock
3. Other assets: These consist of certain specific purpose funds(like emergency fund, endowment
fund, training fund etc)

LIABILITIES:
1. Current liabilities
 Salaries and wages payable
 Taxes, interest burden
 Accounts payable
2. Long term liabilities
 Mortgages
 Long term loans
DEPARTMENTAL BUDGET:
One needs to know how much expenditure on a department is incurred and what its service
units cost. This information helps the management to fix rates for service rendered by the
department and assess its financial viability and performance. An appropriately prepared budget
will enable the management to monitor the performance of each department in terms of activity,
income, costs, and anticipate needs for additional facilities and equipment, infusion of capital funds
and changes in management strategy. As a part of Cost Accounting system, departmental costs are
computed periodically. These can be matched with forecasts contained in the budget to facilitate
effective control over operations. Some department budgets are described below:
RESEARCH:
To be identified as a research centre, a hospital has to register with the Government. The budget
for Research is an appropriation budget. The budget sets limits on the overall expenditure taking
into consideration needs and availability of funds. External funding agencies could also give
assignments to their specialization. The budget covers expenses on employees, rent, fees, books and
periodicals, and seminar fees. The budget could be reviewed in terms of:
1. Receipts of promised funds
2. Progress made on the project, and
3. Benefits derived
DIETARY SERVICES:
The responsibilities of the Dietary Services Department include procurement, storage,
processing and delivery of food to patients in compliance with physician’s orders and public health
regulations. Additional responsibilities include teaching nutrition and right eating habits, and
determining patient’s preferences. If hospital cafeteria is part of the set up, one has to attend to the
requirements of the staff and the public. Previously most of the patients and staff brought food from
their residence. Now most of them depend upon food served by the hospital. Some hospitals
prohibit food from outside. The scale of operation has also increased. Heavy investment is made in
this section on storage and food preparation to avoid deterioration and ensure consistent quality. In
view of the importance attached to food preparation and distribution, and handling of labor,
preference is being given to persons with hotel qualifications and experience to head the
department. Whatever may be the arrangement for the supply of diet to patients, a trained and
experienced dietician should be appointed to define and monitor the different therapeutic diets
suggested to patients. The cost of food served to patients could be Included in bed charges and not
included in the bill as a separate items. Maximum number of complaints against hospital services is
on account of food, particularly, from patients who have been in the hospital for long. It is also an
area from where maximum leakages and wastages occur. Maintenance of quality standards and
physical and monetary controls are difficult to enforce. More and more hospitals are contracting this
service to outside parties.
LAUNDRY SERVICES:
Normally, hospitals do not charge the patients separately for the laundry services. It forms part
of bed charges or service charge recovered from patients. It is essential that someone being held
accountable for its quality of service and cost. A hospital could wash patient’s uniforms and bed
linen, staff uniforms and other clothes in house through its own regular staff using its own
equipment or get them washed from an outside laundry. In a hospital, the clothes are separated
between coloured and white and again sorted out under (a) soiled, (b) infected, (c) fouled and (d)
infected and fouled. If the dirty linen is separately washed according to degree of soil, washing is
simplified, time is saved, economy is affected, and the results are better. The in-house laundry could
provide hygienic, cleaner and prompter service. It could be operated as a separate profit centre.
NURSING TRAINING SCHOOL:
Many larger hospitals conduct their own nursing training schools to provide them with a
constant supply of trained nurses. Assuming it is a two year course, the number of trainee nurses
any time would be 60-80, with 30-40students in each batch. They have to be provided with
residential accommodation close to the hospital. Capital cost would cover cost of space, audiovisual
equipment, furniture and fixtures for holding 2 classes simultaneously, library, office and hall.
Nursing school runs as per the guidelines Of Nursing Council of India. It offers 3½ years General
Nursing (Diploma) Course. There is elaborate requirement of physical facilities, staff, various lab
items, books hostel facilities as per Nursing Council guidelines. Running cost of the training school
would cover stipend paid to the students, cost of uniforms, and linen in the hostel, washing charges,
library books and free food. Teaching faculty will consist of a Principal, with assistance from the
budget officer, prepares the budget.
BENEFITS:
Orderliness in planning process:
The main budget is supported by several departmental and functional budgets, with quantitative
details and financial values, activity details and use of resources, income, and costs. There is a
provision for continuous review of performance. In the process a kind of orderliness is introduced.
The managerial personal are made to think in terms specific rather than in general terms. It guards
against undue optimism and unplanned expenditure.
Decentralization of responsibility:
Buck-passing is avoided. Through departmental budgets, authority is delegated downwards
along with accountability for performance. The top management is left free to concentrate more on
important issues.
Performance appraisal:
The budget provides norms for evaluation. For want of norms, previous year’s results are used
to forecast current year’s performance. The budget provides the details of total capacity, likely
actual activity level and what it means in terms of use of resources, matching income and expenses.
Whilst specifying these, relationship between input and output is based on current performance.
These could be termed as norms and used as guides to measure performance. Since the
departmental staff is involved in devising the norms they unlikely to be opposed there being used
for measuring performance.
Communication:
Every hospital has some sort of communication system. Budgetary Control system makes
reporting purposeful, comprehensive, reliable and regular. In a manner, the exercise serves as an
important instrument of communication. The key personal are informed about the organizational
goals and policies, changes in the environment and the organization within which the budget is
framed and what is expected from the individual manager. The sense of participation ensures their
commitment to achievement of organizational goals.
Co-ordination:
Inter departmental problems get discussed at various budget meetings. Medical administrators
and key staff members attend these meetings from finance, engineering and personnel departments.
Creation of database:
The exercise results accumulation of substantial data at one place. For example, it could
identify departments, which need investment or where there is a surplus labor. Further, the data
provided in the budget detail sheets could be utilized to establish trends for projecting future
growth.
PROBLEMS IN BUDGETING:
 Reasons why a budget may not deliver the desired benefits are:
 Lack specific goals and objectives
 Lack of training and motivation. It is often perceived by the key personnel as a pressure
technique imposed by the top management, and not as a planning device. They may not
deliberate stand aloof or non cooperate.
 Departmental goals may be at variance with the co operate goals. At highest level the
management may like to deliver best possible health care. At the operating level one has to take
care of constraints imposed by budgets, number and quality of staff.
 Allocation of funds – managers may find it hard to allocate funds fairly and in the businesses
best interests
 Short term vs. Long term planning – budgets usually only look at an annual plan therefore may
fail to take a longer term view
NURSE ADMINISTRATOS ROLE IN BUDGETTING:
 Budget required for the nursing department should be co-operative activity of the nursing
superintendent and her associates including the supervisors
 Participation in planning budget
 It is prepared under the direction and supervision of the administrator or financial officer
designated by him
 The administrator supplies special forms to guide the budget.
 Consult and take assistance of her/his subordinates in determining the needs of the unit for
ensuring year on the basis of information received.
 Request sufficient funds to suggest a sound programme such as to provide for developing
programme provision, expansion of programme, to attract and hold qualified staff to provide
for expansion of physical facilities, supplies, equipment, for improving instruction and also to
carry out adequate functions of the institution.
 Submit budget request with justification with proposed expenditure. The administrator defines
her/ his budget so that nursing unit will have enough money to conduct programme effectively.
Money must be available to allow experimentation also.
 When the budget is allotted, the administrator should support the budget. He/ she should
interpret the subordinates, any changes that may affect instruction services for the adopted
 budget. She/ he secures for the adapted budget. Once the budget is adapted, it is the
responsibility of the administrator to see that expenditure should not exceed the appropriation
made
 Since the nurse administrator also is responsible for budget, she/ he should cover the routine
budget control.
 The budget request may be broken down to the different unit’s e.g. Salaries, supplies,
equipments and other purchase requirements.
ALLOCATION OF BUDGET BY THE DIRECTOR FOR 2024-2025
VMKVKCH
SALEM

