MEANING OF BUDGET:

One of the primary objectives of management accounting is to provide information to

management for planning and control.
A widely used device for managerial control is the budget. Because the amount and quality of
Nursing Services depended on budgetary plans, nurses should provide the resources necessary
for the safe and effective nursing care
DEFINITION
• A budget is an estimate of future needs arranged to an orderly basis covering some or all the
activities of an enterprise for a definite period of time.
T.N. Chhabra
• Budgeting is the formulation of plans for a given period in numerical terms.
Harold Koontz
• A budget is a plan that uses numerical data to predict the activities of an organization over a
period of time. Bessie.
PURPOSE OF BUDGET
• Budget supplies the mechanism for translating fiscal objectives into project monthly
spending pattern.
• Budget enhances fiscal planning and decision making.
• Budget clearly recognizes controllable and uncontrollable cost areas.
• Budget offers a useful format for communication fiscal objectives.
• Budget allows feedback of utilization of budget.
• Budget helps to identify problem areas and facilitates effective solution.
• Budget provides means for measuring and recording financial success within the
objectives of the organization.
FEATURES OF BUDGET
 It should be flexible.
 It should be synthesis of past, present, future.
 It should be product of joint venture for co-operation of executives department heads
or different level of management.
 It should be in the form of statistical laid down in specific numerical terms.
 It should have support of top management throughout the period of its planning and
implementation
IMPORTANCE OF BUDGET
• Budget is needs for planning for future course of action and to have a control over all
activities in the organization.
• Budget facilitates co-ordinating operation of various departments and section for
realizing organizational objectives.
• Budget serves as a guide for action in the organization.
• Budget helps one to weight the value and to make decision when necessary or whether
one is of a greater value in the programme that the order.
PRINCIPLES OF BUDGET
• Budget should provide sound financial management by focusing on requirement of the
organization.
• Budget should focus on objectives and policies of the organization. It must flow from
objectives and give realistic expression to the way of realistic such objective.
• Budget should ensure the most effective use of scarce financial and non financial
resources.
• Budget requires that programme activities planned in advance.
• Budgetary process requires consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for framing and
executing budget.
• Budget should include co-ordinating efforts of various departments establishing a frame
of reference for managerial decision and providing certain criteria for evaluating
managerial performance.
• Selling budget target requires an adequate checks and balance against the adoption of too
high or too low estimate, almost care is a must for fixing targets.
• Budget period must be appropriate to the nature of business or service and to type of
budget.
• Budget is prepared under the direction on the supervision of the administration or
financial officer.
• Budget are to be prepared and interpreted consistently throughout the organization in the
communication in the planning process.
TYPES OF BUDGET
• Incremental budget or zero based budget : This is a budget prepared using a previous
period’s budget or actual performance as a basis with incremental amounts added for the
new budget period
• Open ended budget: this is a budget which are subjected to any change at any time.
there is no set upper limit of cost, it can change according to needs and circumstances.
• Fixed ceiling budget: Fixed budgets are budgets that are drafted on the basis of specific
criteria, and do not allow any room for any changes or variations in activity at any point
during the period of time covered by those budgets.
• Flexible budget: A flexible budget is a budget that adjusts or flexes for changes in the
volume of activity. The flexible budget is more sophisticated and useful than a static
budget, which remains at one amount regardless of the volume of activity.
• Roll over budget: A rollover budget is a budget in which the funds, if not spent in a
particular month, roll over into that budget for the following month, adding to the
allocation for that particular month.
• Performance budget: A budget that reflects the input of resources and the output of
services for each unit of an organization. This type of budget is commonly used by the
government to show the link between the funds provided to the public and the outcome of
these services.
• Programmed budget: is the budgeting system that, contrary to conventional budgeting,
describes and gives the detailed costs of every activity or programme that is to be carried
out in a budget. Objectives, outputs and expected results are described fully as are their
necessary resource costs, for example, raw materials, equipment and staff. The sum of all
activities or programmes constitute the Programme Budget.
• Sales budget: an estimate of future sales, often broken down into both units and
currency. It is used to create company sales goals.
A projection of how much a business will generate in profit for the year. This is not
true form of determination for profit margin.
• Production budget : an estimate of the number of units that must be manufactured to
meet the sales goals. The production budget also estimates the various costs involved
with manufacturing those units, including labor and material. Created by product oriented
companies.
CLASSIFICATION OF BUDGET
Classified on the basis of :-
• Coverage of functions – Master & Functional budget.
• Natured and activity covered – Capital & Revenue budget.
• Period of Budget – long term and short term budgets.
• Flexibility adopted – Fixed and flexible budget

MASTER & FUNCTIONAL BUDGET

 • A mastered budget is prepared for the entire organization incorporating the budget of
different functions. e g. When we refer to the annual budget of Govt. of India. It
incorporates the budget out lays of different ministries.
• A functional budget is prepared incorporating a major function and its sub functions since
an organization may have a number of functions, numerous functional budgets are
prepared. E g., production budget, cash budget in an organization.
CAPITAL & REVENUE BUDGET
• An organization activities involve two process. Creating facilities for carrying out
activities and actual performance activities. Creating facilities for carrying out activities
include capital expenditure whole returns accrue over a number of years. For such
activities, capital budget is prepared which is essentially a list of what management
believes to be worth while projects for acquisition of new assets together with the
estimated cost of each project.
• Revenue budget involves the formation of target for a year or so in respect of various
organizational activities such as production, marketing, finance, etc., Thus a revenue
budget includes expenditure and earning for a specific period like one year.
LONG TERM AND SHORT TERM BUDGET
• Many organization integrate their yearly budgets with long term projection of business
activities and along with yearly budget; they prepare budgets for a longer period of 2-3
years. When one budget period is over budgets are prepared for the next year and
subsequent 2-3 years.
• The short term budget is for a year and is divided into a number of periods for effective
implementation. e g. Cash budgets are prepared on yearly basis as well as on monthly or
quarterly basis to facilitate better cash management.
FIXED AND FLEXIBLE BUDGETS
• Generally, organizations prepare budgets which pertain to only certain projected fixed
volume of operations for a year or so such budget are known as fixed or static budgets.
When an organizations volume of business can be predicted with fair amount of
precision, the fixed budget is satisfactory.
• A budget which is designed to change in accordance with the activities of the
organization is known as flexible budget. It considers several level of activity and
assures that labour, material or facilities used in production and hence cost vary with a
known relationship to the actual volume of activity.

TYPES OF BUDGETING
 There are mainly two types of budgeting.
• Performance Budgeting
• Zero base budgeting.
PERFORMANCE BUDGETING
• A performance budgeting is an input/output budget or costs and results budget. It shows
costs matching with operations. Performance budget emphasis on non financial measures
of performance which can be related to financial measures in explaining changes and
deviation from planned performance. Performance measurement are useful for
evaluating past performance and for planning future activities. Performance budgeting,
results into the following.
• It correlates the financial and physical aspects of every programme or activity.
• It improves budget formulation, review and decision making at all levels of the
organization.
• It facilitates better appreciation and review of organizational activities by the top
management.
• It makes possible move effective performance audit.
• It measures progress towards long term objectives.
ZERO BASE BUDGETING
• This was applied for the first time in preparing the divisional budgets of Texas
instruments of the USA in 1971.
• Zero base budget is based on a system where each function, irrespective of the fact
whether it is old or new, must be justified in its entirely each time a new budget is
formulated. It requires each managed to justify his entire budget in detail from scratch
that zero base.
The process of zero base involves four basic steps.
• Identification of decision units,
• Analysis of each decision unit in the context of total decision package.
• Evaluation and ranking of all decision units
• Allocation of resources to each unit based upon.
BENEFITS OF ZERO BASE BUDGETING
• Effective allocation of resources.
• Improvement in productivity and cost effectiveness.
 • Effective means to control costs.
• Eliminator of unnecessary activities.
• Better focus or organizational objectives.
• Saving time of top management.
BUDGET PROCESS
Indian method
• Annual method i.e., annual budget will be made in India.
• Month : Starts from Sep/Oct of current years.
• Made by : Directorate of health and family welfare.

Process:
Review the goals of agency of Hospital.

Review Objectives of existing programme.

Revise the existing programe.

Manpower, capital and operating expenses are computer or each programme, old and
new.

Alternative methods are identified for realizing designated objectives.

Comparison is made to determine which alternative is most cost effective.

Budget is develop.

FUNCTION OF BUDGET IN NURSING

• Identifies the importance of and develops short a long range fiscal plans that reflects unit
needs.
• Articulate and documents units needs effectively to higher administrative levels.
• Assess the internal and external environment of the organization in forecasting to identify
driving forces and barriers of fiscal planning.
• Demonstrate knowledge of budgeting and uses appropriate technique.
• Provide opportunities for subordinates to participate in relevant fiscal planning.
• Co-ordinates unit level fiscal planning to be congruent with organizational goals and
objective.
• Accurately assesses personal needs using predetermined standards or an established
patient classification system.
• Co-ordinates the monitoring aspects of budget control.
• Ensure that documentation of clients need for services in clear and complete for facilitate
organizational reimbursement.