SN ITEM Code no I II III 1V

I. SALARY 0107 - - - -
1. Basic salary 0116 53492 53492 53492 53492

2. Medical allowance 0125 321 321 321 321

3. Medical expenditure 0134 19 19 19 19

4. Other allowance 0143 1639 1639 1639 1639

5. Housing rent 0161 3316 3316 3316 3316

allowance
6. Travelling allowance 0170 - - - -

7. City allowance 0189 741 741 741 741

II. Salaries 0205 - - - -

III. Dearness allowance 0303 - - - -
IV. Travelling 0312 73818 73818 73818 73818
allowance
1. Travels 0401 - - - -

2. Transfer allowance 0410 13 13 13 13

 V. Office expenditure 0429 2 2 2 2
1. Telephone bills 0509 - - - -

2. Other allowances 0518 70 70 70 70

3. Electricity bills 0527 89 89 89 89

4. Stamp post 0536 16 16 16 16

expenditure
VI. Rental payment 0607 - - - -
taxes
Income tax 0625 70 70 70 70
Water payment bills 0634 89 89 89 89
VII. Machines and 1900 - - - -
equipments
Maintenance 1937 2125 2125 2125 2125

VIII. Motor vehicle 2105 - - - -

Vehicle Maintenance 2123 11 11 11 11

IX. Item supply 2409 1 - - -

X. Professional Special 3300 - - - -
work allowance
Regular Govt 3319 17 17 17 17
derivers pay
Contract pay 3346 73 73 73 73

XI. Petrol, diesel, oil, 4505 169 169 169 169

kerosene
XII. Dress, housing,, 4603 441 441 441 441
ware house products
XIII. Ware house - - - - -
products
Ware house things - - - -
 Medical oxygen & 1551 1551 1551 1551
nitrous oxide 4710

Others 3535 3535 3535 3535

Things 4729 1317 1317 1317 1317

x-ray 4738 1031 1031 1031 1031

XIV. Festival Bonus 4907 - - - -

Bonus + 4916 1562 1562 1562 1562
Bonus - 4925 - - - -
XV. Caution deposit 5102 - - - -
Granted 5120 1 - - -
Permitted 5120 1 - - -
XVI. Gifts and prizes 5906 28 - - -
XVII. Medicines 6601 1434 - - -
XVIII. Food expenditure 6709 - - - -

Others
i. Milk 6790 1073 1073 1073 1073

ii. others 2907 2907 2907 2907

XIX. Computer and its `7600 - - - -
accessories
Maintenance 7628 28 28 28 28
Things 7637 30 30 30 30
XX. Multiple items 9902 21 21 21 21
Total 158682 158682 158682 158682
XXI. Others permitted - 1 - - -
XXII. TOTAL 158681 158679 158679 158679

CONCLUSION:
Budgeting is a tool of administration, which help to make the functioning of an organization
very effectively. Viewing budgeting as a two-part process--budget setting and budget managing--
and implementing best practice principles within each part can help hospitals generate better year-
end financial results that can be invested in teaching, research, and patient care, and improve
financial viability. Nurse Managers are responsible for a significant portion of institutions financial
resources. These sources can be invested very wisely for the provision of quality health care by the
manager who is knowledgeable about the budgeting can effectively articulate the need for
resources.
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NET REFERENCE:
 http://www.ehow.com/how_4471831_make-hospital-budget.html#ixzz1E1ObwVQZ
 http://allbusiness.com/accounting/budegt
 www.budgetmap.com