ROLE OF NURSE ADMINISTRATOR IN BUDGETING

• Is visionary in identifying of forecasting short and long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.
• Is knowledgeable about political, social and economic factors that shape fiscal planning
in health care today.
• Demonstrate flexibility in fiscal goals setting in a rapidly changing system.
• Anticipates recognized and actively problems solve budgetary constraints.
• Influences and inspires group members to become active in short and large range fiscal
planning.
• Recognizes when fiscal constraints have resulted in an ability to meet organizational or
unit goals and communicate this insight effectively, allowing the chain of command.
• Ensure that client safely is not jeopardized by cost constraints.
Advantages :
 Maximizing of profit: it helps the organization in increasing profit. The allocation of
resources should be such that it increases profit and decrease expenditure.
 Co-ordination: The major strength of budgeting is that it coordinates activities across
departments.
 Tools for measuring performance: it provides a tool to measure the performance of
top level managers and their capabilities.
 Determining weakness: it helps to determine the sensitive areas and weakness in an
organization.
 Corrective action: Budgets provide a tool for corrective action through allocations.
 Reduces cost: it helps to reduce cost within an organization
 Budgets translate stretegic plans into action. They specify the resources, revenues and
activities required to carry out the strategic plan for coming year.
 Budgets provide an excellent record of organizational activities.
 Budgets improve communication with employees
 Budgets improve resource allocation, because all requests are clarified and justified
 Provide a method of allocating and using resources within the organization
 Help to monitor and control operations
 Promote forward thinking
 Show employees an overall picture of the direction of the organisation which can
motivate staff
 Help to co-ordinate different departments and align them towards shared objectives
 Provide a framework for delegation.

Disadvantages:
 Budgets can demotivate employees because of lack of participation. If the budgets are
arbitrarily imposed top down, employees will not understand the reason for budgeted
expenditures, and will not be committed to them.
 Budgets can cause perceptions of unfairness.
 Budgets can create competition for resources and politics.
 A rigid budget structure reduces initiative and innovation at lower levels, making it
impossible to obtain money for new ideas.
 Budgets can be seen as pressure devices imposed by management, thus resulting
in:
A) Bad labour relations
B) inaccurate record-keeping.
 Departmental conflict arises due to:
A) Disputes over resource allocation
b) Departments blaming each other if targets are not attained.
 It is difficult to reconcile personal/individual and corporate goals.

LIMITATION OF BUDGETING

• Planning, budgeting or forecasting is not an exact science; it uses appropriately and

judgment which may not be 100% accurate. At best a budget is an estimate no one
knows precisely what will happen in the future.
• The success and utility of budgeting depends on the co-operation and participating of all
members of management. All person should direct their effort according to the plan.
Many time budgeting has paid only lip services to its executing.
 • A budget is only a tool and neither eliminates nor takes over the place of management. A
budget cannot be substituted for management but should only be used by management for
accomplishing managerial functions.
• The establishment of a budgeting process takes time. Also sometime too much is
expected from a budget and in case expectation are not fulfilled the blame is put on the
budget. An efficient budgeting programme requires that responsible person should
understand the philosophy, objective and essential of budgeting.
BUDGET PLAN FOR HOSPITAL :

S. Items Previous year Current year Future year

No. 2011-12 2013-14 2014-15
Income Expenditure Income Expenditure Income Expenditure
1. Opening 15,00000 16,00000 17,00000
balance
2. Admission 40,00000 48,00000 50,00000
fees
3. Transport 1,50000 1,80000 2,00000
services
4. Medical 10,00000 12,00000 12,00000
equipments
5. Funds 10,00000 11,00000 11,00000
6. Pharmacy 11,00000 12,00000 12,25000
7. Salaries 20,00000 20,00000 22,00000
8. Provident 9,00000 9,00000 10,00000
funds
9. Maintenance 3,00000 3,00000 3,00000
10. Tax 9,00000 10,00000 9,00000
11. Laboratories 5,00000 5,00000 6,00000
12. Miscellaneous 6,00000 7,00000 8,00000
Total 87,00000 52,00000 100,8000 55,00000 104,25,0 58,00000
0 00

Balance Sheet:

S. Balance Sheet 2010-11 2012-13 2013-14

No.
1. Income 87,00000 100,80000 104,25000
2. Expenditure 52,00000 55,00000 58,00000

Balance amount: 35,00000 45,00000 46,00000

REFERENCES:
 Neelam Kumari, Madhu Sharma. Text book of Nursing Service & Adminstration.
published by P.V Books Edition 1st (2011)Pp 319-333
 Ann Boyle Grant .Nursing Leadership Management & Research Published by
Springhouse Notes. Edition 1st Pp 92
 Wolper F. Lawrence, “Health Care Administration”, edition 3 rd , published by Jones and
Barlett, Pp20-21
 Kapoor Renu, “Textbook of Health Economics for nurses”, published by Lotus
Publishers, Edition 1st (September 2009), Page number 25 – 34.
 INDEX

[Link] CONTENT PAGE NO.

1. Meaning & Definitions of Budget 1
2. Purpose of Budget 1
3. Features and Importance of Budget 1-2
4. Principles of Budget 2
5. Types of Budget 2-3
6. Classification of Budget 3-4
7. Types of Budgeting 5-6
8. Budget Process 6
9. Functions of Budget 7
10. Role of Nurse Administrator in Budgeting 7-8
11. Limitation of Budgeting 8-9
12. Budget Plan for Hospital 9
13. References 10
MHR DAV INSTITUTE OF
NURSING
JALANDHAR
Nursing Management
Assignment
Topic: budget plan for hospital

Submitted To Submitted By
Respected Mrs. Monika Mam Ms. Pawanpreet Josan
Lecturer Mental Health Nursing Roll No. - 04
MHR DAV Institute of Nursing, Jalandhar [Link]. Nursing 2nd Year

Submitted on:-20- 01 -2014